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Real estate market won’t cool until higher rates kick in, says economist

The average house sale price has increased 33.7 per cent on Vancouver Island in the past year, according to the B.C. Real Estate Association.
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A photo of the construction of the Nest development at the corner of Yates and Cook streets in Victoria on Monday March 14, 2022. ADRIAN LAM, TIMES COLONIST

If the real estate market in Greater Victoria is going to moderate, it won’t be until later this year, says the chief economist at the B.C. Real Estate Association.

Brendon Ogmundson said the same supply-and-demand dynamics are at play again this year in the Greater Victoria market, despite a slow start.

“This year is unlikely to repeat the record sales we saw last spring, but Victoria also had about twice as many listings this time last year — and that was still a very low number,” said Ogmundson. “We also had much lower mortgage rates this time last year, and while interest rates are rising, the peak of the impact of higher rates probably won’t hit until the summer.

“All said, even with sales that are about 20 per cent lower than last year, we are heading into spring with a massive imbalance of demand over supply and extremely tight markets.”

Numbers released Monday by the BCREA showed Greater Victoria’s total property sales through January and February were down by 20 per cent compared to the first two months of last year — from 1,393 to 1,114. They also showed the average sale price over those two months jumped by 18 per cent since last year to $1.022 million.

By comparison, sales numbers dropped 18 per cent across the entirety of Vancouver Island, while the average sale price increased 33.7 per cent to $767,157. Across the province sales figures dropped 17 per cent and the average price increased 24.2 per cent to $1.08 million.

Ogmundson said higher mortgage rates and perhaps some general fatigue on the part of buyers following the fast pace and soaring costs of the 2021 housing market could slow things in the second half of this year.

The BCREA said the Bank of Canada’s interest rate hikes are likely to slow home sales and flatten home prices, though how much the market will be tempered by those moves will depend on where mortgage rates end up.

“Hopefully we will see more new supply come onto the market, but listings are so low it will take a considerable amount out of time for markets to balance out,” Ogmundson said.

It is estimated B.C. needs 25,000 new listings just to bring the provincial market back into balance.

The BCREA statistics package showed Greater Victoria had 576 active listings in February of this year, compared with 969 at the same time last year.

Across the Island, listings were down 17.8 per cent to 996 and around the province they were down 19.2 per cent to 16,306. The BCREA says the province needs roughly 40,000 listings for a balanced market.

Ogmundson dismissed any suggestion that media reports about the high demand and ­soaring pricing affected the marketplace.

“Interest rates were at record lows. The supply of listings has never been lower. Prices are rising at an incredibly fast rate. Those are facts, not hype,” he said.

aduffy@timescolonist.com