Happy 2023! I hope your new year is off to a terrific start and that you had a wonderful Christmas. My December is typically busy both personally and professionally, but this past year I decided to focus primarily on the personal side of life and, in particular, enjoy sharing time with my family. In so doing, I forego two of what had become rather large annual events in my business calendar: 25 Days of Giveaways and my family’s cancer fundraiser, Chipping Away at a Cure. As much as I enjoy putting on the aforementioned events, it was great to have an opportunity to share additional time with family, relax and recharge.
As many of us do at the start of a new year, we look back at the year that was and plan for the year ahead. As I look back on 2022, it was certainly an interesting year in real estate. It began with a continuation and escalation of the housing price increases of 2021 until early March and then as interest rates began to increase, the market shifted abruptly and house prices began to fall… and fall they did! On average, the benchmark price of detached homes in the Fraser Valley peaked in March at a record $1,776,700 before closing out the year at $1,377,200. That nearly $400,000 price drop was largely a result of the unprecedented rise in interest rates over that same period.
So, what’s in store for the year ahead. Well, as always, there are many variables which can impact the housing market including continued interest rate changes, policy changes, and others. I believe that there’s a strong likelihood that we can expect to see downward pressure on home prices as there remains suggestion that interest rates, intended to combat inflation, continue to rise. January 25th is the date of the next announcement. These interest rate changes are obviously putting a lot of increased financial pressure on home owners especially those with home equity lines of credit (HELOCs), variable mortgage rates, those who will be renewing their mortgage in 2023, and those looking to secure financing to purchase a home.
Sales activity in the Fraser Valley is down approximately 50% from approximately 27,000 sales in 2021 to approximately 15,000 sales in 2022. Currently, market conditions in the Fraser Valley are balanced, but as 2023 unfolds it will be interesting to see whether home owners are able to weather the interest rate storm or whether we being to see an increase in forced sales or foreclosures. If the latter occurs, expect that the balanced conditions of today’s market shift to that of a buyer’s market.
My suspicion is that there are a number of home owners and investors who are over-leveraged which could lead to heartbreak for some and opportunity for others. For example, there may be some individuals who purchased pre-sale property when market value for these properties was much higher and as construction on these properties wraps up and funds are needed to complete the purchase, these purchasers will most likely find financial institutions only willing to lend on current market value, leaving the purchaser to finance the difference. This cost difference could be extreme and may mean that the purchaser is unable to complete. This and other scenarios is a very real possibility and could have a large impact on the market.
Now, I don’t want all of the messaging to be doom and gloom. While house prices have dropped, this is a reflection of the cost to borrow and not on the devaluing of the property. And, historically speaking, markets are cyclical and we are in a down part of that cycle, but over time, housing prices have proven to rise again and I expect that trend to continue, it may, however, be a year or two before it does. But, if your mortgage is up for renewal this year or you’re in a variable rate, or are considering a move in 2023, I strongly encourage you to reach out as soon as possible to ensure that you receive the information you need to make the most informed decisions possible as these decisions around home ownership and lending can have significant financial consequences both positive or negative. And, of course, I want the former for you!
At the end of the day, we all need to live somewhere (and we live in an incredible, albeit, whether you own or rent, an expense part of the world), life (births, deaths, job change, relationship change, etc…) happens and as circumstances change, people will continue to buy and sell. That said, I do foresee activity levels in the Fraser Valley and province wide remaining slow through 2023. Time will obviously tell.
My hope is that the real issue related to housing affordability, that being one of “supply” is somehow addressed.
Bright side is that if you own your own home and it works for you, then that purchase was a wise decision and house prices will almost certainly bounce back in the years ahead. And, if you’re someone who does not currently own a home, but is looking to get into the market, that opportunity exists and with much less frenzied conditions allowing you to take your time and do your proper due diligence more so than at other times in recent history.
Now, while interest rate changes are significantly impacting the housing market, these changes are not the only changes affecting the real estate market. There have been a number of significant government created policy changes that have taken effect earlier this month and the latter part of 2022. Some of these changes include changes to rental restrictions in strata titled properties, a federally introduced 2-year ban on “foreign buyers”, tax changes which include a new multigenerational home renovation tax credit, and a residential property “anti-flipping” tax whereby home owners who sell within 12 months of purchase may be required to pay additional tax, and provincially introduced changes to the home buying process including the home buyer rescission period (or, “cooling-off” period) whereby purchasers are given a mandatory 3 business days to rescind (cancel) a purchase agreement. Those who rescind during those 3 days will be required to pay a rescission fee of 0.25% of the purchase price to the home owner. There are many details to all of the above
There are many details to all of the above, and with so many new changes all occurring at relatively the same time, I will likely be explaining a number of the above in more detail in subsequent newsletters throughout the year. However, if you do not want to wait for those newsletters and would like more in-depth information or conversation about anything mentioned above or anything real estate related, please do not hesitate in reaching out. I’m happy to chat and be that “go to” real estate resource for you.
Hopefully the wild weather of December and the more tumultuous times of 2022 are behind us and we settle into calmer conditions in 2023. We shall see.