Prospective buyers are now being forced to weigh the positive impact of falling prices against the negative impact of rising interest rates
The residential real estate market swung another notch down from its pandemic boom highs with prices softening and properties sitting unsold for longer, new figures show.
Prospective buyers are now being forced to weigh the positive impact of falling prices against the negative impact of rising interest rates.
Median prices have been dropping consistently and considerably since the Bank of Canada started hiking interest rates earlier this year, said a Vancouver-based broker.
In February, the median price for all housing types in all of Metro Vancouver was $1.028 million, but fell by 13.5 per cent to $889,000 in June.
In some areas, the change in median prices was greater, falling by 28 per cent in Delta (to $1.165 million from $1.625 million), by 23 per cent in Surrey (to $843,000 from $1.1 million), and by 23 per cent in Maple Ridge (to $960,000 from $1.25 million).
Still, the MLS benchmark price for all residential properties in Greater Vancouver is $1.235 million, which remains 12.4 per cent higher than it was in June 2021. Greater Vancouver, for the MLS, includes Metro communities north of the Fraser River with a handful of exceptions.
In Greater Vancouver, from Whistler to Maple Ridge to Tsawwassen, the number of home sales for the month of June dropped by 35 per cent. In the Fraser Valley, which in the real estate sector includes North Delta, Surrey, White Rock, Langley, Abbotsford and Mission, it fell by 43 per cent from a year earlier.
Price drops and rising rates can cancel each other out, leaving the buyer in the same financial spot, but this isn’t always the case and there are some nuances. Depending on the exact area and housing type, affordability has worsened even though prices have dropped because interest rates have risen.
We took the average selling price for a detached home in Greater Vancouver and calculated a rise in monthly payments due to higher interest rates even with the drop in sale price in the last few months.
A $2.32 million property with a two per cent mortgage rate and monthly payments of $7,840 in April has now fallen to a current sale price of $2.098 million, but it now comes with a five per cent mortgage rate for monthly payments that are $9,810.
The payments are cheaper at two per cent even with an over $200,000 decrease in price. We used a five-year fixed mortgage, 25-year amortization and a 20 per cent down payment for the calculation.
When interest rates first start rising, there is an initial phase when sales volumes and prices tend to hold as some buyers jump into the market before they are priced out. It continues until buyers can no longer afford the higher rates.
In the 1980s, when interest rates went from 11 per cent to 21 per cent, it wasn’t until they were about 16 to 17 per cent that home sales volumes and prices started to curtail. We are hitting that point now with interest rates having doubled. This is a very real shift in the market.
Buyers will want to see where the interest rate hikes level off before they return to the market.
The Real Estate Board of Greater Vancouver’s total of 2,444 sales in June 2022 is a 16.2 per cent decrease from the 2,918 homes sold in May 2022. It is a 23.3 per cent decrease below the 10-year-June sales average.
The Fraser Valley Real Estate Board reported the number of sales in June fell 5.8 per cent compared to May.
With inflation at a near four-decade high, the Bank of Canada is aiming to bring it down from the 7.7 per cent posted in May 2022 back to two per cent by increasing interest rates.
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