Home prices continued to spiral higher in January as overzealous buyers and a low supply environment drove further gains.
The average Multiple Listing Service price in B.C. shot up to a record $1.049 million, up three per cent from December and a mammoth 23 per cent year over year.
While average values are influenced by composition and regional shifts, quality-adjusted benchmark values showed similar patterns. The Lower Mainland benchmark rose 2.9 per cent from December, Vancouver Island came in at 2.6 per cent with a slightly smaller gain in Victoria, Chilliwack increased 4.5 per cent and the Thompson-Okanagan was close to two per cent. Detached price growth continues to dominate.
With the average value up more than 40 per cent since the pandemic began and still rising, there is reasonable concern of excess froth. Demand is indeed robust, and households are enamoured with owning, driving acceleration of home sales by a gain of six per cent in January to 10,201 units, marking an eight-month high due to work-from-home, demand for space, urban outflow and of course low mortgage rates. However, the recent surge may reflect some irrational behaviour as end-use buyers and investors chase past price appreciation while racing against the clock to execute lower pre-approved mortgage rates.
Lack of supply has only reinforced upward price momentum. Buyers are competing for scant listings in the market, driving seller’s market conditions in nearly all areas of the province. That said, we continue to see this as demand-driven scarcity of inventory as new listings are generally in line with pre-pandemic levels.
While the pricing frenzy will likely continue for a few more months, we see the market cooling thereafter. Buyers are grappling with massive affordability challenges given price increases and the full effect of higher interest rates will soon curtail both end-user and speculative demand to help cool market conditions.
Retail spending closed off 2021 on a lower note in December but ahead of expectations. Sales at B.C. stores fell 1.4 per cent from November to a seasonally adjusted $8.12 billion. Year-over-year sales came in at 3.3 per cent. As with other provinces, spread of the Omicron variant likely hurt consumer confidence and spending, while rotation of office workers back to remote conditions and additional restrictions likely affected ancillary spending.•
Bryan Yu is chief economist at Central 1 Credit Union.
