Photo: Arvin Asadi/Flickr
Although BC’s economy has been experiencing strong economic growth, housing headwinds are expected to ease the pace next year, says the British Columbia Real Estate Association (BCREA).
According to the BCREA’s fourth quarter Housing Forecast, published on Tuesday, BC’s economy is projected to slow to a rate of 2.8 per cent in 2018, down from the expected 3.8 per cent growth rate this year.
BCREA’s Chief Economist Cameron Muir says there are several reasons for the predicted decline, including rising interest rates and the new federal mortgage rules coming into effect.
"In 2018, there are going to be some headwinds in the housing market, primarily some higher interest rates, also tighter mortgage qualifications applying a stress test to conventional mortgages which will operate to pull as much as 20 per cent of the purchasing power out of some households,” Muir tells BuzzBuzzNews.
With interest rates on the rise, BCREA says many households will have to tighten their budgets, which in turn will result in less consumer spending.
Muir adds that these headwinds and elevated prices, specifically in Metro Vancouver, will impact demand by eroding affordability further.
"Going forward we're faced with a much higher price level and that's going to exacerbate the impact of a rising interest rate environment and tighter mortgage qualifications overall,” says Muir.
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Sales are expected to reach 102,350 units by the end of 2017, down roughly nine per cent from a record 112,200 sales in 2016. However, 2018 sales are projected to drop a further 10 per cent to 91,750 units.
Although home sales are expected to decline next year, sales are predicted to remain above the 10-year average of roughly 85,000 units.
According to BCREA, the housing market continues to see elevated demand thanks to strong economic performance, supported by solid employment growth and consumer confidence.
"We've had four consecutive years above three per cent real GDP growth that's induced a lot of employment, also migrant activity moving from other provinces to BC,” says Muir.
To meet demand, BCREA says the province currently has a record high of homes under construction, approximately 56,000 residential units.
Muir says many of these multi-family units will be completed in 2018, expanding the overall housing stock.
With less consumer demand and a surge in new home completions next year, Muir adds that this combination will induce more balanced market conditions, resulting in less upward pressure on prices.
Next year, the average price of a home in the province is slated to increase 4.6 per cent to $745,300 from an expected $712,300 this year.