Condo-to-House Price Gap

A large gap means more savings and mortgage financing are needed for condo owners to upsize to a house.

B.C. house values rose more quickly during the pandemic than condo values. In the past few months, the gap between house and condo prices has narrowed. A narrowing price gap helps to make upsizing more accessible for condo owners.

Savings

The savings cushion that Canadians accumulated during the pandemic have been spent, according to Statistics Canada. "On average, regardless of a household's demographic or economic characteristic, gains in household wealth acquired over the previous year have been erased," Statistics Canada reported on Monday, October 3rd.

With inflation now rising faster than incomes, everyday items are becoming more expensive while paychecks are unchanged. If this trend continues then Canadians will run out of savings (including nest-eggs for buying a home) and begin taking on debt to cover everyday expenses.

According to MNP, an accounting firm, 50 per cent of British Columbians believe there will be a recession in 2023, and 44 per cent are $200 away or less from being unable to meet all of their financial commitments.

Financing

Mortgage Rates

Since 2020, mortgage rates have been rising. They are in the mid-range compared to the past 30 years, but they are the highest since before the 2007 financial crisis.

So long as mortgage rates remain at current levels, home buying budgets will remain depressed.

Employment and Incomes

While the employment picture has improved significantly, you need to hold a job for 3 to 6 months before applying for a mortgage. Also, full-time employment in British Columbia appears to have softened since the summer of 2022.

Job growth is critical because all the population growth in the world will not put upward pressure on home values if those new arrivals don't have meaningful work.

Recently, full-time employment has trended upward. If full-time employment continues to trend upward, then we can expect more demand in 2024, regardless of population growth.

Homeownership Costs

The cost of utilities (heating oil, natural gas, and power) has been rising. In many cases, heating costs alone have risen $100 per month. Add the rising cost of groceries and gasoline to the equation, and it is clear that homebuyers have less disposable income to put toward mortgage payments.

Overall Core Demand

While British Columbia’s population has been growing at higher rates, full-time employment has not kept pace.

The core component on the demand side is rising interest rates. A household that would have qualified for a $600,000 mortgage in 2021 will now only qualify for $450,000. This, combined with record home prices, shows why home purchases have dwindled.

Many British Columbians want to own their first home or upsize. However, fewer households have the financial capacity to make their desired purchase compared to six months ago.