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This time, the Vancouver real estate industry was not surprised.
Previous interest rate hike sent a ‘shock wave’ through the industry, says Kevin O’Toole, running back manager a Sotheby’s International Realty Canada. But the Bank of Canada latest rate hike this month, reaching 3.25% for its overnight loan rate and raising the prime rate to 5.45%, it hit a cooling market and is already bracing for more.
“It doesn’t mean we necessarily like it, but our expectations, based on messages and forecasts from various economists, et cetera, were that it would take it to that level,” says O’Toole. “He would have pleasantly surprised us if he had been shorter. But he didn’t surprise us based on everything we’ve heard.”
Short-term business, long-term challenges
Vancouver developers have described a “nightmare” scenario in terms of bringing new offerings to market. As for buying and selling, O’Toole says there are a variety of short-term and long-term impacts from the latest surge.
“I would say the short-term impact would be for some of the buyers who were sitting on the fence, but who were [able] to secure a 90-day rate freeze with their mortgage providers, which would give them some certainty if they had to complete within the next 90 days,” he says. “So it probably pushed some people to buy.”
More broadly, prospective buyers who are already in financial trouble are now more likely to be pushed out altogether, O’Toole says, especially since they have to qualify for even higher rates with the mortgage stress test. Owning a home 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, probably won’t be affected as much, O’Toole adds.
It’s not a buyer’s market, yet
The Vancouver market is slow right now, or “incredibly slow” compared to the pandemic frenzy, O’Toole notes. According to figures from the Real Estate Board of Greater Vancouver (REBGV), before the latest rate hike, August 2022 sales fell nearly 30 percent compared to the August 10-year average. Compared to August of last year, that’s a 40 percent drop.
It’s too early to call a buyer’s market, O’Toole says, but it’s becoming more possible.
“It’s more of a balanced market right now,” he says. “Will it stay in that balanced territory? Or will it move to a buyer’s market? That remains to be seen, and there are some signs that show it in some segments of the market.
With slower sales, listings pile up and stay on the market, and O’Toole says some listed prices don’t keep up with reality. He heard an American real estate agent sum it up perfectly.
“’Sellers are in the mindset of six months ago, buyers are in the mindset of six months from now,’ and I quite liked that phrase,” says O’Toole. “It’s hard to accept that the market can change very quickly.”
‘Cooling period’ in a fresh market
Looking ahead, British Columbia has another big move on the horizon.
the Homebuyer Rescission Period (HBPP), which is expected to launch in January across the province, with specific details yet to be seen, will allow buyers to back out of a purchase agreement within a certain period of time. Without that “cooling off period,” a buyer who walks out of a deal would typically be hit with significant financial and legal penalties.
O’Toole expects the HBPP to slow the market again and questions the logic in today’s reality.
“[The HBPP] it could potentially skew the market towards something much harder to predict,” he says. “It was meant to cool the market, right? But it’s already cool. Therefore, it may be more difficult to transact for those who need to transact; I’m not talking about the real estate community, I’m talking about real home buyers and sellers. If you’re a home seller, chances are you’re also a home buyer.”
However, January seems a million years away, considering how quickly the market has changed in recent years and in recent months.
“There are still a lot of unknowns,” says O’Toole.
This article was produced in collaboration with FLOORS Personalized study.
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