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May 2019

Vancouver Real Estate: Waiting on Green Shoots

Will budget moves, reversal in interest rates breathe life into local home sales?

Family Taxes The numbers say British Columbia’s economy is on solid ground. Metro Vancouver real estate? That’s something else entirely. A property market that went nowhere but up for years has turned on its head, arguably in reaction to repeated government intervention, higher interest rates and a pull-back in foreign buying.

This spring isn’t about figuring out how high the market could go. It’s about making sure your financial picture is ready for what’s around the corner, whether you’re buying or selling a home.

Home prices slip while sales slump

March was a tough month for sellers. According to figures from the Real Estate Board of Greater Vancouver (REBGV), homes sales saw their lowest tally for that month since 1986, off more than 31% from a year earlier and 46% below the 10-year average. The numbers from April were only moderately better, with home sales down 29.1% from April 2018, but up 5.9% from March 2019.

At the same time, listings have exploded. The number of residential properties listed for sale on the MLS system jumped 46% over April 2018, and up 12.4% from March 2019 alone.

Government began trying to turn down the heat on the red-hot housing sector in August 2016 with the introduction of the foreign buyers’ tax here in BC. But the sales drop-off has been most dramatic since last January. That’s when the mortgage stress test for borrowers dealing with federally regulated lenders expanded to include both insured and conventional mortgages. Mix in vacancy and speculation taxes, school tax surcharges on higher value homes, as well as three rate increases by the Bank of Canada in 2018, and it’s been nothing but headwinds for the real estate market.

Not surprisingly, the combination of dropping sales and a rush of listings has put a damper on home prices.

The composite benchmark price for a residential property in Greater Vancouver fell by 8.5% in April from a year earlier, marking the 11th straight month of declines. Detached home prices have been hit the hardest, falling 11.1%, versus a 6.9% drop for condominiums (year-over-year).

As usual, however, aggregate figures don’t tell the whole story. While the broader residential market saw a price peak last May, for some communities the correction has been longer and deeper than for others.

Take the west side of Vancouver. After topping out in July 2017 at nearly $3.7 million, the benchmark price of a detached home has fallen 19.6%. The slump has been almost as bad in West Vancouver where prices have fallen 19.3% since its peak. On the other hand, by the same measure a single-family home in Whistler has lost just 3.6% of its value since prices peaked as recently as August 2018.

How far have home prices fallen?

Composite Benchmark - Detached
LocationApril 2019Peak PricePeak Date (Month/Year)Price Decline
Greater Vancouver $1,425,200 $1,617,300 September 2017 -11.9%
Burnaby North $1,391,000 $1,596,300 September 2017 -12.9%
Coquitlam $1,156,200 $1,319,800 May 2018 -12.4%
New Westminster $1,053,100 $1,192,600 April 2018 -11.7%
North Vancouver $1,499,400 $1,723,200 March 2018 -12.9%
Richmond $1,531,000 $1,708,400 March 2018 -10.4%
Sunshine Coast $   611,400 $   631,400 May 2018 -3.2%
Vancouver (West) $2,948,400 $3,666,200 July 2017 -19.6%
West Vancouver $2,574,100 $3,189,500 August 2017 -19.3%
Whistler $1,719,000 $1,783,200 August 2018 -3.6%
Source: Real Estate Board of Greater Vancouver (REBGV)

If you’re an owner, expect your home to take much longer to sell. A condominium which spent an average of 17 days on the market in May 2018 saw that figure balloon to 37 days in March 2019.

The global city effect

Vancouver’s real estate market may be struggling, but we’re not alone. Major centres that experienced an influx of capital and people in the wake of the financial crisis – from London and Hong Kong to Sydney – have seen a slowdown.

According to the International Monetary Fund (IMF), for countries open to international capital the ebb and flow of property markets in major cities around the globe has become increasingly correlated. There’s also a growing connection to financial markets in general, making property in prime destinations like Vancouver more susceptible than ever to swings in the world economy.1 This may explain why when it comes to residential real estate, Vancouver more resembles Melbourne than Montreal.

The affordability crunch drags on

In percentage terms home values may have fallen by double-digits throughout the Lower Mainland, yet for many first-time purchasers the dream of owning local real estate is still out of reach.

The March composite benchmark price of a residential property in Greater Vancouver has held firmly above $1 million. According to one housing affordability measure, it takes nearly 85% of a household’s income to cover ownership costs in the Vancouver area versus 52% nationally.2

Even as rents in Vancouver’s tight rental market continue to rise, the incremental cost of owning a condominium over renting an apartment remains higher here than anywhere else in Canada, including Toronto, so it remains difficult for the average renter to migrate to home ownership.

Interest rates – a silver lining?

While home sales have tailed off dramatically in recent months, an unexpected shift may bring a much needed jolt to the market: falling interest rates.

Since the Bank of Canada’s latest quarter-point hike to its target overnight rate last October, bond yields have plunged as investors see gathering storm clouds over the Canadian economy and abroad.

The IMF now forecasts Canada’s output to rise just 1.5% in 2019, down four-tenths of a percent from January’s estimate. The outlook for annual global growth has been downgraded to 3.3%, which, if realized, would translate into one of the weakest performances for the world economy since 2009.

Domestically, if muted inflation, waning consumer demand, a weakening housing sector and uncertainty around trade relations persist, the Bank of Canada’s next move on interest rates could very well be down, not up. Money markets are pricing in no further hikes this year. The good news if you’re a borrower? Chances are you’ll see flat-to-lower mortgage rates through the rest of 2019.

Can the First Time Home Buyer Incentive spark home sales?

The March 2019 federal budget extended a helping hand to homebuyers entering the market. It increased the amount first-time buyers could withdraw from their RRSPs without penalty under the Home Buyers’ Plan to $35,000 from the previous $25,000 limit. It also announced the creation of the First Time Home Buyer Incentive.

Under the plan, the Canada Mortgage and Housing Corporation (CMHC) will contribute up to 10% of the purchase price of a newly built home or 5% of the price an existing home. Bringing CMHC in as a partner allows a buyer to borrow less, reducing their monthly carrying costs. The intention is for the government to eventually recover what amounts to an interest-free loan, say, when the property is sold.

There are restrictions. To qualify, applicants must be first-time buyers, be able to present a minimum 5% down payment and have annual household income of no more than $120,000. The combined mortgage amount and CHMC contribution can’t exceed four times the borrower’s income – a maximum of $480,000.

Because the program is limited to insured mortgages, the down payment can’t be more than 20%. That’s important to know if you’re looking to help your child with their home purchase.

That said, the budget document is light on detail. For one, it’s unclear when the owner sells the property how much CMHC would recoup: the dollar amount lent to the borrower or a share of the gain if a property sold for a profit? Will CMHC share the pain when a sale loses money? How will loan repayment impact the calculation of capital gains? Watch for more of the fine print before the program’s launch in September.

If you’re looking to get into Vancouver’s pricey real estate market, will the First Time Home Buyer Incentive make a difference? Even for a condominium, the benchmark price in Greater Vancouver in March was touching $657,000, well above the program maximum, so you’ll have to shop carefully if you wish to live near the urban core. However, there’s more opportunity to leverage the incentive if you’re flexible over location. March figures from the Fraser Valley Real Estate Board show prices are now well below a half-million dollars for similar properties in areas like North Delta ($392,500), Surrey ($424,400) and Langley ($416,900).

Get smart advice

Are you looking to finance your first home? Perhaps you want to trade up, downsize, or help your kids get into a place of their own. No matter your goal, real estate decisions can significantly impact your budget, your tax situation, even your retirement.

Your BlueShore Financial advisor can help you see the big picture. Talk to us first for the right advice.

The information contained in this article was obtained from sources believed to be reliable; however, we cannot guarantee that it is accurate or complete. This article is provided as a general source of information and should not be considered personal investment advice or solicitation to buy or sell any mutual funds and other securities.

1International Monetary Fund, Global Financial Stability Report, April 2018

2The RBC Housing Affordability Measure captures the proportion of median pre-tax household income required to service the cost of a mortgage on an existing housing unit at market prices, including principal and interest, property taxes and utilities, and is based on a 25% down payment, a 25-year mortgage loan at a five-year fixed rate. March 2019.

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