A renewed sense of optimism for presales is rising as interest rates are expected to drop this year

Optimism is growing in the wake of last year’s decision by the Bank of Canada not to raise its 5% key lending rate. The fundamental drivers that came into play, such as Greater Vancouver’s fairly strong household formation, population and employment growth, are predicted to have significant implications for a rosier 2024 outlook.

“This year, the real estate market is expected to steadily improve even with elevated borrowing costs, which is driven by near-record-low inventory levels,” says Andrew Lis, Real Estate Board of Greater Vancouver (REBGV) director of economics and data analytic. “January sales figures came in so strong after such a quiet December, which saw many buyers and sellers delaying major decisions. We saw housing sales up substantially to 40% in Greater Vancouver and 52% in the Fraser Valley year-over-year.” 

Seasoned multi-family developer, Jayen Properties President Sukhi Rai, says the Bank of Canada’s decision to keep rates steady have created pent-up demand for homeownership by sending a strong and positive signal to buyers, investors and real estate professionals alike.

Interest rate impact of the presales market

Lis suggests that while inflation is not an immediate threat, core measures of inflation need to decline a little faster for the central bank to start more substantial rate cuts of its key lending rate.

“While traders are betting for a full per cent rate drop sometime this spring or summer, indicators seem to foresee rate drops in the latter stages of 2024 or into 2025,” says Lis. “I do feel confident that we will see a drop later this year, however, how big of a drop I don’t know, but conservatively speaking I’d say at least half of a per cent.”

This rate reduction projection, although conservative, hints at a more favourable buying environment in the near future. If this happens, Lis says, this could support lower interest rates which would bolster home buyers’ confidence to move back into the market.

REBGV numbers seem to confirm that theory. Its 2024 residential sales forecast for apartment units is expected to be 15,000, up 9.7% from 2023, while attached multi-family sales are projected to be 5,000 units, a 4.3% jump from 2023.

While Lis acknowledges that lower borrowing rates will have a huge impact on presale market performance, competition among buyers could tilt the market back into sellers’ territory, as the historically low inventory struggles to keep pace with demand. Having said that, the overall Greater Vancouver’s housing market is pointing to a buyer-friendly atmosphere as we move into the later part of 2024. For presales, with a typical one-to-two-year completion of purchases, there’s an even more favourable buying environment.

Despite higher interest rates, presales can still offer profitable returns as property values increase during the construction period, notes Rai. The significance of the Bank of Canada’s decision means that the potential for presale appreciation is high; especially given B.C.’s desirability and livability appeal.

In the real estate industry, there is a saying: don’t wait. If you find your dream home or are ready to become a homeowner, take the plunge no matter the market.

“In the 1990s, we were trending double the number of inventory compared to less than half of that number today,” explains Lis. “Valuations could be lower than forecasted if a recession is accompanied by significant job losses, eliminating pools of buyers who otherwise may have participated in the market. However, investment trends may come and go but the desire to own a home will always drive demand.” 

Tips for navigating market fluctuations (Courtesy of Andrew Lis, REBGV’s director of economics and data analytics)

  • Before entering the real estate market, it is crucial to know your budget and financial comfort
  • One of the most crucial aspects of buying or selling a property is understanding the real estate market
  • Staying abreast of the latest market trends is crucial for buyers seeking to make informed decisions
  • Find a really good mortgage broker and realtor to figure out your best options 
  • The REBGV offers a wealth of resources for first time home buyers