MNI INTERVIEW:Vancouver Housing Revives After BOC Hit-Realtors

Bank of Canada hikes including last July's shock 100bp move were just a temporary chill for Vancouver homebuyers, who only needed to see mortgage rates stabilize before pressing ahead with purchases in what remains a market with tight supply, the top economist at the city's realtor group told MNI.

"A lot of people have adjusted to the fact that rates are going to be what they are for the foreseeable future,” Andrew Lis, director of economics and data analytics at the Real Estate Board of Greater Vancouver. He spoke Wednesday after the group reported sales jumped 29% in July from a year ago, the kind of resilient demand that pushed officials to resume hiking again in June after signaling a pause early this year.

Many buyers appear to have "accepted" higher mortgage costs, which Lis says surprised him and most other observers who expected higher rates to drag down housing demand. Statistics Canada's latest inflation report showed mortgage interest costs up 30% in the 12 months through June.

“If you can afford it, and it works with your budget, that’s where you’re seeing transactions happen, and that’s the really interesting thing, is despite rates being where they are, you’re seeing quite a few transactions in our market," he said.

The BOC has raised rates 10 times in this cycle from a record low 0.25%, and last month took the benchmark to the highest since 2001 at 5%. The rate hike in July of last year was the biggest since 1998 and came as inflation was peaking around 8%.

HARD MEDICINE TO GIVE

While Vancouver home sales dropped as much as 50% year over year during the Bank's tightening cycle, recent gains point to the longer-term mix of hungry buyers and limited supply. “We have sales, they are relatively strong all things considered, and when you pair that up with just far too little inventory for all the people who would like to purchase, you’re getting the price increases that we are seeing,” Lis said.

Home prices slipped for a while but regained momentum when the Bank signaled a pause early this year, reviving fears about affordability. Vancouver's average benchmark price across all types of homes is CAD1.21 million in a nation where many families make less than CAD100,000 a year. (See: MNI INTERVIEW: FOMO Trumps BOC In Housing Market- Royal LePage) For detached homes, prices have climbed 1.1% from a year ago to CAD2.01 million and have about doubled from a decade ago.

Canada's housing boom is often measured by the speed of prices rises in Vancouver and Toronto, though gains have spread nationwide since the pandemic led many people to work remotely. The national market labeled by the IMF as one of the world's most stretched still appears stable, according to Lis, who noted that 40% of homeowners have no mortgage to pay off and that a large chunk of borrowers have paid off a substantial part of their debts.

While the Bank may also be surprised by recent housing strength, officials have done a good job through some difficult years, he said. “They were aware that many people with mortgages were stress tested before purchasing. So they are probably quite aware of where of the upper bounds are of how much they can hike rates and avoid very serious issues that relate to default and things like that in our housing market,” Lis said.

“Sometimes there’s some hard medicine to give,” he said. “That’s where we’re at right now.”