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This time, the Vancouver real estate industry was not surprised.
The previous rate hike sent a “shockwave” through the industry, says Kevin O’Toole, managing broker at Sotheby’s International Realty Canada. But the Bank of Canada’s latest rate hike this month – hitting 3.25% for its overnight lending rate and taking the peak to 5.45% – hit a cooling market already set for more.
“That doesn’t mean we necessarily like it, but our expectations – based on news and forecasts from various economists etc. – were that they would take it to that level,” says O’Toole. “We would have been pleasantly surprised if it had been lower. But from what we’ve heard, we weren’t surprised.”
Short-term sales activity, long-term challenges
The Vancouver developers have described a “nightmare” scenario in terms of launching new offerings. As for buying and selling, O’Toole says there are a variety of short- and long-term implications from the recent surge.
“I would say the short-term impact would be for some of the buyers who were on the fence, but it was [able] agreeing with their mortgage lenders on a 90-day rate freeze, which would give them some certainty if they finalized within the next 90 days,” he says. “So it probably pushed a few people to buy.”
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More broadly, potential buyers who are already financially squeezed are more likely to be completely squeezed out, O’Toole says, especially as they have to qualify for even higher interest rates in the mortgage stress test. Homeownership in Metro Vancouver has become more difficult for ordinary people, and as a result, sellers will see their home prices drop, especially in the sub-$2 million market.
Meanwhile, the luxury market — both buyers and sellers — isn’t likely to be as badly affected, O’Toole adds.
No buyers market yet
The Vancouver market is slow right now — or “incredibly slow” compared to the pandemic madness, O’Toole points out. According to figures from the Real Estate Board of Greater Vancouver (REBGV), sales in August 2022 were down almost 30 percent compared to the August 10-year average before the last rate hike. That’s a 40 percent drop from August last year.
It’s too early to call a buyer’s market, O’Toole says, but it’s becoming increasingly possible.
“Right now it’s more of a balanced market,” he says. “Will it stay in this balanced range? Or is it moving to a buyer’s market? That remains to be seen – and there are some signs of it in some market segments.”
With slower sales, offers accumulate and linger in the market, and O’Toole says some listed prices aren’t keeping up with reality. He heard a US broker sum it up perfectly.
“‘Sellers are in the mindset six months ago, buyers are in the mindset six months from now’ — and I really liked that phrase,” says O’Toole. “It’s hard to accept that the market can change very quickly.”
‘Cooling-off period’ in a cool market
Looking ahead, British Columbia has another big step on the horizon.
The Homebuyer’s Cancellation Period (HBPP) – which is expected to roll out across the province in January, with specific details yet to be announced – will allow buyers to withdraw from a purchase agreement within a specified time. Without such a “cooling off” period, a buyer who exits a deal would typically face significant financial and legal penalties.
O’Toole expects the HBPP to slow the market again and questions the reasons in today’s reality.
“[The HBPP] could potentially skew the market in a much more difficult-to-predict direction,” he says. “It should cool down the market, right? But it’s already cooled down. So it potentially complicates transactions for those who need transactions – I don’t mean the real estate industry, I mean the actual home sellers and home buyers. If you’re a home seller, chances are you’re also a home buyer.”
However, January feels like a million years away given how quickly the market has changed over the past few years — and months.
“There are still a lot of unknowns,” says O’Toole.
This article was created in collaboration with STOREY’S Custom Studio.
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