Over the previous two years, the trajectory of the British Columbia housing market was substantially determined by the movement of Canadian interest rates. In the first year of the COVID-19 epidemic, borrowing rates plummeted to all-time lows, resulting in an unprecedented increase in home demand. As a consequence, the inventory of houses for sale in areas across British Columbia was considerably reduced, and prices increased across all markets. With inflation reaching multi-decade highs, the Bank of Canada has expressed a desire to quickly return prices to its 2% target. This indicates that interest rates are on the rise and that the housing market over the next two years may bear little similarity to that of the last year.
After a robust first quarter in which home sales in BC were close to the record pace set in 2021, markets are now adjusting to a higher interest rate environment, and it is anticipated that home sales will return to historically normal levels for the remainder of this year before falling to slightly below average levels in 2023. Given the strength of house sales in the first quarter of this year, we predict that home sales will total around 97,000 units by the end of 2022 but will drop to 85,000 in 2023.
On the supply side, active listings have started to rise from record lows, and resale inventories are trending back toward equilibrium. However, since inventories hit such a low level, the trip back to equilibrium in certain regions might take up to a year. Thus, despite less pressure than in previous months, market conditions remain tight. As the markets adapt to an interest rate environment not seen in more than a decade, we estimate that prices will be fairly volatile in 2023, but will eventually level out. Notably, although the supply of listings may revert to balanced market levels in the next year compared to present demand levels, this does not indicate that the province no longer has a wider supply imbalance. To keep prices from going up like they did in the last two years, we must keep putting new goods on the market all the time and be ready for the next surge in demand.
The economy of British Columbia is at a crucial juncture in its recovery from the COVID-caused recession of 2020. Significant household savings have been invested in the property market as well as placed in bank accounts as precautionary savings. As these reserves are depleted, consumer spending will remain a primary engine of economic expansion. As we enter an economy post-pandemic, there is a shift in expenditure from products to services. This move has helped the service sector’s job recovery as spending reaches equilibrium. Indeed, job growth in British Columbia has been robust, and the unemployment rate has quickly recovered to levels comparable to those before the recession. After achieving 6.2% growth in 2021, the British Columbia economy is off to a solid start in 2022, with over 5% growth projected for the first quarter.
The crucial issue is where the economic recovery will go from here, particularly in light of the quick increase in Canadian interest rates. While it seemed that the economy would experience many years of robust expansion, expectations have quickly altered from one of multiple boom years to one of an imminent recession. This change is mostly a result of soaring inflation and the necessary central bank reaction to combat it. The greatest influence of monetary policy on economic growth occurs between 12 and 21 months after the policy is implemented. So, we think growth will stay pretty strong through most of 2022 and all of 2023.