In recent years, affordability has been one of the chief topics in the Victoria real estate market, whether housing prices or higher mortgage rates.
According to the Victoria Real Estate Board (VREB), the Home Price Index benchmark price for a single-family home in November was nearly $1.3 million, up three per cent from the same in the previous year. Even condominium prices have trended upward in the last year, rising close to two per cent to just below $578,000.
Still, Victoria remains one of Canada’s most desirable real estate markets.
Understanding the Victoria Housing Market
Victoria has a diverse economy, an excellent lifestyle, and a thriving tourism sector, bringing more than four million visitors to the West Coast municipality annually.
While the Victoria housing market was fairly unstable during the coronavirus pandemic, it is now slowly returning to pre-crisis levels with more listings and demand increasing gradually. The market is expected to grow, but prices are expected to grow simultaneously.
Recent forecasts from the Canadian Real Estate Association (CREA) show that home prices in Victoria are expected to increase by nearly seven per cent in 2024. Although home prices may soften in the first half of 2024, they are expected to level out eventually in the year’s second half. The RE/MAX 2024 Housing Market Outlook report offers a slightly different estimate of the Victoria real estate market, projecting that prices would tumble two per cent.
Despite these predictions, statistics show that the number of real estate cash buyers in Victoria increased to 32 per cent in 2023 from 19 per cent in 2020. This suggests that not only are people in Victoria able to afford the expensive real estate, but they can also even pay for it in cash. This could also be because wealthier buyers (or those who can manage to pay the full amount in cash) want to avoid high-rate mortgages since interest rates in Canada have been continuously increasing since 2023.
That said, 2022 was relatively slow as far as home values are concerned in Victoria. However, in 2023, there was a turnaround. With mortgage rates anticipated to remain above trend in 2024, prospective homebuyers might sit a little longer on the sidelines to reduce a heavy mortgage burden.
In addition, new buyers are facing other challenges: Not qualifying for a new mortgage at the current rates. For example, a household earning $70,000 may only be eligible for a mortgage of as little as $300,000. Unless they have an immense amount saved for a down payment, this low amount will not enable them to buy anything.
Indeed, to afford a residential property priced at $741,000 in Victoria, a buyer must make six figures per year.
Meanwhile, the rental market in Victoria is quite strong, which may also be one of the reasons why people are not buying right now: They are choosing to rent out their homes instead.
The real estate market in Victoria is expected to show typical annual growth in the range of one per cent to three per cent annually. As a result, waiting a couple of years before investing in real estate in Victoria might be a prudent step for some market participants. This is based on the hope that prices would eventually come down.
Moreover, another option is to widen your search and explore affordable properties in other areas. The main city core of Victoria may be the most desirable, but there are surrounding areas that also offer significant investment opportunities. For example, Langford has witnessed substantial growth in recent years and is more affordable than Victoria. Similarly, Sidney and Saanich could be viable options for buyers entering Victoria’s real estate market. The areas of Saanich East, Westshore (Langford/Colwood), and downtown Victoria are expected to be the most popular neighbourhoods in Victoria in 2024.
Acquiring a property may not be the only way to invest in real estate in Victoria. Other options, such as mortgage pools, offer lower upfront costs, reduced risk, and high returns.
Victoria Real Estate is Moving from a Balanced to a Buyer’s Market
Overall, Victoria will likely see a shift from a balanced market to a buyer’s market in 2024.
The effect of high interest rates will continue to play a critical role in the Victoria and broader Canadian real estate markets. With slowing sales, inventory could experience a boost, tilting more in the favour of buyers.
Single-detached homes are in most demand. Since prices are so high, first-time homebuyers may find it hard to qualify for the increased mortgage and may require assistance on a downpayment or be forced to wait. The situation may change if the Bank of Canada (BoC) cuts interest rates in the spring or summer of 2024. Inflation numbers are also expected to ease this year, so there is hope that the real estate market will be able to balance itself out and recover.
Until then, many buyers and sellers have adopted a wait-and-see approach before making their next move in the Victoria real estate market.