This week has brought significant developments to the Vancouver real estate market, with major changes both locally and internationally that are poised to impact buyers and sellers alike. The Federal Reserve held its key interest rate steady, but signaled potential rate cuts as early as September due to a cooling job market and easing inflation.

This announcement, coupled with disappointing U.S. job growth and a rising unemployment rate, has led to market volatility. The Sahm Rule, which predicts a recession when the unemployment rate rises by 0.5 percentage points within a year, has been triggered, adding to fears of an economic downturn. As a result, markets are now pricing in U.S. rate cuts below 4% over the next 12 months, which could open the door for similar or more aggressive reductions in Canada in 2024.

Locally, the B.C. government’s abrupt reversal of newly enacted tenancy laws has caused further uncertainty, broken trust and further aggravated landlord/tenant relationships. Originally, the law extended the notice period for vacating tenanted properties from two to four months, but widespread backlash from the real estate industry & the general public prompted a quick amendment to three months.

Adding to the complexity, the Federal government introduced 30-year amortizations for first-time home buyers (FTHB) on August 1, with the intention of making homeownership more affordable. However, while monthly payments might be lower, the total interest paid over the life of the mortgage will be higher, effectively increasing costs for buyers.

This policy, like previous initiatives, appears to have been implemented with little consultation and may benefit Banks more than homebuyers - or anyone for that matter. The impact on the market remains to be seen, but it is clear that such measures are more about political optics than providing meaningful relief.

At the same time, Canadians are grappling with an increasingly burdensome tax environment, with 47% of income now going toward taxes—more than what is spent on shelter, food, and clothing combined. This high tax burden makes it difficult for many to save for a down payment or enter the housing market, exacerbating the challenges facing potential homebuyers.

The latest real estate statistics for July indicate a softening market in Vancouver. Average home prices dropped by $60,000, and total sales were 5% below both the previous month and the same time last year, marking the third consecutive month of declining sales. The market appears to be grinding to a halt, with buyers hesitating due to high costs and economic uncertainty.

New listings also decreased for the third month in a row, although overall inventory remains high, particularly for detached homes, which are now at a five-year high.

Overall, the Vancouver real estate market is entering a more conservative phase, characterized by slowing sales, high inventory, and softening prices. With economic uncertainty and a high cost of living, many potential buyers are holding off, waiting for clearer signs of stability or more favorable conditions. As the market adjusts to these recent developments, both buyers and sellers will need to navigate a complex and rapidly changing landscape.

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Contact Us To Book Your Private Consultation:

📆 https://calendly.com/thevancouverlife

Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

The economic landscape in both the US and Canada is showing significant shifts that have important implications for homeowners, the housing market, and the broader economy. Recently, the Bank of Canada (BoC) made a notable move by cutting interest rates by 0.25%, hinting at further cuts to come. This action aligns with market expectations, with a cumulative 0.5% cut so far and forward guidance pointing to an additional 0.50% reduction, potentially ending 2024 at a 4% rate. This decrease from 5% to 4% has offered some relief to variable mortgage rate holders. For instance, a $500,000 mortgage would see monthly payments drop from $2,684 to $2,387, a substantial annual saving of $3,600 or about 12%.

In the United States, inflation has eased from 3.3% to 3%, primarily due to lower consumer spending, raising the likelihood of a rate cut in September by 85.7%. The Federal Reserve has maintained a 5.5% rate for 12 months, a full 100 basis points higher than Canada’s current rate. As both countries trend towards lower inflation, the sentiment grows that inflation is under control, with a path to 2% inflation expected within a year, accompanied by gradual rate cuts potentially ending at 3% by late 2025.

However, the housing market’s health is nuanced. While mortgage originations are increasing, signaling a potential recovery, several key metrics still require careful consideration. In Canada, rental market dynamics are shifting significantly. The recent CPI print showed an 8.5% year-over-year increase in rent, though the month-over-month increase was the lowest in two years, influenced by a record number of rental completions. There are currently 140,000 rental units in the construction pipeline, expected to add 6% more rental stock nationally and 15% in British Columbia over the next two years. This surge in supply might alleviate high rental rates, but challenges persist as private investors shy away from rental investments due to new policies. For instance, Bosa recently halted two purpose-built rental towers due to financial unfeasibility driven by new amenity cost charges and revised development cost charges.

Housing starts have been declining steadily for three years, with new starts down 9% nationally in June to 241,000, below expectations of 255,000. Building permit applications also dropped 12% in May, indicating potential future supply constraints. In British Columbia, permits fell 53% month-over-month, partly due to a rush to secure favorable CMHC financing before regulatory changes.

Despite these challenges, there are signs of stabilization. Mortgage originations rose 0.3% month-over-month in May, with annual growth at 3.5%, suggesting a potential bottoming out in late 2023. Predicted future rate cuts could further support this recovery over the next 18 months. Fixed-rate mortgages, particularly 3 and 4-year terms, dominate new loans, accounting for 55% of all new mortgages.

As we approach the end of the month, preliminary sales data shows a balanced market for the second consecutive month, with slight declines in median and average home prices. Inventory levels and sales figures are stabilizing, indicating a cautiously optimistic outlook for the housing market. However, the overall economic environment remains complex, requiring ongoing monitoring of key metrics and trends.

_________________________________

Contact Us To Book Your Private Consultation:

📆 https://calendly.com/thevancouverlife

Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com

In June, inflation unexpectedly dropped from 2.9% to 2.7%, surpassing expectations of 2.8%. Despite this decrease, the shelter cost index remains a significant driver of inflation, with a current increase rate of 6.2%, compared to 4.8% last year. Mortgage interest costs surged by 22%, and rent has increased by 8.8%, marking the highest rise since March 1983. However, excluding shelter costs, consumer prices only rose by 1.3%.

This better-than-expected inflation report led to market predictions of a 90% chance of a rate cut at the upcoming Bank of Canada (BOC) meeting. With employment at 22-year low and business insolvencies rising, a 0.25% rate cut seems likely, potentially bringing the current rate of 4.5% down, which we hope is still high enough to exert downward pressure on inflation. The impact on the housing market remains uncertain; another rate cut might increase the number of sellers, although buyers seem to remain on the sidelines.

Retail sales data also supports the likelihood of a rate cut. Retail sales fell by 0.8% month-over-month, and excluding volatile items, they dropped by 1.4%. In 2024, retail sales increased in only one month and have been flat since 2022, despite a 6% increase in the population. This stagnation suggests that Canadian consumers are financially stretched, likely due to high mortgage payments.

Housing starts provide further context to the economic challenges. In April, Prime Minister Trudeau promised to build 3.87 million homes by 2031. However, housing starts fell by 9% month-over-month in June and are down 14% from the same month last year. To meet Trudeau's target, housing starts would need to double from last year’s levels, but they are currently 114% below the required mark. The situation is particularly dire in British Columbia, where starts fell by 12% and are 38% below June 2023 levels. In Toronto, new condo sales, a leading indicator for housing starts, are at their lowest since 1997.

This decline contradicts the government's promises, with little incentive for builders to increase housing supply due to rising taxes, fees, and restricted access to affordable credit. The government's efforts have only expanded the size of the government by 42% since 2015, without noticeable improvements in efficiency.

The Prime Minister and parts of his cabinet have also been flirting with the idea of a primary home equity tax with a government-funded think tank, Generation Squeeze. This proposed tax aims to address housing inequity by adding a surtax on homes valued over $1 million, supposedly affecting only the top 12% of high-value homes. Critics argue this approach is politically motivated and overlooks the real issues driving housing prices, such as immigration, development costs, and availability of credit - plus in markets where the average house price exceeds $1mil are many.

Market updates indicate that housing prices fell in June for the first time in 2024 and are expected to drop further in July. As of July 29th, average prices were down by $68,000, and median prices by $10,000. Sales volumes are slightly lower than last year, indicating a slow market. The rest of the summer is expected to see a gradual decline, with potential market stimulation in the fall if there is a third rate cut and an increase in inventory.

Overall, the Canadian economy is facing significant challenges with inflation, housing,

_________________________________

Contact Us To Book Your Private Consultation:

📆 https://calendly.com/thevancouverlife

Dan Wurtele, PREC, REIA

604.809.0834

dan@thevancouverlife.com

Ryan Dash PREC

778.898.0089
ryan@thevancouverlife.com

www.thevancouverlife.com