Resale Market

 The resale market has weakened, similar to the market back in 2011 to 2014. With the population growing, the housing market should see an upward trend over time. On this basis, sales should be approximately 6-7% higher than it was 5 years ago. The strong employment situation should be a positive for housing activity. However, home buying is being depressed by higher interest rates, mortgage stress tests and government regulations.

Regarding the housing prices, the average price growth was moderated, which saw a rise of 2.2% during the past 12 months. The Sales to New Listings Ratio (SNLR) has fallen sharply to an average of 51% over the past 6 months. This is however still slightly above the threshold of 47% for a “balanced market”, the level at which prices are expected to rise by 2% per year. At this current level of the SNLR, the prices should rise at moderate rates, however there are large variations across the province.

Housing Starts

 Housing starts follow the trends from the resale market, however with a lag. It appeared that the trends from starts began to fall, although from a position of considerable strength. Single family homes, semi-detached and town homes react more rapidly than apartments and this trend is clearly now on a decline. However, for apartments, this process takes longer which might now be at a turning point.

Employment Trends

 The employment data has shown an upturn during the last 3 months. This follows almost a year of slow job growth in numbers. The job creation in BC has probably been under-estimated during the past year, and the jump during July to September may be catching up. This uncertainty about the true state of the employment situation makes it difficult to draw conclusions about the impacts on the housing market. If substantial job growth has been sustained, housing activity should be much stronger. The prime age employment rate is also at a high level across the country.

Interest Rates

Yields from 5-year Government of Canada bonds have increased considerably during the past year and a half. This also includes a small rise during the past month. However, due to reduced housing activity, lenders are forced to limit the increases for their “special offer” mortgage interest rates. A typical 5-year fixed rate at major lenders is around 3.5%. While the 5-year bond yield has increased by 1.4 points during the past year and a half, the mortgage rate has increased by just 0.8 points. Five years ago, the “special offer” estimate was 3.6%, slightly higher than the current 3.5%. 5-year variable rates today are in the high 2%’s to low 3%’s verses the low to mid 2%, 5 years ago. Based on these estimates of typical interest rates, most people renewing mortgages this year are seeing little change in their borrowing costs.

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