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episode # 309

Why are Prices Jumping in 2022? With REBGV Economist Keith Stewart

The spring market has come early in Vancouver but almost no Sellers got the memo. Multiple offers, unconditional offers & record sale prices define the first weeks of the new year on the heels of record smashing 2021. What is going on? Real Estate Board of Greater Vancouver, Keith Stewart, sits down with Adam & Matt to talk current market conditions and the data that will drive smart decisions moving forward. And Keith pulls no punches. What do prices do this year? When can we expect more inventory & what shakes it loose? And when – and what – will lead to slower market conditions? This is a must listen for anyone interested in Vancouver real estate. The Devil, as they say, is in the details, so listen up!

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Episode Summary


Who is Keith Stewart?

I’m an economist with the Real Estate Board of Greater Vancouver (REBGV) and have been with them for about a year. Before that, I worked with CMHC on federal housing policy. I’m familiar with the challenges of getting things done at the government level. I originally got into housing with the Bank of Canada via the backend of economics and mortgages. 

How does the Bank of Canada look at the housing market? 

For the Bank of Canada it’s not about housing, it’s about risk. Everything they do about housing is through that lens. How do they affect credit conditions? How do they handle debt?

How does CMHC look at the housing market? 

CMHC is a funny beast and wears a lot of hats in the housing market. They play a role in affordable housing through government funding, as well as affordability for the public looking to rent and buy.

How does the Real Estate Board look at the housing market? 

With the REB, it’s an industry organization whose role is around education and the MLS system. A lot of my job is trying to keep numbers straight. The Real Estate Board wants to be accurate with the numbers and keep housing as affordable as possible given the context we exist in.  

What was January 2022 like in Vancouver housing?

There’s always a little wiggle every month but when I step back, the Vancouver housing market in January 2022 was on the same trend as we’ve been on since mid-summer 2021. There’s been an uptick of sales since the late fall and active listings continue to come down, so there’s no real surprise here. We have sales numbers that continue to push the bounds on historical ranges. 

The detached section of the market is more sensitive to the sales to listings ratio. I keep looking at the monthly stats and wondering when the trend will break. 

What does low inventory mean in the Vancouver housing market? 

In a good year, new home construction accounts for only 2% of the housing stock. So building more helps, but at the end of the day if sales are elevated, you can’t increase active listings substantially. New listings are seasonal and relatively steady over time. When you say active listings are low, what you’re saying is that sales have been very high recently. 

January 2022 saw a normal level of new inventory for the Vancouver market. But because we’ve had low inventory for so long, that new inventory is not making a big impact. The sales to active listings ratio becomes a measure of momentum in the market. If that is elevated, prices will rise. 

What drives the real estate market?

The real estate market is demand driven. Over time, the demand side is more variable than the supply side. Conditions we see in the market are more likely driven by demand than supply.

What is the most important housing statistic to watch?

You can’t beat the sales to active listings ratio. I like to look at the trends going into that ratio over time. What is happening to sales on a long term basis? This data is seasonal – so hearing that December listings are down 100% from November isn’t a surprise. But looking at long term averages can paint a different picture. You’ll see that new listings move the least over time. The balance of your market is determined by how strong sales have been. 

If you go to the store and see that toilet paper has run out, you don’t know if that’s a supply issue or a demand issue. All you know is there is no inventory. You don’t have enough information to understand why that is the case. It’s the same with housing. You can’t just look at the low number of active listings because that isn’t the whole story. 

What has most surprised you about the Vancouver housing market throughout the pandemic?

I purchased a home mid-2020 and at the time, people were saying the bottom was going to fall out of the housing market. Many experts were saying there would be a lot of people not able to pay their mortgages, flooding the market with inventory. But when inventory didn’t spike, I was confident there wouldn’t be a delayed crash. I anticipated a strong market due to low interest rates. 

But I was surprised how strong things got by the spring of 2021 and how persistent that strength was into the fall. The deep discount on affordability isn’t here anymore and yet we’re still seeing strong sales. But given the pandemic, it’s an odd time with everyone’s priorities changing.

How do interest rates impact the housing market?

Looking back, prices started to rise through 2017 and 2018, and that’s how we got the stress test. And then prices began to fall until mid 2019. The market was recovering quite well before the pandemic. 

Eventually, if we get over 4% interest on five year fixed term mortgages, we may start to see active listings increase. But that won’t be a quick recovery. We’ll still see upward pressure on pricing but it won’t be as accelerated. The demand will always be there but the ability to pay for it determines how active the market is. 

What happens to interest rates in 2022?

2022 will be an interesting year for interest rates. When the Bank of Canada held rates last week, we didn’t see any big shifts. People are predicting 4-6 interest rate increases throughout 2022. Today, we have high prices and low inventory. If interest rates go up, we would anticipate less growth acceleration on pricing. But there’s nothing in the data to suggest price pressure is weakening and things could dip at any moment. 

Pricing can be stagnant? – not this q

If buyers can’t pay more and sellers don’t need to sell, we’ll see fewer deals because the parties can’t come together on something mutually agreeable.  

Do you look at the presale market in your analysis?

I don’t spend a lot of time looking at presales because they’re not heavily present on MLS. We do see some presale duplexes on MLS, so I will look at those. But I don’t follow the big launches. I leave that to the urban analytics guys. 

People pay a 20-40% premium on presales in some markets. What does the high price of presales signal for the housing market?

The presale market is interesting. Are people predicting prices for the future? Is it a barometer for where the market is going to go? Maybe. I think it more so speaks to the frustration buyers are experiencing trying to buy something since resale listings are so low. This way, they can just sign some paper and have a deal done. 

Presales are also an easy avenue for some investors. With interest rates where they’ve gone, you’d be hard pressed to find a better deal. You have to deploy your money somewhere. So it’s not surprising that some people just want to grab hard assets in this interest rate environment. 

What does inflation look like in 2022? How does inflation impact the Vancouver real estate market?

Inflation is a funny beast. It’s not a fixed law; inflation is what we have decided to count. We are flirting with 5% inflation and the US is flirting with 7% inflation, but the US tracks used cars while Canada doesn’t. Inflation is experienced differently by different players out there. The Bank of Canada isn’t targeting your inflation rate for your life. They are averaging across everyone, but also no one specifically. 

If you look at inflation month over month, we’re already seeing inflation measured by the CPI dampen down. We’re starting to see that the worst is behind us. Now that story could change with new data in the next three months. But it’s possible the Bank of Canada won’t have to hike as aggressively to get this under control. 

The transitory inflation story is still very much in play, even though the term isn’t heard as often anymore. That’s what I think, but I’m willing to change my story if new data comes in.

What does unemployment in Vancouver look like? How is the job market in Vancouver in 2022?

Job numbers don’t move too much month over month, but Vancouver has had lower unemployment than most of the rest of the country throughout the pandemic. We also recovered much quicker than most of the rest of the country. 

When comparing Vancouver to the other cities in the big six (Toronto, Ottawa, Calgary, Edmonton and Montreal) where most of the economic activity and growth happens, Vancouver has done better. We recovered quicker and our lockdowns were less extreme. BC has seen relatively strong employment growth going all the way back to 2015. 

What happened with condos in Vancouver in 2021?

2021 was actually an all-time record sale year for condos in Vancouver. Not many people actually picked up on that. Lots of people traded up for detached houses but they wouldn’t have done that if they couldn’t sell their condos. Vancouver does stick out because the number of people who live in condos is high. 

The millennial age group includes both people who are just getting into the market and also those looking to upgrade to their second or third home. So some people were trading up while others were getting in. 

What is the biggest risk facing the Vancouver housing market?

If you had asked me a few years ago, I would have said the biggest risk facing the Vancouver housing market was government intervention. But we’ve put so much in to restrict credit or restrict certain investors and our market has still been so resilient. 

We could see more mortgage rule changes or tax treatment changes but those likely won’t be that detrimental to pricing. Vancouver has stretched affordability. If credit conditions change dramatically, you would expect to see that in the data. 

What did we learn about foreign buyers in Vancouver? 

We learned that Vancouver is an international city and an attractive place, so we have more foreign buyers than most places. But no, you’re not being bought out of your home by offshore money that is buying places and holding them vacant. Every time we’ve looked, the data has shown very modest numbers for foreign buyers, less than 0.5%. 

What is happening in the Vancouver housing market in 2022? 

It’s unlikely we’ll see a new record in terms of sales; they should be about 10-15% over last year. The biggest pull back will be in detached houses, because of how elevated they were in 2021. Apartments may be pretty flat, but that would still represent very strong sales. Across the region, we think we’ll see more of a pull back in sales numbers in Downtown Vancouver (-8%), the west side of Vancouver, as well as Squamish and Whistler (-15%). 

On the pricing side, prices year over year are positive across the board. I predict 9% across the board: 13% for detached, 10% for attached and 8% for apartments. The biggest price increases will probably continue in further out regions with more room to run. We may see 13% price increases in places like Squamish and closer to 10% for places like Burnaby and the North Shore. 

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