B.C. real estate expert questions projected fall in prices

A B.C. real estate expert is downplaying a possible decline in average home prices nationally by the end of next year.

It follows a report from Desjardins, which suggested prices across Canada will decline by nearly 25 per cent from the peak reached in February of this year.

While he’s not ruling out the possibility that the prediction could play out, UBC professor Tom Davidoff says there are a lot factors at play, so there’s no guarantee.

“I think it’s possible if interest rates stay where they are for the remainder of 2022 and 2023, then I think a 25-per-cent-price decline wouldn’t be unexpected. We’re in a very different interest rate world than we were when prices were increasing so dramatically. However, I’m not convinced interest rates will stay so elevated. That remains to be seen,” Davidoff told OMNI News.

The Bank of Canada raised its key interest rate by a full percentage point in July, pushing up borrowing rates linked to mortgages. Further increases are expected this year as the central bank tries to manage inflation.

Davidoff notes what’s happening right now in the local market is what he calls a “bid-ask spread” between buyers and sellers.

“Sellers — if you didn’t want to sell a year ago when prices were very high and there was a lot of action, you probably don’t want to sell today at a price lower than where the market was. On the other hand, buyers face interest costs that are up to triple what they were about a year ago. So what sellers want for their property versus what buyers are willing to pay can be very different, and realtors have the challenge of trying to match the two sides,” Davidoff explained.

In its latest residential real estate outlook, published Thursday, Desjardins says fundamentals eroded faster than expected. It said it was expecting a sharp correction in the housing market, adjusting its previous forecast, which was expecting a 15 per cent decline by the end of 2023.

Desjardins says the worsened outlook stems from both weaker housing data and more aggressive monetary policy than previously anticipated.

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Davidoff points out prices in Metro Vancouver haven’t fallen yet, though that will likely happen as sellers increasingly realize they’re asking for too much.

“Prices are up year-over-year, I think they’re starting to come down on a monthly basis. Again, the issue is transactions usually dry up before you see price declines,” he explained.

“What would be common is somebody lists their house, the realtor says, ‘you’re asking for $2.5 million, I think it’ll only sell for $2.1 million.’ They say, ‘no, I don’t believe you.’ Nobody buys the house for a few months and, eventually, they start to come down on the price.”

In the short-term, Davidoff says we’ll likely continue to see much of the same in the local market.

“Of course, the future is hard to know. My best guess is we’ll see continued price declines and low transaction volume for the next few months, but what happens going forward really depends on a lot of factors,” he added.

“Hopefully, the war in Ukraine ends and Putin gets his comeuppance. That would really calm down inflation, I think, because of the problems that’s created. Otherwise, gas prices are already down so hopefully inflation is under control. We just got a good report from the U.S. If that continues then I think the price declines could be pretty moderate and we’ll see transactions pick up, probably, within a year.”

In its update Thursday, the BC Real Estate Association (BCREA) said home sales fell 42.4 per cent in July compared to the same time last year.

“High mortgage rates continued to lower sales activity in July,” said BCREA chief economist Brendon Ogmundson. “Many regions around the province have seen sales slip to levels well below normal for this time of year.”

The associated noted that inventory has been accumulating, though supply still remains on the lower side.

According to the BCREA, active listings province-wide rose 28 per cent in July year-over-year.

-With files from The Canadian Press