Hey there, folks! It’s January, and you know what that means – Santa’s gone, and he didn’t leave us with candy canes this time. Nope, he dropped off the real estate market equivalent of a bad sweater: lower prices, again. But don’t worry, as always, I’m here to help you make sense of it all and help you see how this affects you!
And with that, let’s get into it!
This December has followed the same trend that we’ve been seeing since mid-July with both prices and sales volume dropping. When you compare this December to the past 18 years it’s the 4th slowest on record with just 766 total sales but we’ll get more into that in a moment! First – let’s look at home prices!
Home Prices
Overall in the Fraser Valley, we saw yet another month of decline, marking the 6th consecutive month that prices have fallen:
- December (-1.5%)
- November (-1.1%)
- October (-1.4%)
- September (-0.9%)
- August (-0.9%)
- July (+0.5%, but started declining halfway through the month)
Another way of looking at today’s prices is to compare them to previous months where the market was at the same price (Rounded to the nearest month).
- April 2023 (while prices were increasing until July 2023)
- October 2022 (which also marked the second-slowest October in recorded history for sales volume)
- October 2021 (this is when prices were increasing by a single digit % per week in the frenzy of record-low interest rates!).
Now, like every month, we also want to focus on how many and what kinds of homes are selling!
Sales Volume & Sales Ratio:
While December saw prices drop by 1.5%, it also saw sales volume drop to one of the lowest levels in history with (as mentioned above) December 2023 being the fourth slowest on record.
This is the Fraser Valley Sales Volume below:
And then Sales ratios (The number of listings that sell as a % of active listings in any given area) actually increased to an overall 20.2% from 15.5%. This was a welcomed increase and we could feel it in the market but when we look below, we’ll see that again, just like the last few months, it’s what is selling that tells a more complicated story!
What’s not broken down in this graph below however is the different ratios in different price points, or areas…(Stay tuned for the full breakdown below which might shock you 😯😅)
So just like last month – we’re going to have a look at two Areas in the Fraser Valley: Surrey & Langley.
Here are the Detached Home Sales in Surrey for a deeper dive:
When you have a look below, you will see that while the lower priced homes ($1,000,000 – $1,500,000) were still selling at a healthy ratio (31.5% for this range), the higher the ratios vary between 0% ($3M+ homes) to 6% (all homes between $2M – $3M). A stark contrast between the different price points, and we haven’t even covered strata property yet!
Surrey Detached
Now moving on to Langley Detached Homes, we see a very similar trend…
The homes between $1,000,000 and $1,500,000 are still selling at a high of 39%, while homes between $1,500,000 – $2,000,000 sold at 8% and homes between $2,000,000 and $3,000,000 sold at 3.3%.
It’s definitely not all bad news out there for sellers…
Condos and Townhomes have done much better than the more expensive detached homes! Despite prices falling like all categories of homes, the sales ratios actually increased in many areas – Have a look at Langley below!
Langley Attached
This above table shows the condos and townhomes in Langley. You can see that we had a strong 35% overall sales ratio (up from 26% last month), with condos prices between $300,000 and $400,000 selling at a very high 150% ratio! Anything even near 100% in this market is quite remarkable but this just demonstrates how price-sensitive buyers can be. This is very encouraging information for many condo and townhome owners who are looking to sell –
YES – Yes you CAN sell ! 🙂
Lastly, we’ll have a look at the Inventory out there!
Active Listings:
While we saw both prices and sales volume fall overall in the Fraser Valley last month, we also saw Active Listings drop 30% from 5,680 active listings to 3,987 by December 31st 2023.
And just how does this stack up to the previous Decembers?
And just what sort of relationship with sales volume numbers is this having?
This marks the eighth lowest number of active listings ever recorded for a December…(November and October were each the seventh lowest of their respective months) but this is compared to the fourth lowest number of active listings in September.
This would seem like inventory in relative terms is increasing despite actually falling. And what does this mean if we have inventory still relatively low (just starting to increase), while prices are already falling rapidly? Well if we go back to the regular laws of supply vs demand we would see that an increased supply, (isolated from other factors) would put negative pressure on the valuations and cause prices to come down (and in this case, accelerate the fire with even more fuel)!
My Forecasting:
I’ll do my best to keep it short (but we know I never do lol).
Interest Rates/Inflation:
I predict we’ll see the first rate cut either in the April announcement or within 1-2 of that. I think it will take about that long before inflation stabilizes long enough under 3% for the BoC to have enough confidence to reduce. And when it comes to inflation we have come down to 3.1%, which isn’t too bad until you reflect that it’s rebounded up and down all last year since a low of 2.8% in June 2023 and 3.8% in September 2023.
There is still much more to the story than just waiting for interest rates to hopefully begin coming down, let me mention a few key points:
The Bank of Canada Estimates only 47% of Canadians had renewed at higher rates by the end of 2023 and they estimate that number to climb to 65% by the end of this year. According to TD Senior Economist, James Orlando: “Given that the 2024 cohort looks set to renew their mortgage at rates 200 basis points higher than they are paying now, they will be experiencing a similar payment shock to the 2023 cohort” (referring to everyone who renewed their mortgages in 2023 at much higher than previous rates.)
Additionally, One CMHC Researcher, Tania Ochoa says 2.2 million borrowers will be renewing in 2024 and 2025, representing 45% of all outstanding Canadian Mortgages.
And it’s going to depend on the current interest rates and the previous rates the borrowers had to know how much of a “mortgage rate shock” there could be, so let’s consider the following big question:
“When are interest rates going to start coming down?”
Then next we’d want to know, “by how much, and how fast?”
And heck if you actually could know that 100%, you’d be a bajillionaire!
So…let’s have a look at what different experts are saying and their reasoning to at least establish what’s the “best case” vs “worst case” outlooks that are being argued out there.
Recently Bloomberg curated the opinion of several senior economists at top Canadian Banks and even had many of them on their business program. Rather than forcing you to watch their entire program (phew!) (link below) I’ve summarized their timelines (more or less) below!
The most favorable outlook (which was shared by several top economists including Director of TD Economics, James Orlando) is that interest rates will start being cut in April 2024 once inflation stabilizes under 3% for several months.
Then there are economists such as Douglas Porter, Chief Economist at Bank of Montreal who think our economy “isn’t showing signs of further deterioration early in Q4” so he doesn’t think rates will be cut until later in the year.
I am personally more persuaded by the arguments that rates will be cut sometime around the April 2024 announcement…however with prices on the decline, I estimate home prices will get worse before they get better. Maybe as much as 5% to 10% before they start increasing again.
https://financialpost.com/news/mortgage-crunch-hits-canada-economy
https://www.bnnbloomberg.ca/bank-of-canada-rate-decision-what-economists-expect-1.2006049
Rental Property Cash Flows
This section remains the same as last month FYI:
With interest rates as high as they are, and likely to remain higher, for longer, rental properties have become dramatically different to own.
Someone who purchased a home at 3% interest rates, might have the rent cover all the expenses of the house referred to as “breaking even” OR may have potentially had some positive cashflow if the home had a secondary suite or the like.
The difference is NOW, that same rental property (at 6% to 7% interest) may be negative cash flowing anywhere from $500 to $4,000 a MONTH! This is something that is becoming more and more untenable and this has and will continue to lead to more rental properties having to be sold due to not being able to afford that much per month.
In BC, nearly a quarter of all homes are owned by investors. 1/3 of all condos are investor owned. This is more than any other province so this could have a major impact.
https://vancouver.citynews.ca/2023/02/03/bc-condos-investor-owned/
WHAT SHOULD YOU DO?
This month, like every month, it really depends on your situation!
Because much of the data this month is a continuation of what we were seeing last month with a similar forecast, my advice is nearly the same.
Essentially if you are a first-time home buyer, I would make sure you are fully pre-approved and working with your realtor now to get sent listings. Regardless if you aren’t going to buy right away, you’ll want to get your financing in order and explore that fully with your broker/banker/realtor to see what’s possible and then from there, you can have a much better idea of what to expect. Then you can see if it makes sense to purchase something now or whether you want to possibly wait. There are trade-offs when it comes to interest rates and speculating the market – always best to have more information than less 🙂
If you are upsizing, then now may be one of the best times to consider making the move as you’ll “save” far more than you’ll “lose” peak to trough of the current market. The higher priced homes have come down farther than your lower priced home and the delta between those numbers has decreased for many making a move that was impossible before in the rising market, possible now.
If you are downsizing, then I would recommend considering either listing your home in the short term, before prices dip further (if your home price is still at a sales ratio that’s currently selling). Or I would be advising that the next time to consider selling would be the Spring when we see ratios increase and likely see a faster sale. This is when I foresee the volume of transactions picking up dramatically as interest rates likely have their first cut. The only problem with this, is I also forecast prices to be lower by this time than they are now, and then a period of months and likely multiple rate cuts needed for prices to recover to today’s prices (despite todays’ low sales ratio)…So then you might be waiting until Summer for prices to be higher than now…but lots can change until then SO…stay tuned for next month’s update!
Thanks for reading until the end!
I hope you found this helpful, and as always, please reach out if you’d like to chat about your own personal real estate situation and I’d love to help you out!
And if you’re interested in how much YOUR home is worth – please reach out today for a No Obligation Home Evaluation 🏠!
Cheers!
Corbin Chivers
Personal Real Estate Corporation
REALTOR®
corbin@callcorbin.ca
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