The B.C. Real Estate Association has released a report illustrating how a basic economic principle works.
It’s called the law of supply and demand.
The model applies in a free market of goods and services, and these include homes. Historically the gap between the number of buyers and sellers has been predictive of growth in home prices.
The document titled “Way Out of Balance: Housing Supply and Demand During the Pandemic” noted that the average price of a home in the province increased by 25 percent since COVID-19 struck last year.
To explain why this happened, the BCREA looked at supply and demand.
At the peak of market activity in March 2021, an estimated 67,000 buyers were searching for homes across BC while only 24,000 listings were available that month
That’s a ratio of homebuyers to sellers of almost three to one.
The result was significant upward pressure on prices and transactions often occurring after multiple offers
In March 2021, a total of 15,073 homes sold, setting a new record for best monthly sales.
The number surpassed the record set in May 2016, when 13,482 homes sold in the province.
The March 2021 record was driven by local buyers.
The number of foreign buyers in B.C.'s property market dropped to almost zero on account of travel and border restrictions due to COVID-19.
The buyer-to-seller ratio in the Lower Mainland tracks the overall value for BC very closely
In particular, during the slowdown of 2018 and 2019, buyers and sellers were closely matched, with demand picking up right before the pandemic prompting a drop in market activity
However, the ratio then rose rapidly until March 2021, surpassing a value of three While the regions covered by the Real Estate Board of Greater Vancouver saw a sharp increase in the ratio of buyers to sellers, that increase paled in comparison to Chilliwack and markets within the Fraser Valley Real Estate Board such as Surrey, Langley, and Abbotsford.
These markets saw an enormous rise in total demand during the pandemic as potential buyers looked outside of the Vancouver area for more affordable space.
The BCREA estimated that at the height of the market during the spring, buyers outnumbered sellers by as much as 7 to 1 in the Fraser Valley and Chilliwack.
This resulted in many transactions involving multiple offers and rapidly escalating home prices.
Indeed, while home prices rose about 14 per cent in the Greater Vancouver Area, prices in the Fraser Valley and Chilliwack were up close to 30 per cent.
The provincial association concluded that these model-based estimates of the imbalance between supply and demand in this report confirm the trends observed throughout the pandemic as well as the broader long-run issues contributing to challenging affordability in BC.
While the pandemic is a rare event, the experience of the housing market during this unusual time further highlights how challenging it is for supply in the housing market to keep up with rapidly changing demand