The BC Real Estate Market: Are We Really In a Bubble?

According to Derek Holt, Scotiabank’s Head of Capital Markets Economics, Greater Vancouver and Toronto markets are hot. Far too hot for winter markets. If prices and sales are rising in the dead of winter, the housing market is sure to get even hotter as the warm weather arrives and selling season gets into full swing.

Low inventory combined with plenty of anxious buyers are helping sustain the high prices that many thought the pandemic would force downwards. So as vaccines become more available, and people are back on track with their crowded urban lifestyles, if there is a housing bubble, it is unlikely to burst any time soon. As well, more people are choosing to move to the suburbs as many have continued working remotely. As a result, suburban and even rural demand will press prices upwards with the promise of a welcome reprieve for people weary and leery of city life.

Possible Cooling Measures on the Way?

Holt also predicts we may see some cooling measures once the Spring Budget comes out. What those measures look like remains to be seen, but some possible moves may include restricting access to credit, taxing foreign buyers, boosting the overall supply or taxing homes that remain vacant.

Potential Vulnerability

It’s easy to wonder why anyone would want to cool down a hot market. However, prices can only climb before there is a correction. CMHC has singled out Vancouver as having a “moderate degree of vulnerability.” This is largely due to the rising number of rental units sitting empty as a result of lower immigration numbers, fewer students, lack of affordability, former renters that have lost their jobs due to COVID-19 and people seeking more space in the suburbs as they continue to work remotely. The vacancy rate in metro Vancouver is the highest it’s been in 21 years.

Sales Continue to Rise

Despite uneasiness in the rental market, house sales continue to climb. According to The National Bank of Canada, the average price for a non-condo dwelling in Vancouver is $1,342,184. And if you think you’ll just hop outside the main part of the city to save, there’s a story of a detached Langley, BC house that sold for $500,000 OVER ASKING!

Is There a Bubble?

Bidding wars are nothing new when it comes to real estate, but when demand outpaces the supply, lenders are flexible and loosen their restrictions. When potential buyers are willing to offer far above the asking price, trouble may be on the horizon. It only makes sense that there will come a time when the banks will tighten up lending freedoms or housing prices reach a limit that the vast majority of people can no longer afford.

If we use history to provide insight, we need only to look at 2008 and the global housing market crisis. Why did it happen? A number of reasons:

  • The lending regulations were on the other side of loose
  • There were credit rating agencies manipulating ratings
  • Banks were handing out mortgages with very little restriction

However, everyone knows these situations just aren’t sustainable, which is why bubbles inevitably must burst. In 2008, millions of homeowners lost their heavily mortgaged homes. Repercussions were felt around the world leading to a global recession and billions of government dollars went towards bailouts. This inevitably lead to a full review lending regulations and forced lenders to be far more strict in their lending criteria.

Canada’s Safe Banking

Here’s the thing though, Canada survived the 2008 recession much better than our US counterparts. This is thanks to our robust banking system that helps control mortgage lending and investment banking. So, could it mean it might be our turn for a housing crash? Well, even if the housing market slows it likely won’t be to a level that would trigger a recession and thanks in large part to the safety net of our regulations. If we consider Vancouver’s housing prices, the past several years have seen them maintain levels that are logically unsustainable.

Only time will tell if the BC real estate market sees a correction, and you’re sure to find people on both sides of the fence until that does or doesn’t happen. .

In the meantime, sign up for our commission advance to ensure you are financially prepared if and when things do cool down.