LOOKING BACK AT 2022
The residential real estate market across the Fraser Valley in 2022 was quite a ride. The year started off with a blast and a frenzied seller's market. However, by mid year, market conditions were changing fast as sales began to fall a lot. As the year progressed, it became more clear that the bull market of the pandemic years was beginning to fade. Fast-rising mortgage rates really negatively effected affordability for many prospective home buyers. And so 2022 was marked by falling sales and falling prices, as the year wore on. Since there was not a flood of listings that came to market, prices didn't fall as much as they otherwise might have.
LOOKING AHEAD TO 2023
I am not a big believer in making bold market predictions as there are just too many variables at play. Those who pretend to be able to read a crystal ball usually end up eating glass! Still, below are some factors that I will be paying close attention to. These variables might strongly influence how the Fraser Valley residential real estate market takes shape in 2023.
1) Mortgage Rates
How much higher will variable and fixed rates go? How many times will the Bank of Canada increase it's short-term overnight benchmark interest rate? The one that directly impacts variable rate mortgages. These are important questions in the year ahead.
They say interest rate increases work with a lag and take time to work their way through an economy. Some experts say it can take several quarters for the full effect of rate increases to take hold. If so, then that means the 2022 moves will really take hold in 2023 as more and more people come up for mortgage renewals, variable rate mortgage holders see their monthly carrying costs rise and new buyers have to qualify at higher rates.
Since so many recent homebuyers took out variable rate mortgages at historically ultra-low rates in recent years, it must be that some are experiencing payment shock. That is because their monthly interest costs have skyrocketed as a portion of their mortgage payment. For some, this means reduced principal repayment, extended amortization upon renewal or even having reached a so-called "trigger point" whereby their monthly payment automatically increases in order to make minimum monthly interest payments.
The extent of the financial strain or stresses of recent homebuyers may or may not reveal itself with a bump up in new listings this year. Something that may end up being pivotal to market direction.
2) New and Active Listings
The number of new listings that come to market in 2023 will probably have a big impact on which direction prices go. If we see a relatively high number of listings hit the Fraser Valley, then it may be that prices trend lower and faster down. For the time being, it's been the case that a flood of listings haven't come online to depress prices further. Some have suggested that would-be sellers are waiting for mortgage rates to fall again by 2023 and that then the market will quickly rebound. We shall see if sellers holding out for a return to peak prices will get them again. But, I'm not so sure that we will see rates cut by our central bank. I'm of the opinion that rates will increase a bit more and then stay steady for the duration of the year. As such, I don't believe that we will likely see a snapback in sales or prices this year.
3) Work from Home
The COVID-19 pandemic led to a major explosion in home sales and prices across the Fraser Valley housing markets. Places like Langley, Abbotsford and Chilliwack saw unbelievable price gains in short time frames. Now that life is returning to more 'normal' many companies are asking their workers to be physically back at their workplaces (i.e. office).
Depending on the company, some are asking for a full-time return to the company office or facility, while others are taking a more hybrid approach where say an employee can work from home 2-3 days/week. It may be that some people who bought homes in places far from their workplaces are now having buyer's remorse. Enduring long and punishing commutes that are costly in both time and fuel costs, can take a heavy toll on a person's physical, emotional and financial well-being. Buyer remorse sales and reverse inward migration back into the Metro Vancouver core is something that I'll be looking out for in 2023.
4) Labour Market Conditions
The past year saw many headlines about labour shortages and companies desperate for workers. Now, many economists are predicting a North America wide recession in 2023. The job market has, up until now, been a tight one. Will a recession take hold in 2023 and lead to layoffs and job losses? If yes, this may be a negative shock to an already depressed housing market.
The economic landscape looks turbulent and unpredictable in 2023. Nobody knows if we will see a seller's market, a buyer's market or a balanced market. What's most important is that prospective home buyers or sellers take into account their own unique personal circumstances, to weigh the pros and cons of buying or selling in today's market.