The week’s top stories focus entirely on the residential market in Metro Vancouver, from board stats to a comparative pricing analysis comparing downtown Vancouver condo prices to that of other global cities. Meanwhile, an infographic takes a look at which areas in Vancouver have begun to swing towards a buyers’ market.
Here is Western Investor’s pick of the most buzzworthy commercial real estate stories published this week.
What does the housing market slowdown mean for buyer choice and affordability? A financial expert weighs in.
Real estate has been the investment of choice for generations, and Metro Vancouver has been a gold mine for residents in the last decade.
Reports say 76 per cent of national wealth is tied up in real estate, which is fine as long as housing prices are moving higher but it can be downright dangerous if the real estate market bubble is bursting.
Canada’s housing market is in a funk. Locally, the price drop we have seen is still failing to ease Metro Vancouver’s housing crisis. In our city, the number of homes sold has also plummeted and home prices continue to fall. Some are recognizing the drop, while others refuse to believe it’s as severe as it is.
What does that mean for affordability?
If you’re interested in a house over $1 million, you will need at least a 20 per cent down payment due to CMHC insurance requirements. Given that the average home is $1.4 million in Vancouver, you’ll need $280,000 down with a $1.12 million mortgage. To qualify for this, your household needs to have annual income of at least $250,000 and you’re looking at a mortgage payment of $6,700 per month or more. In other words, you need to be in the top two per cent of income earners to buy an average home.
Are we currently in a buyers’ market?
Although there was a drastic drop in the number of sales, with prices following closely behind, we don’t think that we are in a buyers’ market quite yet. Since the market has moved significantly higher over the last several years, with the exception of 2018, we still think the market still has a long way to go (even lower!). Some analysts believe there’s potential for a lost decade in Vancouver, which could lead to alarming domino effects for the local economy.
Effect of interest rates, debt levels and recessions
While interest rates are currently on hold, we saw a sharp climb up from 2017-2018. Historically, we are still well below the average, and there is always potential for them to move higher over the years. With Canadians effectively maxed out on debt, any higher rates, or a recession that puts a squeeze on jobs, could lead to many households struggling to make their monthly payments.
Either of these scenarios could cause home prices to drop even further. Bankruptcies and delinquencies have climbed already. Even with mortgage rates on hold for now, people should be wary of taking on too much debt with a softening economy.
Metro Vancouver map shows which municipalities are in buyer's markets and how much prices have declined in each.
It’s clear that Metro Vancouver is in a housing market slowdown, with listings piling up and benchmark prices declining. But how does this break down by municipality, and which areas are in a buyer's market?
Real estate website Zoocasa created an infographic map of the region, ranking each area by how deeply it has receeded into a buyer's market or remained balanced. It used the sales-to-new-listings ratio (SNLR), which is the number of sales in a month as a proportion of the number of new listings in that month. The SNLR is an alternative measure of buyer's and seller's markets to the sales-to-active-listings ratio used by the real estate board.
A buyer's market, when measured by SNLR, is anything under 40 per cent, a balanced market is 40-60 per cent and a seller's market is over 60 per cent.
The infographic also lists the SNLR one year previously for comparison, as well as each area’s composite benchmark home price and year-over-year price decline.
West Vancouver was unsurprisingly the municipality in the deepest buyer's market, now at 20 per cent. This means that one home was sold in April for every five that were listed in April. West Vancouver was followed by Richmond, North Vancouver and Vancouver West, all of which were under 30 per cent.
Of the 15 municipalities studied, Langley was found to be the most robust area, with a balanced market at 48 per cent.
Listing inventory builds up across the province, although some regions remain in seller’s market territory.
There has been only a meagre spring awakening when it comes to B.C. home sales this year, with April maintaining the trend for dampened activity.
A total of 6,652 residential unit sales sold via the MLS in April, a drop of 18.9 per cent from the same month last year, according to British Columbia Real Estate Association (BCREA) figures released May 14.
However, that’s a month-over-month increase of 16 per cent from March’s slow sales, and in terms of the annual drop in transactions, an improvement over March’s 27 per cent annual decline.
The month-over-month rise is typical of this time of year, said the BCREA. “B.C. home sales were essentially unchanged from March on a seasonally adjusted basis,” said Cameron Muir, BCREA’s chief economist.
The BCREA continued its assertion that the slowdown in sales has been caused by the federal mortgage stress test making it harder to buy homes. Muir added, “Prospective home buyers continue to grapple with the decline in their purchasing power caused by federal government changes to mortgage policy.”
The number of homes for sale on the MLS across the province continues to build up. Active residential listings rose 33.6 per cent year over year to 38,672 units. The ratio of sales to active listings fell over the past year from 28.4 per cent (a seller’s market) to a balanced market of 17.2 per cent.
This increased choice of homes, combined with the reduction in buyer purchasing power, has reduced the average price of a B.C. home sold on the MLS in April by 6.2 per cent year over to $685,304. However, this is slightly higher than the average price of a B.C. home sold year to date, down seven per cent year over year to $680,671.
While all the boards across the province reported a decline in their sales-to-listings ratios, some are still in seller’s market territory – including Victoria, Vancouver Island and Kamloops. Greater Vancouver is the closest to being a buyer’s market at 12.3 per cent.
Vancouver is certainly pricey, but average per-square-foot price for a downtown condo pales in comparison with some global cities.
We all know Vancouver is an extremely expensive real estate market – especially in terms of affordability, when compared with local average incomes. But even Vancouver's high average per-square-foot condo price is relatively modest compared with some cities around the globe.
Vancouver, being a young city with a relatively underdeveloped housing market, tends to have much more space in condos than a lot of expensive world cities. This brings down the average price per square foot – so you get a lot more condo for your buck.
Real estate website Point2Homes has published an analysis of condo prices per square foot in 11 pricey real estate markets around the world – Vancouver, London, New York, San Francisco, Singapore, Paris, Hong Kong, Tokyo, Zurich, Geneva and Monaco.
Point2Homes looked at the price of a typical 185-square-metre (1,831-square-foot) condo in downtown Vancouver on its website, which it found to be a whopping $2,660,000. That comes in at $14,378 per square metre ($1,452 per square foot).
The analysts also found that the average price across all downtown Vancouver condos is $11,605 per square metre ($1,078 per square foot).
That number may be high, but it pales in comparison with Monaco, where the equivalent large downtown condo would cost nearly $14.9 million. In this European resort city, the average downtown condo costs $82,766 per square meter, or $7,689 per square foot.
Hong Kong was found to be the second most-expensive downtown condo market, in terms of price per square metre, followed by London, Singapore and New York.
In fact, on a cost-vs-size basis, Vancouver was the least-pricey downtown condo market of the 11 cities studied.
The study authors wrote, “The results show that Vancouver might be expensive, but only for Vancouverites. The other cities in our analysis completely eclipsed Canada’s most exorbitant market.”