If life were predictable it would cease to be life, and be without flavor.
- Eleanor Roosevelt
Well we all thought we knew where the real estate market was going...for a soft landing with a gentle reduction in sale prices. Instead we got plunging sales stats while everyone stood around in disbelief at the disorder of the world.
Vancouver has always been an outlier in almost every area including real estate. Incredible highs have always been combined with alarming lows.
As a dear friend commented about her life married to a stockbroker..."it was always chicken or feathers". So it is in Vancouver real estate cycles.
The detached home market hit unaffordable highs in price with buyers investing funds made outside Canada. Most of the investors came from China. Sotheby’s reported falling luxury home sales in Montreal, Toronto, Vancouver and Calgary in 2018. They apportioned the blame in Vancouver to the "unintended outcomes" of the BC government intervention.
As the Chinese government made it difficult to send funds from China to Canada there was no longer a deep pool of buyers for single family detached homes in Metro Vancouver, particularly in Vancouver, West Vancouver and Richmond. In the Vancouver Sun Bloomberg is quoted as describing this infusion of cash from China as "one of the largest financial flows of the 21st century" with capital flight estimated by the Institute of International Finance to be in the hundreds of billions of U.S. dollars, starting in mid-2014.
As the detached market slowed the cascading effect slowed. There were no longer downsizing buyers looking to move to a townhouse or a new luxury condominium.
The number of townhouse and apartment sales dropped.
In the meantime local and first time buyers looking to purchase a condominium apartment were blindsided by the federal mortgage stress test which in effect gave every mortgage applicant a 20% haircut. With a lower mortgage amount buyers could no longer purchase a condo because there were none suitable at their new price point.
An interesting discussion in the Vancouver Sun about 2019 speaks of unsustainable speculation in 2015/2016 caused by a huge infusion of offshore cash in the Vancouver market which will be undone in 2019 with lower prices. As in all Vancouver cycles prices and sales will rise again but at this time according to Michael Ferreira of Urban Analytics in speaking of new condo projects "there’s still underlying demand but it’s much more selective, looking much harder at price, location and the brand, reputation and track record of a developer".
Then the NDP-Greens government was installed in Victoria with a mandate to provide affordable housing. The Finance Minister started out by dissing the 25% GDP of the provincial economy in stating that they didn’t care about real estate, didn’t need the revenue and were aiming to lower prices to the level that everyone could buy a home.
Photo by Aditya Chinchure on Unsplash
The Globe and Mail describes how to this end they raised the foreign buyer tax, added the school tax to homes assessed at more than $3 million and then applied the Speculation and Vacancy Tax to every home owning resident of Greater Vancouver, the Fraser Valley, Greater Victoria, Greater Nanaimo and Greater Kelowna.
Andrew Weaver, the Greens leader who is propping up the NDP minority government is not a fan of the tax and vented to Vaughn Palmer of the Vancouver Sun on how he thinks it was unfair and a political mistake. It will be interesting to see if the Finance Minister takes his advice.
Those areas which complained the loudest were excluded from the tax including Whistler, Squamish, the Sunshine Coast, Bowen Island, the Gulf Islands, Qualicum, Parksville. This tax was originally promoted as being assessed against foreign investors who didn’t pay taxes in BC and who left their properties vacant. It turns out that most people being assessed are taxpaying permanent residents of BC who may own property including recreational property in the taxable areas. The Globe and Mail discusses the downside of a negative option tax.
All this taxation has been combined with the Canada-China fight over the arrest of Meng Wanzhou, CFO of Huawei Technologies on a US extradition warrant.
This arrest has cooled trade talks, Chinese investment in real estate and resulted in Canadians being held hostage in China and one being sentenced to death there after a show trial. There is an ongoing security review in Canada as to whether Huawei Electronics should continue to be allowed to supply Canadian Telcos with cutting edge 5G technology.
In the Vancouver Sun the Canadian ambassador points out that China is damaging its international reputation with their comments but so far they are not listening and Canada is on their negative radar screen.
January sales have started slowly and we are all holding our breath to see what happens next.
Overall it is a time of great opportunity in the housing market. Vancouver is never down for too long.
Detached homes sales have declined 43.6% compared to December 2017. The detached benchmark price across the region is $1,479,000, a 7.8% decrease from December 2017. This includes a 1.4% decrease compared to November 2018.
Townhomes are desirable to downsizing buyers but the drop in the numbers of sales of detached homes has put many buyers plans on hold. Attached sales numbers are down 49.1% from December 2017, The benchmark price across the region is $809,700, a 1.3% price increase compared to December 2017. This includes a 1.1% decrease compared to November 2018.
Condominiums which were the choice of first time buyers last year have been heavily impacted by the mortgage stress test and the 0.6% price increase from December 2017. Apartment sales numbers are down 34% from December 2017. The regional benchmark price is $664,100. This includes a 0.6% decrease compared to November 2018.
"This past year has been a transition period for the Metro Vancouver housing market away from the sellers’ market conditions we experienced in previous years." as stated by Phil Moore President, Real Estate Board of Greater Vancouver. "High home prices, rising interest rates and new mortgage requirements and taxes all contributed to the market conditions we saw in 2018."
The sales to active listing ratio for December 2018 is 10.4%. By property type, the ratio is 7.1% for detached homes, 12% for townhouses, and 14.2% for condominiums.
In December 2018 the benchmark price for a detached in North Vancouver was $1,542,200 down 8.2% in one year, up 60.8% in 5 years and up 95.9% in 10 years.
In Richmond the detached benchmark price was $1,593,000 down 9.2% in one year, up 62.7% in 5 years and up 122.8% in 10 years.
In Vancouver East the detached benchmark price was $1,447,300 down 7.2% in one year, up 67.0% in 5 years and up 143.3% in 10 years.
In Vancouver West the detached benchmark price was $3,135,400 down 11.8% in one year, up 49.0% in 5 years and up 135.5% in 10 years.
In West Vancouver the detached benchmark price was $2,674,700 down 13.5% in one year, up 37.8% in 5 years and up 111.7% in 10 years.
Each year affordability declined for local buyers. First time buyers are particularly hard hit by mortgage stress tests, high prices and lack of affordable inventory.
In December 2018 the benchmark price for a condo apartment in North Vancouver was $567,300 down 0.3% in one year, up 58.4% in 5 years and up 79.5% in 10 years.
In Richmond the condo benchmark price was $668,500 up 2.5% in one year, up 85.2% in 5 years and 108.3% in 10 years.
In Vancouver East the condo benchmark price was $538,000 down 1.4% in one year, up 74.2% in 5 years and up 101.8% in 10 years.
In Vancouver West the condo benchmark price was $783,700 down 2.9% in one year, up 65.6% in 5 years and up 97.0% in 10 years.
In West Vancouver the condo benchmark price was $1,140,900 down 2.6% in one year, up 69.8% in 5 years and up 89.3% in 10 years.