British Columbia's housing market is in the middle of a mild recession and that's not expected to change any time soon, according to a new housing forecast report.

The Lower Mainland is shifting from a seller's market to a buyer's market, with declining home sales and lower prices, Central 1 Credit Union found in a report released Tuesday. The forecast looks at the market conditions for 2019-2021.

"We're now seeing the effects of eroding prices," said Bryan Yu, deputy chief economist for Central 1.

"Also, we're looking to see [construction] start to drop off quite significantly over the next couple of years as developers and builders really start to respond more to the weak demand environment."

The number of home transactions in B.C. declined 17 per cent this year, with the median price rising six per cent to $530,000, according to the report — though the latter is expected to dip two per cent to $520,000 in 2019.

The report notes that the slowing market is particularly apparent in large urban areas like Metro Vancouver, Victoria, Kelowna and Abbotsford-Mission, where combined sales are down 40 per cent compared to this time last year.

The declining sales and prices are particularly visible in large urban areas like Metro Vancouver. (Darryl Dyck/The Canadian Press)

Stress-test effect

Yu pointed to the impact of newly implemented federal and provincial policies like the more stringent mortgage qualifying requirements and higher interest rates as some of the driving forces behind the downward turn.

"A lot of those buyers who were probably able to get into the market really had the rug pulled out from under them with the new mortgage rule measures, where they had to be stress-tested at a higher qualifying rate," said Yu.

"The issue is that they were ready to buy and now they've been shafted out of that purchase."

Although prices and sales are slowing, Yu said it won't be a dramatic change.

"We're not expecting to see a crash in home values by any means," he said.

"For the most part, anyone who has purchased for a number of years isn't going to see much of a real negative impact. Those who may have bought in the last year and are looking to sell for any reason, they may be selling at a lower price."

Lower prices don't lead to more sales

Lower prices might mean more affordability, but that isn't helping most homebuyers, Yu said.

"Many of these people — even thought the price has come down— may not be able to afford that property anyway because of the higher [mortgage] qualification rules," he said.

"What we are seeing now is overall slowdown and it is going to impact the economy as well, particularly as it rolls through into the new-home market."