The housing market faltered heading into the fall season as the latest round of interest rate hikes and higher fixed rates priced more buyers out of the market, added financial stress to existing homeowners and further curbed sentiment.

The latest real estate board data points to a rapid cooling of market conditions. September Lower Mainland home sales came in at 2,960 units, which was 17% below August.

This was a steeper decline than the average 4% decline reported between August and September. Year-over-year sales growth narrowed from 25% to 16%, with these gains reflecting the base year impacts of the weakness observed in 2022. Sales remain 20% below the September average recorded between 2010 and 2019 and further weakness is likely ahead.

Meanwhile, new listings shifted higher as market conditions and financial stress may be pushing more homeowners and investors to sell, either by choice or financial necessity. New listings are the highest in more than a year and 15% higher than pre-pandemic levels. However, active listings have edged down from the levels seen in August, marking the first decline in over two years as other listings are pulled or expire. The sales-to-listings ratio is now firmly in a balanced market but the rapid decline in sales conditions at mid-year suggests buyers are in the drivers’ seat.

Still, the average home value remained firm. At $1.2 million, this was 5.5% ahead of a year ago and up 1.3% from August. Seasonally adjusted prices were flat and benchmark home values showed a mild decline of 0.6%. Home values follow market conditions and steady average prices could reflect entry-level buyers being crowded out by high rates. Benchmark price declines from August were driven by apartment prices (down 0.5%) as houses and townhomes held up better.

The odds are stacked against the housing market in the short term. High interest rates and prices, mortgage stress tests and broader inflation have crushed purchasing power. We anticipate sales to decline into the winter months and home values to trend lower. That said, this is a short-term pattern that reverses in mid-2024 given the severe undersupply of housing in both the homeownership and rental markets in Canada. Interest rate cuts are expected to fuel activity thereafter.

BC’s labour market recorded another solid gain in September, adding to August’s increase. Employment rose 0.9% or by 25,700 people in September, pushing year-over-year growth to 1.7%. Relative to pre-pandemic, February 2020 levels, BC employment was still up by 5.5%. A slight increase in the provincial unemployment rate to 5.4% does suggest a slight softening of conditions as the labour market is not fully absorbing the surge in immigration.

The province saw full-time employment increase by 1.1% or 23,600 people during the month, while part-time employment grew by 0.4% or 2,100 people. The Vancouver census metropolitan area recorded a 1% increase in employment from the prior month, while the unemployment rate was up to 5.9% from 5.8% in August.

Goods-producing sectors saw employment grow by 1.4% during the month, with the highest sub-sector gains observed in construction and resources, partly offset by manufacturing. Total employment in services-producing sectors increased by 0.8%, with gains concentrated in finance, insurance, real estate, rental and leasing, professional, scientific and technical services, information, culture and recreation, and educational services.

Data Points : Lower Mainland Housing Market Conditions are Rapidly Cooling by Bryan Yu | BIV