Central 1 chief economist Brian Yu has pointed to a combination of factors that are transforming the Lower Mainland housing market.

In a commentary released today, Yu noted that higher interest rates, including a recent 0.75 percent hike by the Bank of Canada, have led to a "rapid erosion of purchasing power".

"In the absence of a much larger down payment, potential buyers have found themselves displaced from the market," Yu wrote.

"Declining prices are also holding back both end-use buyers and investors," he continued. "More sellers are also opting to step away from the soft market in hopes that conditions improve in coming quarters."

He noted that new listings fell 15 percent from a year ago. At the same time, he maintained that "negotiating power has swung to buyers".

"While the 18 per cent sales-to-active listing ratio sits at a level consistent with balanced conditions, the rapid deterioration points to a buyers’ market which is curbing prices," Yu stated. "The average sales price fell to $1.12 million, marking a 1.2 per cent monthly decline and a 15 per cent decline from peak. As this reflects sold listings, it may be biased lower due to sales composition and motivated sellers (such as investors)."

He forecasts the "sluggish" market conditions to continue but he's not expecting a housing crash.

"The Bank of Canada signaled further rate hikes to cool inflation through the end of the year, and we now expect the policy rate to reach 3.75 per cent by year end—pushing variable rates higher," Yu wrote. "Higher rates are expected to keep sales near the current cycle low while prices grind down. That said, prices are not expected to collapse, owing to strength in the labour market and strong rental demand which will keep sellers from flooding the market with properties. The average price is forecast to decline 20 per cent from peak, with a benchmark decline of 15 per cent."