2023 Market Forecast Report

Feb 02, 2023

2023 market predictions? We don’t profess to have a crystal ball but the latest report from REGBV talks about some of the 2023 market and economic factors that could impact the real estate market this year. We have broken down some key takeaways from the report below.

Sales in 2023 to Remain Similar to 2022 Activity

Metro Vancouver home sales set or neared historic records in 2021/2022 on both ends of the spectrum. Sales activity hit a record high in March of 2021 and closed 2022 near historic lows after accounting for typical seasonal variation. The key variable for this variance is the spike in mortgage rates, rapidly raising the policy to quell inflation pressures. This is the highest the country has been in over 30 years. Today’s consensus view among many economists and professional forecasters is that the Bank of Canada is at (or very near) the peak of the current interest rate tightening cycle. At the time of publication, inflation remains stubbornly high, despite the Bank of Canada’s historically monumental efforts to bring inflation back to their preferred target range of between 1-3%. Largely because of this, mortgage rates are expected to remain higher than market participants had been used to in recent times.

Home Prices to See Slight Increase in 2023

In percentage terms, rapidly escalating mortgage rates haven’t tended to impact prices as negatively in Metro Vancouver as they have sales activity-  historically speaking. A key factor that has underpinned prices in the region over the last 40 years has been the steady population increase. Despite the challenges of housing affordability in this region, the amount of people who continue choosing to reside here represent an important source of demand pressure that continues to push up against a supply of homes that remains scarce, in relative terms. The federal government recently announced higher immigration targets set between 2023-2025, suggesting BC & the Greater Vancouver region will continue to grow meaning demand pressure is unlikely to abate significantly. Understanding this long-term outlook with the near-term, the rapid rise in mortgage rates over the past year has reduced purchasing power and pushed many potential market participants to the sidelines. As the real estate market continues to adjust to the higher mortgage rate environment, it is likely that more buyers and sellers will step back into the market.

Home Price Forecast

The average price across all product types for the Greater Vancouver area is forecasted to reach approximately $1.2 million in 2023, which represents a 1.4% increase over 2022. Prices for apartments, attached, and detached homes are projected to increase in price by approximately 1-2%.

Risk of Economic Recession

Economic recessions have historically been difficult to predict. An indicator often cited as being among the best 4 predictors of an economic recession is an inverted yield curve. Though it may sound complicated, the yield curve is simply a snapshot of the yields on government bonds of various maturities (i.e., one-year, two-year, three-year, five-year, etc.), taken at a point in time. Oftentimes before a recession, the yield curve “inverts” such that the yields on bonds with short-dated maturities become (temporarily) greater than yields on longer-dated maturities. Put into more simple terms- the economic interpretation of this phenomenon is that investors are worried about the short-term prospects of the economy and are therefore demanding higher yields for investing money over short time horizons than over longer time horizons (when they expect the economy to eventually recover).
The impact of a recession on the Metro Vancouver real estate market is difficult to predict since it largely hinges on the severity of the recession and the Bank of Canada’s policy response. Historically, when recessions have hit the Canadian economy with force (e.g., 2008/2009), the Bank of Canada has elected to lower the policy interest rate, which provides support to the real estate market in the form of lower borrowing costs. However, inflation remains higher than the Bank of Canada expected, making it challenging for the bank to reduce the policy rate significantly in the face of a recession. This could cause inflation to continue to rise while the economy contracts.

Risk of Economic Stagnation and Higher Mortgage Rates 

Among the most difficult scenarios central banks can find themselves in is one economist’s term “stagnation”.  This happens when an economy is barely growing or is in a recession, usually resulting in high unemployment, coupled with high inflation. In this circumstance, attempts of a central bank to rectify can lead to exacerbating the other. For example, a central bank choosing to increase the policy rate to fight inflation during a recession could lead to even greater unemployment. Conversely, lowering the policy rate to stimulate the economy while inflation remains elevated could lead to even higher inflation. It’s a frustrating problem with no easy fix.. Ultimately, policymakers must make difficult choices between exacerbating inflation by trying to stimulate the economy or pushing up unemployment by trying to reign in inflation. At the time of publication, this situation is fortunately not currently the case. However, given that inflation remains persistently elevated and other economic indicators suggest economic trouble may be on the horizon, this potential scenario represents a reasonably foreseeable risk.


For more information, please review the full report: Residential Market Forecast



**This report data was captured  from the Real Estate Board of Greater Vancouver. The accuracy and completeness of information taken at the time of this report is subject to change, therefore this information is not guaranteed. In providing this information Resident Experts do not assume any responsibility or liability.**

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