Metro Vancouver’s housing market is recording a sharp drop in real estate speculation, with flipping levels plummeting this month after reaching a peak in November last year.
The successful quick flip rate (QFR) for single detached properties plunged to just 0.3% so far in April 2022, after hitting a six-year high of 5.7% in November 2021, an analysis of preliminary data shows.
A quick flip is classified as a property put back on the market within 12 months of it being purchased. The successful quick flip rate is the proportion of quick flips that are sold within all sales.
The QFR for condominiums properties fell to just 0.6% so far in April 2022, after reaching 2.9% in December 2021.
The QFR for detached properties fell to just 0.16% so far in April 2022, after reaching 3.9% in December 2021, which represented a six-year high.
The sharp drop in speculation appears to be in response to the recent rate hikes by the Bank of Canada’s (BoC). Canada’s key interest rate now stands at 1% after the central bank increased the key interest rate by 0.25 basis points on March 02, 2022 and a further 0.5 basis points on April 13, 2022.
“With the economy moving into excess demand and inflation persisting well above target, the Governing Council judges that interest rates will need to rise further,” the Bank of Canada announced on April 13 1. “The policy interest rate is the Bank’s primary monetary policy instrument, and quantitative tightening will complement increases in the policy rate.”
Our research shows a strong correlation between the percentage of quick flip listings and price changes with a three month lag (correlation coefficient r=0.7 with a three month lag). Simply put, whenever the level of speculation goes up, prices go up three months later.
While correlation doesn’t equal causation, there does exist a plausible causality change to explain the link between increased speculator activity in the market and home prices: increased speculative buying increases demand, and increased demand increases prices.