Photo: Tracy O/Flickr
After four consecutive years of growth in BC, the economy is expected to slow over the next two years thanks to easing housing demand.
In 2018, real GDP growth in BC is forecast to drop one percentage point to 2.8 per cent and decline further to 2.5 per cent in 2019, according to the British Columbia Real Estate Association’s (BCREA) Housing Forecast Update, published late last week.
Along with low unemployment and easing labour force growth, the association attributes this slowdown to several housing headwinds, including stricter mortgage regulations, rising interest rates and elevated home prices.
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“More stringent mortgage qualifications and rising interest rates will further erode affordability and household purchasing power,” says BCREA Chief Economist Cameron Muir, in a press release.
BC home sales are expected to drop 8.6 per cent to 94,855 units in 2018, compared to 103,763 units in 2017. In 2019, sales are forecast to dip further to 94,025 units.
Meantime, record low supply will continue to contribute to skyrocketing home prices — particularly in the Lower Mainland. In 2018, the average price of a BC home is slated to hit $752,079, a 6 per cent increase from $709,579 in 2017. In 2019, prices are expected to rise another four per cent to $781,842.
However, the BCREA says residential construction is hitting record levels, as over 60,000 units are under construction in the province — adding needed supply to the market.
Despite a drop in BC’s real GDP over the next two years, the BCREA notes that strong economic conditions are underpinning housing demand. This has contributed to BC sales staying above 100,000 units in each of the last three years.
In RBC’s Provincial Economic Outlook, published today, bank economists agree that BC’s economy will decline gradually this year and in 2019, but the slowdown does not undermine the province’s solid economic foundation.
“Far from being a sign of weakness however, it reflects the economy’s strength: there is little slack left to take up in an economy which boasts a record low unemployment rate, strong consumer spending, and a buoyant housing market,” reads the report.
BC’s cooling economy aligns with a projected slowdown in national growth over the next two years. According to RBC, in 2018 Canada’s economic growth is slated to drop to 1.9 per cent from 3 per cent in 2018, and a further decline to 1.6 per cent in 2019.
RBC adds that Canada’s housing market is also expected to experience downward pressure as interest rates increase this year.
Although national home sales are slated to ease, RBC says gradual rate hikes by the Bank of Canada and a healthy labour market are “likely to prevent a rout in the housing market.”