July 2023

A STRONG FINISH TO OUR SPRING MARKET.

June has been a busy month for real estate here in the Greater Victoria Area; 705 properties sold in the Victoria Real Estate Board region. This represents an almost 15 per cent increase over the 612 properties sold in June 2022. However, this past month has seen a nine per cent decrease from May 2023. Sales of condominiums were up almost 20 per cent from June 2022 with 242 units sold. Sales of single-family homes increased almost seven per cent from June 2022 with 322 sold. Historically speaking, despite the higher market and inventory numbers relative to previous months, 2023 remains well below the inventory levels seen in years past. The definitive question we need to be asking ourselves is whether these numbers show a conclusion to our market. We say no, quite the opposite. Our market is currently being held back primarily by a lack of inventory. Prices are not depressed, rather they’re holding steady. We are once again in a market being held aloft by scarcity of product, strong buyer demand and an unwillingness for sellers to list their homes without a clear entry strategy into new housing product.

The Bank of Canada is getting interesting evidence that its efforts to tame inflation are working. But are they working fast enough to satisfy that it doesn’t need to raise rates any further? Inflation, sitting at 3.4 per cent in May, is still more than one percentage point above the bank’s comfort level. Expectations and perceptions haven’t caught up with inflation’s rapid decline (the rate is half of what it was just six months ago). At 4.75 per cent, the Bank of Canada’s policy rate is already a couple of percentage points above what the bank considers the “neutral” level, at which the rate neither stimulates nor suppresses the economy.

Headline inflation dropped like a stone in May, now down to 3.4%. Mortgage interest costs surged 30% and remain the largest contributor to the year-over-year CPI increase. Strip out self inflicted mortgage interest cost, and CPI sits at 2.5% in May, back within the Bank of Canada’s control range of 1-3%, signaling we are back on track with no further interest rate manipulation needed.

With the rate of inflation now nearly 1.5 percentage points below the bank’s policy rate, the implication is that in real terms, interest rates are becoming even more restrictive than they were a few months ago–

Number of Sales

which could speed up their effect on the economy in the months to come. Still, economists are split on how they think the Bank of Canada will interpret and react to the flow of data since its June 7 rate hike. In one camp are those who believe that the flow of data provides ample justification for the bank to at the very least hold its policy rate steady at its July 12 decision, because it’s increasingly confident that its rate policy is doing the desired trick. In the other camp are those who believe the bank will raise rates at least one more time, focusing its attention on how far away the key numbers still are from the end goal. It’s quite possible that the decision-makers in the bank’s senior ranks are themselves of two thoughts. If they need a tie-breaker to tip the data scales, there is one more big indicator that could sway their thinking: July 7th’s employment report for June. If the July 12 rate call is as close as it appears, the job numbers could seal the deal.

Base effects are favourable, but prices have moderated. There’s nothing more to do but wait for the highest interest rates in two decades to work their way through the system. In typical federal style, the Bank of Canada allowed prices to climb 30% annually and only started raising rates after the historical peak of our market in March 2022. Bank of Canada have always taken a reactionary attitude to regulating our markets.

The Naughty List…June saw B.C.’s housing minister announce the first 10 municipalities that must meet future housing targets. A government order-in-council reveals all 47 municipalities that will probably have to ramp up their housing production. Housing targets will be set later this summer, and municipalities will have six months to show progress. Municipalities were selected using a weighted index based on factors that include urgency of housing need, projected population growth, land availability, and housing affordability.

If communities don’t meet the targets within six months, the province will appoint an independent adviser to help them make progress. If that doesn’t work, the province will wield a bigger stick and overrule the municipality with the power to rezone entire neighbourhoods to create more density.

Clearly, the province feels an increase in building-start numbers, solves our current housing shortage. If the province and the municipalities were serious about the dilemma we face, they would work with each other to streamline the process. A stick really isn’t the most useful approach. A carrot is always better…providing incentives for developers is the best way forward. Such incentives may include tax breaks, streamlined application processes, fewer levels of municipal committee review and reduced permitting costs.

Number of Sales

Here are all the municipalities mentioned in the order-in-council, listed alphabetically:

• Abbotsford

• Anmore (village)

• Belcarra (village)

• Burnaby

• Central Saanich (district)

• Chilliwack

• Colwood

• Coquitlam

• Delta

• Duncan

• Esquimalt (township)

• Highlands (district)

• Kamloops

• Kelowna

• Ladysmith (town)

• Lake Cowichan (town)

• Langford

• Lantzville (district)

• Langley

• Langley (township)

• Lions Bay (village)

• Maple Ridge

• Metchosin (district)

• Mission

• Nanaimo

• New Westminster

• North Cowichan (district)

• North Saanich (district)

• North Vancouver (city)

• North Vancouver (district)

• Oak Bay (district)

• Pitt Meadows

• Port Coquitlam

• Port Moody

• Prince George

• Richmond

• Saanich (district)

• Sidney (town)

• Sooke (district)

• Squamish (district)

• Surrey

• Vancouver

• Victoria

• View Royal (town)

• West Kelowna

• West Vancouver

• White Rock

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