Interest Rates – Consumer Confidence – Migration – Local Market Conditions
MARKET COOLS SLIGHTLY FOR SUMMER BUT HIGH DEMAND CONTINUES
The heat that finally gave way to slightly cooler temperatures mirrors what is happening in our housing market as scorching real estate activity continued its cooling trend in June. Home sales recorded over Canadian MLS® Systems fell by 8.4% month-over-month in June 2021, marking the third straight monthly slowdown since activity hit an all-time record back in March. While sales are now down a cumulative 25% from their peak, and below every other month in the last year, June transactions still managed to set a record for that month. The actual (not seasonally adjusted) number of transactions in June 2021 was up 13.6% on a year-over-year basis and marked a new record for that month.
It feels like the theme of this summer is ‘slowly getting back to normal’, in our own lives and for many housing markets across Canada as well,” said Shaun Cathcart, CREA’s Senior Economist. “That said, it’s a long road to get back to normal, and for many housing markets the main issue is that supply shortages are as acute as ever.
While the frenzy and emotion of earlier in the pandemic seems to have dissipated for now, the key ingredients of a seller’s market are all still in place. Housing has been a major election issue before, and it will be as we move forward. The difference this time may be a focus on increased new housing starts in the years ahead, so at least we’re finally having the right conversation.”
National consumer confidence continued to rise in June 2021 and is nearly back at pre-COVID levels, according to the Conference Board of Canada’s survey-based index of consumer confidence.
The overall sentiment was up across all regions of the country in June except for British Columbia.
In a scheduled announcement on July14th, 2021, The Bank of Canada today held its target for the overnight rate at the effective lower bound of ¼ %, with the Bank Rate at ½ % and the deposit rate at ¼ %. The Bank is maintaining its extraordinary forward guidance on the path for the overnight rate. This is reinforced and supplemented by the Bank’s quantitative easing (QE) program, which is being adjusted to a target pace of $2 billion per week. This adjustment reflects continued progress towards recovery and the Bank’s increased confidence in the strength of the Canadian economic outlook.
CPI inflation was 3.6 % in May, boosted by temporary factors that include base-year effects and stronger gasoline prices, as well as pandemic-related bottlenecks as economies re-open. Core measures of inflation have also risen but by less than the CPI. In some high-contact services, demand is rebounding faster than supply, pushing up prices from low levels. Transitory supply constraints in shipping and value chain disruptions for semiconductors are also translating into higher prices for cars and some other goods. With higher gasoline prices and on-going supply bottlenecks, inflation is likely to remain above 3 % through the second half of this year and ease back toward 2 % in 2022, as short-run imbalances diminish and the considerable overall slack in the economy pulls inflation lower. The factors pushing up inflation are transitory, but their persistence and magnitude are uncertain and will be monitored closely.
Effective June 1st, 2021, the minimum qualifying rate for all mortgages is the greater of the mortgage contract rate +2% or 5.25% as set by OSFI and the Department of Finance. All mortgage applicants must qualify for financing based on an interest rate no less than the benchmark five-year lending rate, even if the mortgage is for less than five years.
Canada's major chartered banks are currently advertising five-year fixed mortgage special interest rates of around 2.14%. Homebuyers can often negotiate the interest rate for mortgage financing based on their creditworthiness and the degree to which they do other banking business with the mortgage lender.
The Bank of Canada’s next scheduled interest rate announcement will be on July 14th, 2021, which will be accompanied by a full update of the Bank’s outlook for the economy and inflation, including risks to the projection, in its Monetary Policy Report.
Our Vancouver Island Real Estate Market
Although active listings of single-family homes dropped by 2 % from May, condo apartment and row/townhouse inventory rose by 16 and 23%, respectively.
Activity by area:
The British Columbia Real Estate Association (BCREA) forecasts that market conditions may begin to even out somewhat by the end of the year. However, it would take approximately 2,500 new listings in the VIREB area to create an actual balanced market if activity continues at this pace. BCREA, VIREB, and other real estate boards continue advocating with policymakers at the provincial and regional levels to speed up the development process so that municipalities can expand supply more quickly to meet demand. VIREB’s heated housing market continues to impact prices, which are rising throughout the board area.
The board-wide benchmark price of a single-family home broke the $700,000 mark in June, rising to $714,700, up 31 % year over year and 3 % from May. In the apartment category, the benchmark price was 3 % higher than in May and 21 % higher year over year. The benchmark price of a townhouse rose by 34 % year over year and by 4 % from May, climbing to $549,300.
· Campbell River, the benchmark price of a single-family home hit $627,600 in June, up by 29 % from the previous year.
· Comox Valley, the year-over-year benchmark price rose by 30 % to $756,400.
· Cowichan Valley reported a benchmark price of $693,200, an increase of 29 % from June 2021.
· Nanaimo’s benchmark price rose by 31 %, hitting $728,200.
· ParksvilleQualicum area saw its benchmark price increase by 30 % to $824,000.
· Port Alberni reached $468,100, a 41 % year-over-year increase.
· North Island also rose by 41 %, hitting $372,600 in June.
Due to the extreme volatility, we have experienced over the last 6 months, I have not been forecasting market conditions. I am waiting for the next report from the Bank of Canada on September 8, 2021, this will help give me a sense of what to expect. I will be able to provide some forecasting at that time. In the meantime, if you are trying to determine a strategy for buying and selling or would like to get an advantage in the market, let me know. Every scenario is different and my 28 Years' experience and highest sales in our area can help determine what works best for you.
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