The sudden shift in the Vancouver housing market has been well documented. In November, home sales across all property types sank to a ten year low for the month. The drop is rather unprecedented considering the current economic backdrop suggests unemployment across Canada has plunged to a 42 year low. And while unemployment may be a lagging indicator, the housing market is certainly not. Of the components of GDP, residential investment offers by far the best early warning sign of an oncoming recession.

So too does the yield curve, which continues to flatten. Earlier this week the Canada 2 and 5 year bond yields inverted, the first time since 2007. A flat or inverted yield curve is when short term rates exceed long-term rates. This is often taken as a signal that investors are more optimistic about short-term prospects versus the long term, suggesting a lack of confidence in continued economic growth. This can also impact bank profitability, as banks pay short-term rates on deposits and take in long-term rates on loans. A flat or inverted yield curve, therefore, could lead to negative net interest margins.

In simpler terms, this can cause bank lending to further tighter, leaving borrowers high and dry when market liquidity is most needed.

While the resulting slowdown from bank lending can most easily be seen in the decline of sales volumes, it is now more noticeably reflecting in home prices.

The detached home price has now dipped 8.5% from last year, the largest decline since late 2009.

Meanwhile, the resilient condo market has finally dipped into negative territory as well, dropping 1.8% year-over-year in November, the first negative reading since October 2013.