Prospective homeowners take heart: some of the week’s top stories show evidence of a housing market slowdown that could lead to price corrections across the region. In Vancouver’s luxury home and pre-sale condo markets, sales have slowed considerably, causing developers and realtors alike to reassess the region’s residential real estate status as a whole. Will this slowdown lead to price corrections worthy of a buyer-friendly market? Is it just a hiccup to overcome until new taxation measures are acclimatized to? Time will tell, but in the meantime, let’s look at some articles that offer some potential scenarios.
Here is Western Investor’s pick of the most buzz-worthy real estate articles published this week.
Western Investor edior Frank O’Brien’s article touching on a potential real estate “crash” has blown up our website, as one of the cities most in-demand market – presale condos – has experienced an surprisingly slowdown.
High-profile real estate developers, marketing executives and real estate agents are bracing for a sustained downturn in the housing market after sales in April – usually one of the most active months of the year – plunged by double-digits across Metro Vancouver.
Vancouver lawyer Richard Bell, executive vice-chair and founder of Avesdo Inc., told a real estate seminar May 8 that the Vancouver new home market has seen an “incredible run over the past 10 to 15 years.” But, he added, “We all knew it would come to an end and the end is nigh.”
In April, just 43 per cent of pre-sale condos offered in Metro Vancouver sold, compared to 94 per cent in January, 83 per cent in February and 63 per cent in March, said Cameron McNeil, a partner in MLA Canada, the real estate marketing firm that hosted the Pre-Sale Pulse seminar at Olympic Village.
In the resale sector, April sales of detached houses plunged 34% through the Real Estate Board of Greater Vancouver, compared with a year earlier, while townhouse and condo sales were down 25 per cent and 24 per cent in the same period.
“I have been seeing more and more price reductions in the detached housing market,” said Tina Mak, a top-producing Vancouver agent with Coldwell Banker Wesburn Realty. Mak, founding president of Asian Real Estate Association of America, Vancouver Chapter, said investors should not expect a quick return on investment if they had bought recently.
“All you can expect is capital gain. However, as long as the NDP is in power, I strongly believe the double-digits gain honeymoon is over. On top of that, there are many different new taxes, stricter rental rules,” Mak stated in a missive to clients this week.
“This would be the seventh cycle since I got into the business in 1992,” she said. “The fact is when the market swings back up again, the next peak is always higher than the previous peak.”
Meanwhile, she is “looking for U.S. investment opportunity for many of my investors.”
Like Mak, McNeil said the fundamentals remain in place for a strong Metro Vancouver housing market: an estimated 40,000 immigrants arriving annually, relatively low mortgage rates, low unemployment and a robust economy.
“Our industry, though, is driven by fear and perception, and fear and perception trumps fundamentals every time,” he said. McNeil said condo developers can expect slower sales over the next few months.
An estimated 11,000 new condos will start marketing this year in Metro Vancouver, McNeil said, but this “will barely scratch the surface” of the true demand. He added that, like the last downturn in 2008, people would likely be surprised at how quick the recovery will be.
“This is Vancouver,” agreed Bell. “It will come back.”
Sales in Vancouver’s luxury home market fell in the first four months of 2018, and the trend will continue throughout the year as the market adjusts to the new federal mortgage stress test and other policy changes. But what will the sustained effect be?
Luxury detached home sales fell 38.2% in 2018’s first quarter, according to Royal LePage, and luxury condo sales fell 26.5% compared with the same period last year. Prices continued to increase, however: 5% for detached homes and 7% for condos.
Looking toward spring 2019, Royal LePage said it anticipates the median price of a luxury detached home will fall 3% to just over $5.6 million. For luxury condos, it is a different story, however, as prices in this segment are expected to increase 2% to almost $2.6 million.
“The price appreciation that we are witnessing in Greater Vancouver’s luxury market this spring is largely a result of momentum being carried over from 2017,” said Royal LePage president and CEO Phil Soper.
“In light of recently announced provincial tax policies to both foreign and domestic buyers purchasing homes in the Vancouver region, price appreciation in the luxury market is expected to decline in 2018, while sales volumes are expected to continue to be lower than recent norms.”
Changes in policy at home are not the only factors influencing the market, said Royal LePage Sussex sales rep Brock Smeaton.
“The region has seen less interest from foreign buyers since China tightened its policies on wealth leaving the country.”
The long-term outlook remains positive, however, according to Smeaton.
“Vancouver is one of the greatest cities in the world, and while developers can create space to build a luxury condo, the opportunity to build detached luxury homes is limited because of the mountains,” he said.
“For many local buyers who were only on the cusp of accessing the luxury market a few years ago, this unexpected relief in the market is a welcomed opportunity.”
Six in 10 survey respondents think it’s time to consider a foreign buyer ban on B.C. real estate. Support for these measure show eagerness among British Columbians for sustained affordability for locals.
The Mustel Group survey of 400 B.C. residents, in partnership with CBC, found that 86 per cent of respondents agree with policies aimed at reducing foreign ownership of B.C. homes and real estate speculation. The same proportion said they think that speculative investment is damaging to the province.
Of the latter group, 65 per cent said speculative investment is having a significant impact on local real estate, while 33 said it is having some impact and just two per cent said that they think it is having no real impact.
Nearly six in 10 respondents (58 per cent) agreed with the statement that it is time to consider an outright ban on foreign buyers of B.C. real estate.
The general perception among respondents was that such measures would not be harmful to B.C.'s economy. Most British Columbians (73 per cent) said that they think speculation can be addressed without impacting the overall economy.
Mustel Group also separated out answers from homeowners, and found that 78 per cent of home owners support measures to address housing affordability, even if those measures make their home or property less valuable.
British Columbians answering the poll agreed that the hot-button issue of real estate and foreign ownership has created division between local residents. Again, 86 per cent said that it is creating division among economic lines, while 64 per cent of respondents said there was division between age groups. Just under 40 per cent believe that it is creating division between different racial groups.
More than 90 per cent of respondents are concerned about housing affordability in B.C. – a figure that is highest among Metro Vancouver respondents and lowest in the B.C. Interior.
Although sales have slowed, prices for Vancouver homes still remain fairly high. Lack of supply is often sighted as a reason for the high prices, but does Vancouver’s city planner agree?
Capital flows exert the force that keeps the vortex that is Vancouver’s housing market roiling, drawing in all comers. Whether its investors looking for a safe haven, developers trying to make a buck or employers just trying to attract staff, it all comes back to housing.
The first two points came to the fore during a discussion at the Vancouver Real Estate Forum featuring Vancouver chief planner Gil Kelley, Wesgroup executive vice-president David Wesik and his counterpart Darren Kwiatkowski of Shape Properties Corp.
Asked by moderator Andy Ramlo how the city expects to build 73,000 affordable housing units by 2027 – or about 8,000 a year – Kelley said the challenge isn’t to build more units but to build affordable units.
“Vancouver has actually been producing each year since the recession more housing than our population growth would justify,” he said. “The difference there is that really it’s produced largely as an investment commodity, which is not necessarily a bad thing on the development side, but what we’re finding is a lot of Vancouver families and middle-income folks are just sort of squeezed out of the ownership equation.”
The goal of 8,000 units, Kelley added, isn’t rooted in economics but in a sense of what’s needed “to have enough headroom in there and to create rental and to create deeper affordability.”
Vancouver housing starts have averaged 5,036 annually over the past decade, peaking at 9,759 in 2016.
Wesik pointed out that boosting that number isn’t getting any easier.
“Pro formas sucked over the past 12 months, particularly with the cost inflation,” he said. “Everything’s gotten harder: the cost story, the approval timelines, carrying costs, available liquidity. What’s allowing this all to happen is that ever-rising top line.”
When price appreciation slows down, Wesik said, a number of projects will stall.
“It’s the revenue that’s been propelling this forward,” he said.