Here we are at the end of yet another year! It’s been an interesting one for Canadian real estate markets, with many mixed signals and an ever-changing policy landscape.
Borrowing costs sit at 22-year highs with the Bank of Canada rate currently at 5.25%, up from 0.25% in February 2022. For consumers, this translates into it costing $6,400 to carry a $1 million mortgage at 6% and 25-year amortization, compared to the $4,100 it cost to carry the same mortgage in early 2022 at 1.8%. In simple terms, borrowing costs have increased by over 50%. Yet, prices remain relatively resilient. It’s because the vast majority feels that this is temporary, and that we will eventually get back to “normal” interest rates.
But what is normal? Everyone seems to have an opinion, including and most importantly, the Bank of Canada (BoC). The Bank has a neutral, or let’s say “normalized”, interest rate range which it sets and adjusts depending on macroeconomic conditions. Their neutral rate is a theoretical level of borrowing costs which neither restricts nor stimulates the economy. It’s the point of equilibrium which the Bank will seek to return to. Currently, the neutral rate range set by the BoC is 2-3%. The Bank reviews this neutral rate annually and will review it again in April, and this will be the best clue as to where the Bank may take interest rates over the next several years.
In my opinion, if rates stay at their current levels, we will continue to see broad-based price declines even in Squamish and Whistler. Both markets have outperformed most other Canadian markets in recent years, but this has meant that affordability has also been eroded the most with prices getting so high.
However, it is unlikely that rates will stay as high as they currently are into 2025 and the rental market remains incredibly strong, which is buying most homeowners the time they need to wait out the storm of high borrowing costs. There will be some borrowers who struggle to renew when their mortgages come up, but this is turning out to be a slight minority and banks are now explicitly encouraged to be flexible with these stressed borrowers under the newly released Canadian Mortgage Charter.
The bottom line remaining: housing and real estate are too large a part of the Canadian economy to be allowed to “fail” or go into freefall. The Bank of Canada and federal government will do whatever it takes to find the narrow balance between fighting inflation and pushing Canadian real estate markets (and therefore households), into scary territory.
Interest rates aside, there’s been notable policy changes at the provincial level, which all either work to de-commodify housing or increase housing supply. The BC NDP is being criticized for it’s heavy-handed approach to these policy changes, as well as the speed at which they were pushed through the Legislature. As a result, there is the chance that some of these changes will be walked back. Follow this link for a helpful overview of the three major housing policy changes passed in the BC Legislature in recent days: https://www.civicinfo.bc.ca/news?newsid=9041
The density bill (Bill 44) drastically changes the landscape for developers and will change the form and character of most neighbourhoods. Surprisingly, Whistler is not currently exempt. This may change, but right now, the concept of Whistler’s bed-unit cap appears to be at risk.
Additionally, Whistler has been selected as one of the communities that must designate Transit Oriented Areas (TOAs) under Bill 47. TOAs are intended to be areas of mixed-use, complete communities around transit stations and bus exchanges. Whistler is a well planned community and currently has many of these planning concepts already in place. I’ll be watching to see how this plays out on the ground. In the meantime, consider that housing density may increase along transit routes over time.
Lastly, Bill 35 has legally restricted short-term (i.e. Air BnB) rentals province-wide. Both Squamish and Whistler already have local zoning and bylaws which regulate short-term rentals, and the provincial bill does not further restrict them. This Bill is basically a moot point for both communities, although Whistler’s nightly-zoned properties may seem more attractive to a greater number of investors.
As for market stats, Whistler saw 29 sales in November, which is 25% below the 5-year average for number of sales in December. 80% of these sales went for under the asking price, 10% went for over, and 10% went for asking.
Squamish saw 34 sales in November, which is 13% below the 5-year average for number of sales in December. 70% went for under asking, 9% went for over, and 21% at asking price.
Sentiment is currently fairly low and will likely remain so through the first quarter of 2024. After that, expect some cautious optimism to start returning, so long as inflation continues to fall. “It’s usually darkest before the dawn” and when the news headlines are as dramatically negative as they’ve been lately, it can be a signal that we’re nearing the end of the downward trend in the current cycle. Humans have a limited tolerance for doom and gloom, and even the policy-makers will grow tired of themselves.
Both Squamish and Whistler remain exceptionally attractive places to live and visit. These markets will do well over time; this is unlikely to change.
Have a lovely holiday season and I look forward to working to support your goals in 2024.
~ Lindsay