The Vancouver housing market is being pulled in different directions, with structural and cyclical dynamics diverging in a “tricky” market, says one economist.

The local market is structurally undersupplied, although the current cycle is seeing a pullback in demand, said Ali Wolf, chief economist for Zonda, a housing data and consultancy firm.

“One thing that makes this market really tricky—and it’s almost like acknowledging the elephant in the room but there’s nothing you can do about that elephant—is in Canada, we see two different supply dynamics,” Wolf said during a Sept. 16 presentation in Vancouver.

Headwinds for supply include a “recessionary” economy, job losses and tariff fears. Builders also face a “cost-prohibitive” environment in terms of labour, land, regulation, construction inputs, developer fees and planning delays, she said.

Tailwinds, on the other hand, include off-peak mortgage interest rates, more incentives being offered to buyers and renters, a diversified BC economy, a high quality of life and magnets like universities, she said.

“Once the market normalizes, once we see a bit more confidence in the economy, once we go through this bumpiness, we’re going to return to that structural undersupply environment,” Wolf said.

“We’re going to return to a place where people are going to say, ‘I want to buy more homes and I can’t buy more homes.’”

There are challenges in the meantime. Wolf cited the highest unemployment rate since 2016 excluding 2020 as well as fewer home sales, which are down 20% in Vancouver from the city’s 10-year average, she said.

Inventory is accumulating. Total re-sale listings in Vancouver are up 20% compared to last year, and up 40% compared to the 10-year average, she said. Meanwhile, there is lower demand due to federal curbs on immigration and foreign students.

“Consumers have more options, but by extension, sellers have more competition,” Wolf said.

Vancouver housing unaffordability ranks third behind Hong Kong and Sydney among developed nations, she said. Current home values in Vancouver remain 32% higher compared to 2019 despite recently easing in a buyer-friendly market, she said.

“Affordability looks better than it did the past couple of years [but] not good when you look at the longer-term trend and when you look at the global view,” she said.

Wolf cited detrimental government interventions, a neutral rather than stimulative policy rate, an exodus of young adults from BC to Alberta and Ontario, and the reported rise in project cancellations.

“I think things will still get worse before they get better. I think we’re still in a place that we’re going through this reshuffling,” she said. “The economy to me looks quite recessionary.”

Still, BC has the key ingredients for long-term success, Wolf said.

“Right now, cyclically, the market’s weird, the market’s not good. Structurally, longer-term, we see no reason why everyone in this room can’t be successful in the real estate industry given this overall backdrop,” she said.

Zonda Economist : Vancouver Housing Market Undersupplied Despite Current Slowdown by Jami Makan | BIV