BC's off-balance current market conditions are especially sensitive
The number of home sales in British Columbia will likely decline and home price growth will likely moderate due to rising interest rates, according to the British Columbia Real Estate Association.
“In the past, Bank of Canada tightening has usually led to falling home sales and flattening home prices, so it wouldn’t be a surprise to see the same happening in the upcoming round of tightening,” said Brendon Ogmundson, chief economist at the BCREA.
British Columbia set a new record for home sales last year with 124,854 residential unit sales, up by 32.8% from 2020 levels.
Read more: Year-to-date sales already above 2020’s full-year results – CREA
Current market conditions are off-balance to the point that only a “substantial decline” in demand will return active listings to a sustainable level, Ogmundson said.
“Model simulations show that the most likely outcome of this round of Bank of Canada tightening will be home sales falling to near their historical averages and for home price growth to moderate, but because of severely low supply, it is unlikely to result in significant home price declines,” Ogmundson said. “The tempered impact on prices from future rate tightening is entirely the result of the starting point of record low active listings. Even with a significant drop in home sales, it will take a substantial period to rebuild existing home inventories.”
However, while RBC’s simulations show only a minimal impact on home prices in the first two years following the BoC’s first overnight rate hike, “in the worst-case scenario with high and persistent inflation, we would likely see stronger impacts on prices beyond the 24-month time horizon,” RBC said. “In our model, the mechanism for this to occur is a heavy decline in home sales that prompts a significant build-up of re-sale listings.”
