Category Archives: prices

Vancouver Market Summary so far for August 2016

yvr2zrh wrote a good summary of what the market looks like currently, how media headlines can get it wrong and where we might go from here:

With about 9 market days remaining in the month, we can start to look forward to how the month will end up. During the past two weeks, we have seen so many numbers in the media which highlights not only is the market falling but also that the intricacies of the underlying data are not well-understood by so many people.

The message (although correct in that the market is bad) is so poorly explained and supported and thus the true state of the market is not clear to people. So – here is the summary of what is really happening.

1.) Sales volumes will be down around 25% for unit sales but 33% for dollar volume. My model predicts a 10% decrease in condo sales (which is not much).
2.) The decrease in average price across the entire market is driven primarily by mix at this stage. It is not known how much is driven by actual price movement. Likely little so far.
3. ) Detached home sales are down significantly. This is likely more than a 50% decrease from July volumes and could be more than 65% down from August 2015.
4.) It is not clear what the benchmark price will do but we would expect that the condo price is probably almost unchanged. This market is mainly suffering from supply issues which will take time to resolve. Detached benchmarks are likely to fall in the higher-priced markets. The reason is that there will be buyers but only low-ball buyers testing sellers.
5.) The stats will be partially supported by the month-end date cutoff issues at REBGV. They report sales based on the date they get paperwork. Many of the sales recorded to beat the tax will actually show as an August sale, while they are actually July sales. Since these are from a period with a “different regulatory and tax framework” they are not really comparable and should perhaps be shown separately for accuracy purposes.
6.) Inventory will be up a bit but we still have a supply shortage in condos. Detached house MOI will increase to 10 or more.

Ultimately, this tax is taking money out at the top. It will take a couple months to see how it all plays out but the top of the market will now need to rely on move-up buyers and bona fide immigrants who are permanent residents.

We can already see the headlines coming but some of the intricacies of the stats will not really be understood.

I also have some stories from the front lines which I will get more info on next month and then write a more detailed update.

And – let’s try to keep the discussion on topic as much as possible – we have started to waiver a bit in the past few weeks.

Posted by yvr2zrh on Friday August 19th 2016 in the comments section.

Bubble mostly driven by risky lending conditions

A UK firm is saying that Vancouver house prices are being primarily driven by low interest rates and lax lending standards rather than foreign buyers:

In an effort to explain why Vancouver and Toronto have experienced sharper increases in home prices compared to other Canadian cities, the paper looks at lending conditions for insured mortgages.

It states that last year in Montreal and Ottawa, about 10 percent of insured mortgages had a loan-to-income ratio of more than 450 percent.

Meanwhile, in Toronto, about 40 percent of insured mortgages were made at that risky quotient, and in Vancouver approximately 33 percent of insured mortgages had a loan-to-income ratio of more than 450 percent.

“We’re reliably informed that the mortgages in Toronto now stretch to 600% of combined gross income,” the newsletter reads. “So two people both earning $100,000 gross can borrow $1,200,000. What has really changed in the past 12 months is not a big increase in foreign buyers, but a further decline in interest rates, which has allowed lenders to relax lending standards even further.”

The paper concludes with an alarming statistic related to Canada’s gross domestic product (GDP).

It states that while real estate ownership-transaction costs still only account for 1.8 percent of GDP, since the first quarter of 2014 commissions on real-estate sales accounted for 21 percent of Canada’s overall gain in nominal GDP.

Read the full article in the Georgia Straight.

Foreign buyer tax hurts blue collar immigrants in the Fraser Valley?

Business in Vancouver has an article predicting that the BC Foreign buyer tax will hurt blue collar immigrant workers in the Fraser Valley, which is weird because we were under the impression that the tax was on the Metro Vancouver area and the valley was exempt:

Rob Philipp, chief executive officer for the Fraser Valley Real Estate Board (FVREB), said that while the new tax is aimed at high-end buyers, it’s only going to hurt the working-class immigrants who are trying to move to the region. He called the Fraser Valley’s immigrant population “the engine that drives us.”

“The people who are buying on the west side of Vancouver, they don’t really care about an extra 15% tax. If you’re buying two-, three- or four-million-dollar homes, they want into the market regardless.”

Philipp said the new tax also dampens the incentive for skilled out-of-country workers to settle in the region.

“As a province we’re trying to recruit really specialized professionals – doctors, nurses, certain types of engineers,” he said. “And those are people who are spending $800,000 to buy a place out here and now they’re thinking, ‘Well, I have to spend another $120,000. I’m not going to do it.’”

The other odd thing is that if skilled out-of-country workers actually ‘settle in the region’ and file a Canadian tax return they are exempt from the foreign buyer tax, so we’re curious how it would dampen incentives to move here any more than paying $800k for a house out in the Valley would.

Read the full article here and please correct us if we are mistaken about how the foreign buyer tax actually works.

Realtors waiting to see impact of foreign buyer tax

There are more anecdotes of a market slowdown caused by the new foreign buyer tax in Vancouver.  This latest batch from the North Shore News:

Local real estate agents say they know of several multi-million-dollar real estate deals collapsing and predict the hot North Shore housing market will cool slightly in the wake of a new 15-per cent provincial tax on property purchased by foreign buyers.

“It’s one of the most shocking events that’s ever arrived in our industry,” said Brent Eilers, a longtime West Vancouver Realtor with Re/Max. “Nobody really knows how it will unfold.”

Eilers said the new foreign buyers’ tax is bound to have an impact, particularly in markets like West Vancouver and North Vancouver, which have been “incredibly dependent on offshore money or new money” that’s come from sales to foreign buyers in other areas of the Lower Mainland.

Read the full article here. So far it looks like sales are dropping and listings rising over the last few months. According to zolo, the average sales price in Vancouver has dropped by a few hundred thousand dollars since March.

Condo king knew buyer tax was coming (via educated guess)

The recent announcement of a 15% foreign buyer tax was a surprise to a lot of people. Even finance ministry staff were kept in the dark about the tax.

One of the few exceptions seems to have been a very successful local condo marketer who also happens to be the chief fundraiser for the liberal government.

Mr. Rennie said he knew an additional property transfer tax for foreigners was coming about three weeks ago, but he figured it would be about 5 to 8 per cent. He said a more holistic approach would have created a tax targeting speculators of any nationality for flipping properties rapidly and “interfering in the market.”

But as Rennie points out, the polling showed that people were ‘frantic’ and specifically wanted a tax on foreign buyers. He has since clarified that it was an astute assumption based on those polls rather than inside information that led him to believe a foreign buyer tax was coming. He has offered to step down as the chief fundraiser if the BC liberal government asks him to.

Though the optics of a marketer having advance knowledge of a surprise tax in his market isn’t great, what advantage could be taken of this position?

So far the tax has mainly provided marketing opportunities and  big headlines of a 75% drop in sales even though most sales haven’t been recorded yet.  Nobody really knows what affect this tax will have on the market if any, so what would you have done with a 3 week advance notice that this tax was coming?