Updated June 12, 2023

Towards the conclusion of 2022, we reflected on the year that was and shared some thoughts on how 2023 might play out for major Canadian macroeconomic indicators and Metro Vancouver’s housing market. More or less, our views have come to be, though we’re admittedly reeling a little bit following the Bank of Canada’s surprising June interest rate hike.

Now that almost half of 2023 is behind us, we thought we’d reflect on where things stand today, and where we might go from here as we steam towards 2024. Inflation moderation. After inflation in Canada peaked above 8% in June 2022, our expectation at the end of 2022 was that inflation would continue to moderate through this year. Indeed, the simple arithmetic of the inflation calculus suggests that in the absence of a significant economic shock materializing, it would yield an inflation rate that would approach 3% by the summer.

Today, headline inflation sits at 4.4% (through June)--much lower than the darkest days of 2022, but uncomfortably high for Canada’s central bank. We still expect inflation to dip below 4% in the coming 1-2 months, but we’ll have to see some real economic deceleration if we’re to achieve inflation in the target range of 1-3% by year’s end. Lower interest rates. The pace and extent of interest rate increase through 2022 and into January 2023 were almost entirely in response to high and rising inflation (we say “almost entirely”, because fixed mortgage rates were rising before the Bank of Canada took any explicit action to fight inflation). 

Though inflation has moderated (just not as much as we would have liked), the Bank of Canada just tightened monetary policy, raising its trend-setting interest rate by 25bps, to 4.75%. In part as a result of this, we do see an increased possibility of a perceptible economic slowdown later this year, leaving the possibility for a small rate cut by year’s end. That said, it’s most likely that it is the status quo for interest rates, more or less, between now and turning the corner into 2024. A return to more typical buying and listing activity. This has, for the most part, come to pass for the time being. A lack of housing supply in Metro Vancouver, combined with many months of pent-up demand and a return of buyer confidence, has resulted in MLS sales counts that exceeded 4,000 in both March and April and 5,000 in May—all of this on the heels of 9 straight months of sub-3,000 sales. While sales remain slightly below their long-run level, the prevalence of multiple-offer scenarios and sold prices exceeding list prices, combined with data gleaned from our own survey of consumer sentiment, suggest there is significant momentum for sales in the months ahead. An increase in home prices. “Home values are unlikely to rise in any meaningful way between now, the end of 2022, and the spring of 2023; indeed, there are few, if any, material tailwinds one can point to as a real source of increasing housing prices in the next few months.” While we got the first part of this sentence wrong when we penned it at the end of 2022, the second part has been true. However, as noted above in our commentary on rising sales counts, an ever-growing pool of buyers faced with constrained inventory has pushed benchmark prices up in Metro Vancouver in each of the past 5 months—so much so that condo prices in this region sit only 4% below their all-time peak levels from spring 2022.

So there you have it: an update on the food for thought we originally served up at the end of last year. We’ll be back here 6 months from now to provide a new update and a fresh outlook for 2024.Our rennie intelligence team comprises our in-house demographer, senior economist, and market analysts. Together, they empower individuals, organizations, and institutions with data-driven market insight and analysis. Experts in urban land economics, community planning, shifting demographics, and real estate trends, their strategic research supports a comprehensive advisory service offering and forms the basis of frequent reports and public presentations. Their thoughtful and objective approach truly embodies the core values of rennie.