The wild ride that was in 2022 is now in the rearview mirror. Yet, 2023 is a place of hope for many industry participants and hopeful homebuyers. The coming weeks will see the release of our annual MLA Intel report, an examination of current market trends and their relation to fundamentals that considers the pre-sale landscape for the year ahead. To prepare, we unpack some of the themes and thoughts that will feature in the deep dive of forecasting presented in the Intel report.
2022: impacts and outcomes
A micro boom and bust cycle gripped the years of 2020 through 2022. This cycle was primarily driven by cheap debt and investor mobility, followed by interest rate expansion and appreciation uncertainty. The COVID-19 pandemic further exacerbated this loop, as homebuyers were inclined to "borrow activity" from the future by moving up purchasing decisions they would have otherwise delayed. This thinking led to an inflated market during the 'come up' phase when buyers made their home purchases early. In decline, where we currently stand, buyers are putting off their purchasing, contributing to a market characterized by exaggerated highs and lows. Despite fears, the current market conditions are not indicative of an impending market crash but rather are the result of the past catching up, so to speak, to the present.
The upside to a downturn
Economic anxiety in 2023 has turned away from concerns over uncontrollable inflation to fears of a looming recession. Yet, the real estate market only sometimes follows the broader economic trend. Real estate has historically been one of the economy's leading indicators; the real estate market often starts to recover before the broader economic landscape. In the past, real estate activity has rebounded at the same time a recession begins. This is likely attributed to the lower prices resulting from the preceding real estate bust and the impression that property is a more secure investment during a recession. As a result, the signs of a recovery in the real estate industry are often seen before the signs of a recovery in the broader economy.
2023: what's to come
With the Lunar New Year season in full swing, the Metro Vancouver pre-sale market faces its first litmus test of the year. For developers, this is a period of assessing the depth of latent demand that has been building for the past few months. For buyers, this may be one of the best opportunities to enter the market as competition and prices are low, supply is high to choose from, and great incentive programs surface. Already we have seen several programs come out with aggressive incentives that have forced the rest of the market to respond. While incentive periods have yet to conclude, early results indicate a rebound in demand, with an increased proportion of buyers looking to capitalize on savings.
On the macroeconomic side, the Bank of Canada proceeded with a 25 basis point increase in January while signalling a potential pause in further hikes. However, it is essential to note that a pause is very different than a full-on pivot, and a true pivot from the Bank of Canada is only expected once central bankers are happy with employment rates. This will come in the form of at least two to three negative labour reports that show a significant increase in unemployment rates.
This is one of the indicators that MLA Canada will be watching to signal a turn in the market. For other indicators to watch out for and to dive deeper into, our yearly intel report will be released soon, featuring a full forecast and roadmap for 2023.
