Housing market slowdown dragging on B.C. economy: report

Forecast blames expected contraction in B.C.’s economic growth in 2019 squarely on reduction in residential real estate market activity

Glacier Media Real Estate
November 20, 2018

Real estate agent signs homes for sale

A predicted reduction in B.C.’s economic growth next year is being blamed squarely on the slowdown in housing market, according to a Central 1 Credit Union forecast released November 20.

The province’s annual GDP growth is expected to slow from nearly three per cent over the past few years to 2.5 per cent next year – “largely driven by lower levels of housing market activity,” said the report.

It said, “Recent declines in housing volume are contributing to flatter retail sales trends. The declines are expected to contribute significantly to lower housing construction trends through to 2020, particularly in the larger urban markets in the South Coast region of the province.”

Not only are fewer housing starts linked to lower retail sales, as homeowners spend less on their new homes, but a decline in home prices is also known to affect retail sales. When home values increase, homeowners feel wealthier and tend to spend more, even if they don’t have any additional income. As reported by the Huffington Post, “In a recent study, Moody's Analytics tried to put a number to the 'wealth effect.' They came up with 4.5 cents – for every dollar you gain in perceived wealth, you spend an extra 4.5 cents.”

Conversely, falling home values means lower retail spending and create a downward spiral effect, says Huffington Post. “When homeowners start feeling poorer, they will adjust their spending downwards. That will slow the retail sector, putting pressure on many businesses and slowing employment growth. That decline in employment will make it harder for some to pay their mortgages, putting further downward pressure on real estate.”

Central 1 saidi it expects that B.C. home price growth in 2019 will be weak overall, although the only price declines are expected in some sectors in the Lower Mainland-Southwest region. It also predicts “downward pressure” on prices in the southern Interior as its major buying group of Alberta buyers stay away.

House price forecast BC Central 1 Credit Union

However, it is forecasting fairly strong increases in home prices on Vancouver Island, “due to stronger population growth as retirees relocate to the Island.” Central 1 added that the most robust housing markets will be in the northern coastal and interior regions, as booming cities such as Kitimat experience a surge in demand and prices.

Read the full report with region-by-region forecasts by clicking the link in "Related" above.

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