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Home prices will continue to ‘soften’ over next two years: forecast

Metro Vancouver’s housing market in 2019 and 2020 will be characterized by slower sales and more home inventory, says CMHC

The next two years in Metro Vancouver real estate will continue to see lower sales and higher inventories of homes available for purchase than in recent years, according to a forecast released November 6 by the Canada Mortgage and Housing Corporation (CMHC).

This will cause average home prices across the region to keep “softening” over the next two years, said the federal housing agency.

CMHC said in its report, “While existing home sales are expected to rebound in 2019 from the trough in 2018 in order to be more in line with the region’s growing population, resales will remain below the levels seen in 2015-2017.”

CMHC expects Metro Vancouver MLS resales to drop from the 50,033 units sold in 2017 to just 35,500-37,400 sales this year. Sales are then expect to recover somewhat in 2019 and 2020 to somewhere in the early to mid 40,000s range.

Home prices, however, are expected to head in the opposite direction. The agency is forecasting the average Metro Vancouver MLS home sale price to be between $940K and $980K this year (up from 2017’s $934,977). It is then expected to drop in 2019 to between $847 and $939K, and then slide to somewhere between $800,000 and $918,000 in 2020 (see graph below).

CMHC hmo van prices graph nov 2018

The CMHC said that a major factor in falling prices is rising interest rates making mortgage payments less affordable. It said, “Rising mortgage rates since May 2017 and stricter borrowing requirements are also having an impact on potential home buyers through two channels; 1) rising rates increase the carrying cost of holding a mortgage and; 2) rising rates have an impact on borrowing capacity.” This could mean falling home prices don’t necessarily equate to better housing affordability (see this opinion piece for more on this).

The agency also predicted the next two years for the rental market in Metro Vancouver. The report said, “The rental market is expected to remain tight across the region, average rents will continue increasing faster than inflation. The vacancy rate is expected to rise slightly; however, it will remain low in absolute terms, reflecting the strong demand for rental housing in the region.”