Real Estate Market Resilient As Economy Worsens

The Vancouver Life Real Estate Podcast

Despite growing concerns about Canada's economy, including a meager increase in GDP and dwindling consumer confidence, the Bank of Canada (BOC) has yet to implement a rate cut. The lack-luster GDP rise of 0.2% in February fell short of the projected 0.4%, with early data for March indicating stagnation. As a result, Q1 GDP growth is expected to reach only 0.6%, marking the sixth consecutive quarterly decline and a 2% annual contraction in per capita GDP.
Despite these troubling indicators, the real estate market in Canada is surprisingly resilient. The Real Estate Outlook Index is at its highest level since rate hikes began two years ago, with record-high prices recorded in provinces such as Alberta, Saskatchewan, Quebec (particularly in Montreal), New Brunswick, Nova Scotia, and Newfoundland/Labrador.
This buoyancy is fuelled in part by low per capita home sales in recent years, which are expected to rebound even amidst economic softening. Additionally, a significant portion of potential buyers are waiting for a rate cut before making a move, further propping up sentiment.
However, ominous signs persist. Insolvencies in key sectors such as construction, finance/real estate, retail, and accommodation/food services are at their highest levels in a decade. Despite this, market odds of a rate cut in June have fallen to just 35%, down from 80% eight weeks earlier.
Mortgage delinquency rates remain relatively low, particularly in Ontario and British Columbia, signaling stability in the residential real estate sector. Yet, this stability could deter the BOC from implementing rate cuts, despite mounting economic challenges.
In the U.S., while inflation has shown signs of easing, concerns over consumer spending habits persist. With previous government stimulus savings (over 2.1 trillion dollars) are now exhausted and retailers reporting reduced consumer spending, fears of rising insolvencies and delinquencies loom large.
Historical analysis suggests that a rate cut may be overdue, with previous cycles seeing cuts around the 27-month mark. However, there are many policies and decisions that are still contributing to elevated levels of inflation. Trudeau's ambitious plan to increase housing construction faces big obstacles, as housing starts decline despite high demand and the promises that have been made to build 3.9 million homes by 2030.
While the market may see opportunities for buyers amid increasing inventory, the average home price in the Greater Vancouver Regional District (GVRD) has reached a new all-time high, despite sustained higher interest rates. This is the case in many different provinces and cities throughout Canada.
Overall, while there are indications of economic challenges ahead, slowing GDP, including rising insolvencies and declining consumer spending, factors such as stable real estate markets and historical rate cycle comparisons make the timing of a rate cut more uncertain
than they've ever been.

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