According to a new BMO Economics report, slow sales, oversupply of condos and continued decline in home prices could lead to a correction in the Vancouver housing market in the near future.
Sal Guatieri, senior economist, BMO Capital Markets, said, "The sizzle is coming off the Vancouver housing market. Resales were down 13.2% year-over-year in April to below normal levels, led by detached properties in the pricey west side.
"Sales are down about 20% in the first four months of the year from the same period last year."
Guatieri also noted that rich valuations – with the typical detached home running above $1 million – and tighter lending standards have curbed demand.
Moreover, foreign wealth, considered one of the drivers of high-end sales, could be moving to "less expensive" cities such as Toronto.
The report noted that softer demand, coupled with a rising supply of condos, means sellers no longer have the upper hand and price growth has moderated.
"Buyers are starting to regain control over pricing," continued Guatieri.
According to the report, new homes under construction surged 22% year-over-year in March to well-above-normal levels, and are running about 4,000 units faster than annual household formations, suggesting some overbuilding.
This increase is led by condos, up 28%, which account for three-quarters of new construction
The report found the number of newly completed and unoccupied detached homes is normal but the supply of multiple-unit housing is at a 12-year high.
In the resale market, active listings jumped 16% year-over-year in April, while new listings rose 3.6% and remain moderately above long-term norms relative to sales.
Guatieri concluded that, because of poor affordability, prices should decline in coming years. While condos remain affordable, the typical house is not, and would become even costlier if interest rates were to rise.
"A price decline would depend on the direction of interest rates and the desire of immigrants and foreign investors to buy into one of the costliest markets in the world."
