Is Vancouver’s Real Estate Market Crashing?
Prices are plummeting, taxes are up and the foreign money has run dry. Are the crazy times finished in the city’s real estate market?
January 15, 2019
Every good party reaches that stage where the bottles are empty, the one really drunk guy just won’t go home, and the reality of the morning’s looming cleanup has started to sink in.
That pretty much sums up Vancouver’s housing situation for 2019, which is looking a lot like the aftermath of a prolonged frenzy, during which some people made a fortune while affordability for the average income-earner tanked. The party raged from about 2012 to 2016 in the detached house market. And the condo market picked up steam from late 2016 to early 2018, with average downtown condos spiking at $1,124 per square foot last January. And then, by summer, everything went quiet. Inventory started climbing and sales started dropping. Detached house sales sunk some 32 percent in October 2018, to 146 houses, making it the third worst October on record, according to realtor Steve Saretsky, writer of the Saretsky Report.
Sales of condo units in Vancouver proper dropped 28 percent, the lowest since 2012. As of the fall of 2018, prices were just starting to follow, with $1-million price drops in West Vancouver properties becoming routine. Throughout Vancouver, sellers were slashing prices by several hundred thousand dollars.(Illustration by Graham Roumieu)
“Price adjustments generally lag sales volumes by about two years,” says Saretsky. That’s because sellers need to get their heads around the fact that those astronomical prices have passed them by. “As sales drop, inventory begins to rise and the market adjusts to the changes.”
Saretsky says there are outside influences adding to Vancouver’s own changing market. “There is tightening of global liquidity as interest rates move higher and central banks remove stimulus. This is affecting interest rate-sensitive assets, such as real estate, across the world.”
Kevin Skipworth at Dexter Associates says the high-end detached market was hit hard first. “We have seen prices come off 15 to 20 percent in the prime market for detached homes. The sales volumes have come off quite dramatically,” he said in an email. “While some sellers are willing to sell at the lower prices, some are holding tight and not coming on the market. Buying opportunities are there, and some buyers are jumping on properties that have come off the highs.”
Considering that Vancouver has a median household income of $65,327, according to 2016 Statistics Canada data, the market was clearly driven by a combination of foreign money and speculative buying. At the peak, some developers set up sales centres in Singapore and Hong Kong, attempting to lure investors. However, in the third quarter of 2018, real estate marketing giant Knight Frank released its Prime Global Cities Index report, which ranked Vancouver at the very bottom of a list of 43 cities. In terms of luxury properties, prices had dropped by 11.2 percent in Vancouver. Other cities feeling affordability pressures hadn’t seen the same drop-off in the high end. San Francisco held strong at fourth place and Toronto took seventh. What happened, Vancouver?
“The market is in a corrective phase, and that’s exposing the weakness in our economy,” he says, referring to the low household incomes that can’t afford house prices.
The report cited the “raft of [tax] measures introduced in February’s budget” by the NDP government, including an increased foreign buyer tax of 20 percent as the culprit. The province’s speculation and vacancy tax, which will tax foreign owners at two percent beginning in 2019, and the city’s new one-percent empty homes tax are also curtailing any speculative profits. “We are going to be down for many years,” says long-time west-side realtor Bryan Yan.
Yan also cites the requirement for buyers to pass the new “stress test,” which is their ability to service a mortgage of two percent more than that offered by their lender, or the Bank of Canada’s five-year fixed rate of 5.34 percent (as of November). “The market is in a corrective phase, and that’s exposing the weakness in our economy,” he says, referring to the low household incomes that can’t afford house prices.
“With all these taxes, and the lack of foreign money coming in, prices for more expensive properties are going to drop more than 10 percent. Anything currently under $1 million will drop five percent,” he forecasts. “That’s why I’m telling all my clients not to buy until the 2019 assessments come out. They will be lower, and all price reductions will come after that.”
If you do have to sell then, do it as soon as you can, he advises.
Realtor Ian Watt, who specializes in downtown condos, sees an even steeper drop—about 30 to 40 percent for 2019.
“We have to come back down to earth,” he says. “Real estate in Vancouver is always going to go up a couple percent every year because we have no land and a lot of people moving to the city. But condos went up 93 percent in 36 months, so it’s got to go back down to where a two to three percent gain will make sense. That’s normal growth.”