At 2.6% in March, British Columbia’s annual inflation rate doesn’t bode well for prospective home buyers in the Vancouver area
At 2.6% in March, British Columbia’s annual inflation rate doesn’t bode well for prospective home buyers in the Vancouver area.
“It’s a bit of a lagging indicator from the various pressures that have been put on interest rates, so it’s adding additional headwinds to the market, which has already seen a significant decrease in activity, primarily because of interest rates and the stress test, but also because of provincial and municipal government intervention,” said Sotheby’s International Realty Canada’s President and CEO Brad Henderson.
Property owners, however, welcome inflation.
“Inflation is somewhat positive to actual home values because as general prices rise, real estate can be caught up in that sweep,” continued Henderson. “One of the things driving up inflation is mortgage rates, and it’s a catch-22 because when rates go up homes become more expensive, but inflation is good for real estate over the long haul.”
Stanley Dee, president and CEO of Deecorp Properties, a Vancouver-based development company, noted that the interest rate is tied to inflation and that could make down payments even more cumbersome than they already are in the city.
“For a lot of people who have limited means for down payments, it makes it cost-prohibitive,” he said. “As inflation rates go up, interest rates go up and you need a bigger down payment.”
The Real Estate Board of Greater Vancouver reported that the 1,727 sales in March are a 33-year low, but the benchmark price for all residential types in Vancouver is still $1,011,200.
Dee takes issue with government policies that were intended to make housing more affordable; he says it’s taken the wind out of the luxury market but negligibly reduced affordability woes.
“Affordability has become a serious issue here in Vancouver,” said Dee. “What’s quite interesting is these government policies to make affordability less of an issue haven’t worked. It’s had a big impact on the luxury market, but not the affordable market.”
With Wednesday’s interest rate announcement looming, prospective buyers’ nerves might be frayed, although the consensus is that, while rates may indeed climb, they won’t next week.
“I don’t think—and this is the consensus—there will be a rate hike,” said Henderson. “Not that the Bank of Canada has to follow the Federal Reserve, but to the extent that the Federal reserve toes the line, the Bank of Canada will do the same thing because its concern is that it’s taken longer than it hoped for the housing market to adjust positively. It hasn’t been as soft of a landing as the Bank hoped, but it is a landing of sorts and they will take a measured approach to any consideration around interest rates.”