Vancouver’s real estate market has witnessed years of uncertainty, and my prediction is that this will not change anytime soon. Rising interest rates and the increasing cost of construction are set to reshape the market.
This shift may lead to lower prices and a slower growth rate, providing an opportunity for buyers who have previously been priced out.
The sky-high real estate prices Vancouver has seen may soon taper off. There’s a high likelihood we’ll witness a significant market slowdown. Increasing interest rates are likely to deter potential buyers, making it less profitable for investors to flip properties quickly. Plus, there is the new property flipping tax in BC.
Bidding on new Vancouver properties
I predict that construction costs will continue their upward trend. While this often leads to higher prices, it might actually cause a slowdown in Vancouver’s real estate market. Builders might find it less appealing to bid on new properties.
Despite this, Vancouver’s intrinsic value should remain unscathed. Its thriving economy, combined with its desirability as a living destination, will continue to drive demand. Even if prices drop and growth slows, people will still want to live in Vancouver. As such, a complete market crash is highly unlikely.
For first-time buyers and those seeking to upgrade, the possible downturn could offer an advantageous entry point. Slowing price increases and reduced competition may grant opportunities for buyers who’ve been sidelined by soaring prices. A shift towards a buyers’ market might provide more leverage in negotiations, securing better deals.
Hold onto properties for longer
As property prices stabilize and fewer investors opt for quick sales, we might see a boost in the rental market. Lower prices might enable more owners to hold onto properties for longer, leading to an increased supply of rental properties. This could, in turn, stabilize rental prices, benefiting those unable to buy.
Jova Xu, a Vancouver Realtor, told me that for existing homeowners this potential market transformation might be less rosy. Homeowners banking on continuous rapid price increases may need to reassess their expectations.
Lower market growth doesn’t necessarily mean a decrease in property value, but it could mean slower equity growth. Vancouver home owners might need to get used to an ROI of 5% instead of 12% on their property investments.
The shifts in Vancouver’s real estate market will likely have a ripple effect. Other sectors, such as construction and property management, will have to adjust to new market dynamics. Vancouver’s overall economy could see changes as the real estate sector’s impact diminishes.
Residential and rental properties
Vancouver’s real estate scene has remained dynamic over the years, with the pandemic hardly denting demand for residential or rental properties, and similarly for non-traditional spaces like industrial warehouses.
The projected downturns were fleeting, trivial, or only affected specific geographical regions or asset classes, for instance, office spaces.
2022 ushered in a new reality as we witnessed a significant rise in interest rates, coupled with inflation rates that harked back to the 1980s. This, alongside growing environmental consciousness, has posed fresh challenges and opportunities for the real estate market.
There’s visible evidence of halted construction projects and reluctance amongst individuals to buy or sell homes due to economic uncertainties. But Vancouver continues to draw in people with the beautiful North Shore mountains, further straining the already limited rental housing resources.
Immigration to Vancouver
The rise in immigration and the fall of real estate options are not recent phenomena. CIBC has recently suggested that the number of new permanent and temporary settlers in 2023 might surpass a million, a figure higher than previously assumed.
This underlines the urgent need for the real estate sector to boldly and patiently invest in long-term solutions, fostering growth for 2023 and beyond.
The industry faces a multitude of hurdles. Slow municipal approval processes, difficulties in acquiring necessary permits, skyrocketing material and labor costs are just a few examples. The latest issues include rising interest rates, inflation, and supply chain disruptions.
Surge in construction costs
Data from Statistics Canada reveals that residential building costs rose by 22.6% on a yearly basis in 2023’s first quarter. The surge in construction costs was sustained into the second quarter of that year. A labour shortage exacerbates these problems.
The same source also highlighted a record number of construction job vacancies in 2022’s first quarter, twice the number from the same period in 2020. Construction wages also rose by 6.6% in the first quarter of 2022, compared to 2021. All these factors have made completing construction projects within time and budget constraints more challenging than ever.
This market stagnation could be a chance to seek solutions. Mass timber, for instance, could help expedite construction projects while also contributing to sustainability efforts.
Vancouver’s real estate market
In the face of uncertainty, Vancouver’s real estate market holds resilience. Though the specter of change looms, potential downsides might be offset by the benefits for first-time buyers and the rental market. As the dust settles, we may find a market more balanced, less frenzied, and ultimately healthier for all parties involved.
While we must remain aware of the challenges, the city’s real estate future looks brighter than ever. Uncertainty can breed opportunity, and for Vancouver’s real estate market, this moment of change could be just what’s needed to spur a new era of affordability and accessibility.
One thing is for sure, Vancouver’s real estate market won’t be the same. And maybe, that’s a good thing.