An increase in prices accompanied the increase in sales. CREA’s quality- and size-adjusted house price index reported a year-over-year increase of 25.3 per cent in November. Prices grew at a much faster rate in smaller towns near populous urban centres. For example, the housing price index in Greater Vancouver increased 16 per cent year over year, while prices in Fraser Valley were up 30.3 per cent.
To forecast the future, one must first predict the past or, at the very least, determine why the gloomy housing market forecasts have proven to be so drastically wrong. Some explanations are readily apparent. First, governments globally decided not to let the pandemic kill the economy and responded with unprecedented stimuli, collectively injecting trillions of dollars into the economy. Canada was no exception.
COVID-19 drastically increased the demand for homeownership and, as a result, working from home increased the intrinsic value of housing. Housing is now an extension of one’s workplace, the last step on the last mile of online retailing, the rendezvous for one’s leisure and, intermittently, the classroom for one’s children.
Therefore, higher sales and prices are essentially an outcome of the imbalance in the demand and supply of housing. In November, the sales-to-new listings ratio was 77 per cent. Although that was slightly lower than the 79 per cent recorded in October, suggesting a slight decline in demand relative to supply, it was still much higher than the long-term average of 54.9 per cent.
Just like the Feds, people are addicted to cheap money. Isn’t it nice that the “independent” BoC has been artificially keeping the borrowing rates historically low.
This is called inflation