If there’s been one consistent theme for Canadians in 2023 it’s that of an unsettled economy and flailing housing markets across the country. Our world has been more volatile than stable, more vigilant than calm, and more uncertain than predictable. Noting the latter—unpredictability—is the bane of a forecaster’s existence, why don’t we go ahead and put a few stakes in the ground for 2024 as they relate to the Canadian economy and Metro Vancouver’s housing market.  

Inflation will slip back into the goldilocks zone.

Canadian consumer price inflation has fallen significantly from its multi-decade apex of 8.1%, in July 2022, to its current level of 4.0% (September 2023). This was expected, and it’s unambiguously good news for our economy. Where inflation goes from here, however, is much less certain, as the base-year effects that drew down inflation through the first half of 2023 are no longer influencing the inflation math the way they had been. Having said this, the Bank of Canada’s currently-restrictive monetary policy is clearly having its intended effect, as per-capita retail spending has slowed, housing markets are seeing fewer buyers and more sellers, and the job market has for months now been characterized by rising unemployment, a jump in employment insurance claims, and part-time job additions. Expect these disinflationary trends to bring the headline rate of inflation back into the Bank’s target 1-3% range by Q3 2024. 

Interest rates will begin their 200bps descent.

After an historic tightening campaign, Canada’s central bank is currently wielding a trend-setting rate of 5.00%. Our view is that we’re at the peak for this cycle—or at least, we should be at the peak, given the tremendous potential for significant lagging effects of the rate hikes that have already taken place. So where do we go from here? It’s helpful to know that the Bank of Canada sees the “neutral” interest rate as being between 2.50-3.00%. If we adopt the upper end of this range as the ultimate landing spot for the Bank, then it will be looking to shave two full percentage points off of the current rate beginning—in our view and in response to a slowing economy—in Q2 2024.      

Home sales will slow but pent-up demand will grow.

Resale counts in Metro Vancouver fell below 3,000 last month (September) for the first time since February, with higher borrowing costs clearly weighing on would-be purchasers. With no obvious boost coming to demand in the near-term, we see home sales remaining below the long-run average through the balance of 2023 and into early 2024. However, since the beginning of the Bank of Canada’s rate-hiking cycle in March 2022, and based on historical per-capita sales averages combined with recent population growth, we estimate that 20,000 homes didn’t change hands that otherwise would have over the past 18 months. Put differently, this demand will eventually become unpent, guided by falling interest rates and in addition to baseline housing demand, beginning next year.

We'll stop using GDP as an indicator of...anything.

Admittedly, this is more an aspiration than a prediction. GDP—or Gross Domestic Product, the sum of the value of all goods and services produced within a particular set of geographic borders over a specific period of time, usually a year—is a concept that was refined and adopted in the 1930s and 1940s as the go-to indicator of a country’s economic performance. In short, GDP that’s rising is supposedly a good thing; when it shrinks, it’s a bad thing. Unfortunately, while the simplicity of the measure is elegant in theory, it’s anything but in practice. Consider that paying someone to dig a hole and then fill it back up adds to GDP; that staying home to care for an infant takes away from GDP; and that GDP would expand considerably (in the short-term) if everyone would just go and max out their credit cards!

In the current epoch of record population growth and unprecedented post-pandemic excess savings being spent, changes in aggregate GDP don’t tell us anything about changes in the per-capita trend in GDP. More pointedly, GDP as a measure of economic activity is so general and detached from the experience of individual markets, businesses, and individuals, that its real value is solely as a broad indicator. It’s time to accept that whether we like it or not, nuance and detail matter when discussing the economy. When better to do this than in 2024?  

Each November, our VP of Intelligence and Senior Economist, Ryan Berlin shares his predictions for the Metro Vancouver housing market for the year ahead. To see his previous predictions, see here. 

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.