Robust housing market conditions continued in May, but buyer fatigue has set in amidst massive price gains and a severe undersupply of units for sale.
B.C. MLS home sales declined for a second straight month, dropping 8.8% from April to a seasonally adjusted 10,762 units. This marks a 22% decline from the March peak and the fewest sales since November. That said, unadjusted sales were still the second highest on record for a May, trailing only 2016 by 6%.
Fewer sales were recorded throughout the province. Vancouver Island sales fell 13%, while real estate boards in the Thompson-Okanagan fell 14% and Kootenay sales fell 18%. Lower Mainland-Southwest declines were relatively modest at 7%. This synchronized pullback likely reflects a combination of factors.
Rapid price growth in both large and smaller markets and bottoming of mortgage rates has sharply eroded affordability and pushed more buyers to the sideline. Meanwhile, pandemic demand drivers may also be softening, as pull forward demand from some households is satiated and rapid vaccine rollouts have more households assessing work-from-home arrangements by their employers.
B.C.’s average price fell 2.7% from April to $900,980. While this is the lowest since February, this was 25% or $189,800 higher than a year ago. It is likely that sales composition played a role in the dip, with buyers shying away from the highest priced homes. Consistent with exceptionally low inventory, benchmark indices growth, which controlling for housing attributes, remained positive. The benchmark rose 1.8% in the Lower Mainland-Southwest and increased 2.3% in the Okanagan – still hefty but below prior months. Vancouver Island trends remained strong at a 2.5-4% growth pace.
Further sales declines and flattening of prices are forecast in the latter half of this year. Affordability erosion will continue to slow sales, while the continued recuperation from the pandemic will continue to temper pandemic-driven demand.
B.C. consumer price inflation decelerated in May despite higher national inflation. Year-over-year growth in the consumer price index (CPI) fell to 2.7% in May from 3.0% in April. National inflation rose to a 10-year high of 3.6% from 3.4% in April.
Lower headline inflation in B.C. reflected negligible price growth from April with the CPI down 0.1% month-over-month, compared with a 0.5% national increase. The gap reflected shelter costs, particularly homeowner replacement costs, which slipped 0.4% from April in B.C. but rose 2% nationally. Nevertheless, B.C. homeownership costs were up a hefty 4.7% as replacement costs surged. In contrast, renters continue to see only modest gains in costs with the rental index up 1.5% year-over-year as rent freezes during the pandemic have limited increases.
Food prices accelerated to a 12-month gain of 1.7% from 1.3% in April, led by a 2.3% increase in restaurant prices. Clothing and footwear price growth accelerated to a 4.4% year-over-year pace from 2.7%. Gasoline prices, while 38% higher than a year ago, continued to decelerate and dampen headline inflation, while public transportation costs fell 1.6%. •
Bryan Yu is chief economist at Central 1 Credit Union.
