Byline: Ron Rapp, HAVAN CEO, first published in the HAVAN Monday Morning Briefing Members-only email, January 9, 2023
Connect with Ron on Twitter @havan_ceo
Happy New Year to all and all of us at HAVAN hope everyone had a safe and happy holiday season!!
As we move into 2023 there appears to be some significant carryover from 2022 with a new C19 variant “Kraken” spreading widely, China coping with spiking C19 infection rates, elevated inflation, and interest rates, the US government in turmoil, the travel industry in disarray through holidays, and greater Vancouver continues to appear unable to cope with winter weather!!
While all of that is still on the table, we must manage to cope and adapt to the shifting market and evolving conditions, and can look forward to an environment in 2023 of higher mortgages, lower house prices, and curbing of soaring inflation. The outlook for this year has been described as a return to the “great moderation” of slow, steady economic growth, and inflation brought back to the 2% range targeted by the Bank of Canada (BoC). It is suggested that the “frothiness” in the economy and the housing market, in particular, has abated and that 2023 “ … should set the stage for a welcome return to modest but durable gains in GDP and in housing and other asset values …”
So, “what is in store” is currently making the rounds among pundits, and here are some of the highlights: Nationally, housing prices are down as much as 20% and are likely to adjust by another 10% for 2023, with a return in 2024 to a sustainable 4% growth rate. Inflation spiked to 8.1% in the middle of last year but ended the year at 6.7%, and predictions point to an average of 3%-ish for 2023 and ending the year at close to 2%. Interest rates set by the BoC after seven increases in 2022 are seen as slowing and peaking at around 4.5% and may be cut a bit by Q4, with 2024 hitting an annual average of 2.7%. Mortgage rates will remain close to current rates with fixed-rate products at 5% plus with rates starting to ease a bit in late in the year.
In 2022 our market and economy suffered a series of systematic shocks over a very short period, and there is no doubt that there have been impacts with prices, sales, and starts down sharply. Central 1 Credit Union’s, Bryan Yu has provided the most recent Economic Analysis of British Columbia, and provides a comprehensive breakdown, with highlights here:
- Interest rate shock continues to curb housing market activity into 2023 and 2024 at levels consistent with 2015-2017
- Annual median provincial home value to decline 8 percent in 2023, but masks 20 percent drop from peak
- Home values remain well above prepandemic levels, contribute to low sales
- Housing demand gains traction as mortgage rates ease in 2023, lower home values and strong immigration patterns emerge
- Expected reduction in housing starts amplifies housing shortages in mid-decade, drives housing prices higher, rental market tightens
A recent survey conducted by the Greater Vancouver Board of Trade and published in the Vancouver Sun identified the top issues seen as obstacles for Metro Vancouver businesses in Q1 2023 as:
1) Inflation 55%
2) Cost of Inputs 44%
3) Interest rates and debt costs 43%
4) recruiting and retaining skilled employees 36%, and
5) Real estate, and property tax costs.
Concerns were also expressed about the wave of retirements we are already seeing in our sector that are adding pressure to labour concerns, and 75% of those surveyed expected to have to raise wages to attract/retain staff.
Overall we can expect that the 2022 hangover will take some time to digest and overcome but almost all predictions point to the same issues noted, and all share the observation that our immigration plans, migrations, and household formation will continue to exert pressure on housing supply, and it is going to be vital that we find the means to expedite and streamline approvals and process costs, particularly with the price of financing at this time.
Canada added 431,645 new residents in 2022 and is on track for 465,000 in 2023, with targets totaling 1.45 million over the next three years. These people will all need a place to live and it is a challenge for all levels of government and industry to work together to try and meet those demands and mitigate the inevitable pressure on affordability that will continue if we cannot close the housing gap.
HAVAN will continue to pursue all efforts to seek the introduction of policies and measures to help expedite the opportunities for members to weather the current uncertain conditions, and look forward to moving past the headwinds to take on the challenge of growing our capacity, to meet the noted supply requirements. If there is an opportunity in the face of a pause in the frenzied level of activity in our sector over the last number of years, it is that all stakeholders can review and evaluate how to work to achieve the noted housing targets. This includes all levels of government and industry and demands a comprehensive change in the status quo to be more pro-active and creative in how we meet those challenges.
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