Hesitant Homeseekers: Why BC Sales Are Still Unexpectedly Low

Hesitant Homeseekers: Why BC Sales Are Still Unexpectedly Low

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Written by: Erin Best of REW
Buyers are exercising caution despite dropping rates and rising inventory. Vancouver's real estate market is witnessing an unexpected trend: potential home buyers are showing marked hesitation despite the Bank of Canada's recent rate cuts. Several issues are contributing to this reluctance, creating a complex landscape for both buyers and sellers, framed by too much inventory and buyers remaining on the sidelines. On June 5, 2024, the Bank of Canada (BoC) made a strategic move by reducing its key interest rate by 25 basis points. While aimed, in part, at stimulating the housing market and making home loans more affordable, many real estate buyers remain cautious. If you recall in our Dexter Realty May Market Update, sales in May were down 20 percent year-over-year. It also marked the first month-over-month decline in sales in 2024. One of the main reasons for buyer hesitation is ongoing inflation. Or at least, rising living costs. Despite the BoC's efforts to lower borrowing costs, inflation continues to affect everyday expenses. Rising prices for goods and services reduce disposable incomes, making it harder for potential buyers to save for down payments and manage monthly mortgage payments. The fear that inflation will continue to erode purchasing power makes many hesitant to commit to long-term financial obligations.  

Costs keep on rising.

The Vancouver real estate market has seen significant price increases over the past few years. This trend continues to keep home prices at levels that many find unaffordable. Even with a lower interest rate, the high principal amounts required to purchase a home translate into substantial monthly payments. A huge mortgage payment on top of existing monthly expenses simply stretches a monthly budget too thin. For many, the reduction in interest rates simply does not sufficiently offset the high costs of buying a property. The average monthly mortgage payment in Canada for 2022-2023 varied significantly by metropolitan area. In Vancouver, the average sale price of detached single-family homes was nearly three times the national average. In 2021, buying a home with a 25-year mortgage in Canada typically cost about 45 percent of the median household income. However, in Vancouver, it was nearly 64 percent.  

Salaries are not keeping up.

Save My Taxes recently wrote an article outlining the average salaries in Canada, which shows incomes in BC don't always line up with the cost of living here. A closer look at the monthly budget for a family of four in Canada with an average income shows it can range from $5,000 to $9,000 per month. According to Numbeo, a family of four can expect to spend $5,696.40 before housing costs. This number also doesn't even include extra-curricular activities, family trips or incidental expenses. The wide range can be attributed to factors like daycare and housing costs, which can vary depending on where you live in Canada. And one unexpected expense can derail even the best planned budgets.  

Proceeding with caution.

When you consider the high cost of living and average salaries in BC, it’s not a surprise that buyers are cautious. Many buyers expect the housing market may cool down in the future, potentially leading to more favourable buying conditions. This wait-and-see approach means that even with lower interest rates, buyers are not in a hurry to make purchases. They prefer to wait for a possible market correction that could lead to lower home prices and better buying opportunities. While we know real estate has typically never gotten cheaper, one can only hope. It’s interesting, too, because currently the inventory volume alone in the Lower Mainland would in theory make buyers feel more confident, but we continue seeing lower than average reported sales in the Vancouver area. Homebuyers sitting on the sidelines are looking for more direct support measures, like tax credits, grants for first-time buyers and, probably the most important measure, increased housing supply initiatives. Without complementary policies, the impact of a rate cut is limited. The Bank of Canada's rate drop in June 2024 is a well-intentioned move aimed at stimulating the housing market. However, economic uncertainty, high property prices and low consumer confidence collectively undermine its effectiveness. To truly excite buyers, a more comprehensive approach that addresses these multifaceted challenges is essential. Potential homebuyers need not just lower rates, but also stable employment, affordable housing options and a robust economic outlook to feel confident in making one of the biggest financial decisions of their lives.