Home sales continue to slow in this province and prices are going down because of it, according to the latest housing outlook from Central 1 Credit Union.

The report, released Tuesday morning, forecasts a third straight year of waning resale transactions. This year, an 11 per cent drop is expected, marking the fewest sales since 2013.

Sluggish market conditions mean B.C.'s median home price is projected to be 4.1 per cent lower in 2019, marking the first decline in seven years.

"We are seeing a weakening price environment, especially in the Metro Vancouver area, where slow sales have led to a significant price decline," said deputy chief economist Bryan Yu.

While some regions are holding steady, soft housing prices overall are set to continue for the next two years with the median price province-wide pegged at $516,000 for 2021.

Buyers sitting on the sidelines

As some bide their time to see if prices will fall further, the report finds 'recessionary conditions' in B.C.'s ownership market persist.

"This is largely a policy-driven type of recession in Metro Vancouver's housing market, and to a lesser extent on Vancouver Island and in the Okanagan," Yu told CBC.

He said it's no cause for alarm because the situation was largely induced and not a symptom of a tanking economy.

"Typically when we see housing market downturns, they're preceded by a weaker economic environment such as job losses or a global recession," said Yu.

"But the economy itself is actually operating quite well right now; B.C. has low unemployment rates, high employment growth, tight labour markets."

That's one of the big reasons we have such a low sales environment; people still can't get the financing to get into the market. - Bryan Yu, Central 1 deputy chief economist

Policies weighing on demand

The market is finally trending downward, but that doesn't mean first-time buyers will suddenly be able to purchase property.

"They're still facing a down payment constraint due to the federal mortgage stress test, so even though prices have come down they're not necessarily in any better position to get into the market at the current time," said Yu.

Federal and provincial policies continue to weigh on demand, according to the report, including the speculation and vacancy tax as well as the expanded foreign home-buyers tax.

"Whether you feel that's right or wrong they are undoubtedly cutting into demand of the housing market right now, though largely from investors or buyers from abroad," said Yu.

Given the strong overall economy, he doesn't believe there will be a significant negative shock for B.C. as a result of the housing correction.

Knock-on effects to come

What's good news for buyers now within reach of a more affordable market is simultaneously bad news for homeowners watching their equity take a dive.

"For individuals who already own homes, they may feel that this is having a negative impact on their equity value or retirement assets — it all depends where you are in the housing cycle," said Yu.

The next thing to watch for: the knock-on effects of this new real estate reality.

"Developers who have projects that are being marketed but can't get enough pre-sales, then they might not be able to get enough financing, that's going to lead to some delays of projects."

The report forecasts a sharp pull back in housing starts in the second half of 2019 as the resale market weakens further and pre-sale conditions cool construction.