Why are Metro Vancouver housing prices falling? When will this trend end?

Those are the $64,000 questions which occupy the top of the charts these days.

For the past 10 years foreign money has poured in to Canada, particularly Vancouver and the Lower Mainland destabilizing real estate prices and uncoupling them from local incomes.

Both the BC and federal governments turned a blind eye to this phenomenon for the better part of the decade and in fact, encouraged it as “foreign investment.”

Finally, upon realizing what was evident to the public for years, both governments acted by attempting to reduce the demand for housing through legislation.

  • In July of 2016 the BC government introduced the 15% Foreign Buyers Tax and then in February of 2018 further increased it to 20%.
  • In January of 2018 the federal government’s financial regulator introduced a mortgage stress test to make it more difficult for buyers to qualify for a mortgage loan.
  • Four consecutive interest rate hikes by the Bank of Canada since 2017 also made financing a mortgage more difficult.
  • The city of Vancouver added the Empty Homes Tax which took effect on January 1, 2017.
  • And finally, to add insult to injury, the misleadingly named “Speculation and Vacancy Tax” came into effect at the end of last year but applied retroactively to all of 2018 (even though details on the tax were not available to the public until late October of last year).

These measures all combined to choke off demand for housing and thus, cause sellers to reduce their prices.

More expensive single family detached homes particularly on the West Side and West Vancouver have been hit harder than lower priced homes and condominiums. Likely the reason for this is that there are not enough locals who can afford homes priced above the three or four million dollar mark.

The inescapable conclusion to draw from stories like this one is that foreign money is responsible for far more than the miniscule 2.92% of real estate transactions reported by the BC government for most of 2018.

Where does that leave the BC real estate market?

In terms of numbers, the amount of sales in Metro Vancouver were off about 40% from January of last year and about 36% below the average number of sales for January over the last 10 years. That is very significant.

The marginally positive signs are:

  • Sales were up 2.9% from December, 2018
  • Realtors are starting to report more traffic at open houses (but for now buyers are still holding off on making offers, believing that they can get a better price by waiting.  The catch is that no one can reliably time the market).
  • There is mounting pressure on the Feds to reduce or eliminate the mortgage stress test.
  • Interest rates have just started to inch down on 5 year mortgages.
  • It’s an election year and the political parties will be trying to look like they are serious about tackling housing affordability, so other measures could be coming

So there is light at the end of the real estate tunnel, but for the moment it’s only a pen light.

[Vancouver Real Estate]: How to lie with Statistics

coputer screen with numbers
“Foreign capital accounted for only 2.92% of Metro Vancouver real estate sales over 11 months” was the recent headline in the Georgia Straight earlier this month.
 
As the perennial classic book by Darrell Huff points out, there are many ways to deceive with statistics, including how they are presented.
 
These foreign capital statistics are misleading, as they relate only to the period between January and November of 2018 – about 7 months AFTER the implementation of the Foreign Buyers Tax (“FBT”) which added 15%-20% to the price of house for a foreign buyer in BC.
 
One would expect that the effect of this tax would be a dramatic decrease in the activity of foreign buyers who, prior to 2017 had been purchasing BC real estate on the same basis as Canadians, but in US dollars, thus getting a 25-35% discount based on the exchange rate.
 
Far more illuminating statistics would be the ones from 2010 to July of 2016 (when the FBT was imposed), however so such data exists as it was not being collected.
 
Thus no one knows what percentage of BC real estate foreign buyers currently own and what percentage of buyers they made up during those years. 
 
In addition, for very high end properties (i.e. $4M and upwards), the sales activity in BC has almost stopped entirely since last year, suggesting that foreign capital was responsible for most of that activity in the first place (certainly far more that 2.92%!!)
 
Presenting these figures without pointing out these additional factors creates the false impression that foreigners and foreign money has had an insignificant effect on BC real estate prices.

Is the sky falling? Vancouver Real Estate Prices in 2019

Vancouver reale state prices 2019

“Uncharted Waters” reads the front page of the Vancouver Sun last weekend, with the comment that “insiders” say that there are signs that is a full blown market correction looming! (…followed by the teaser, “But really, who knows?)

This does not add much to what we already know.

With 20/20 hindsight, it points out that the government-mandated mortgage stress test, combined with several interest rate hikes and the implementation of the Foreign Buyers Tax and the Speculation Tax in BC all contributed to a slowdown in the Vancouver housing market.

Then the usual suspects trot out their opinions about an upcoming slowdown in the market for 2019 (“There is greater reason to think that the regulation-induced downturn in sales will be sustained and will lead to a drop in housing prices.”)

However, studies about the reliability of expert opinions suggest that flipping a coin is about as good as most expert predictions.

The price drops are quite modest at this time, but because the public in BC has been used to double digit price increases for the past number of years, any slowdown, much less correction seems like a calamity.

In my view, housing affordability in the Lower Mainland is long gone –never to return, as long as Vancouver remains a “world class” city (and who would want to relinquish that distinction in exchange for lower housing costs?)

It would be better to reduce taxes and spend government money to create better paying jobs to allow buyers to afford the higher prices, rather than to meddle with the market and risk a far greater disaster, namely destroying the value of most people’s major asset.

Real Estate Advice: A dozen things NOT TO DO before you buy a home!

The market has slowed down so you have some breathing space to shop for a home without a half a dozen people waiting behind you to offer over the asking price with no due diligence conditions.

However, the government has recently imposed “stress tests” for mortgage approval thereby making it more difficult to qualify for a mortgage.

In addition, some “experts” are predicting that prices will soften in the foreseeable future, although such predictions are wrong almost as often as they are right.

So if you can pass the stress test and have the cajones to buy when few others are (as Warren Buffett says, “Be fearful when others are greedy, but be greedy when others are fearful”), then your first stop is to get your financing in order.

To figure out your price range, talk to a mortgage broker or banker to get pre-approved for financing.

But before you even do that, AVOID THESE DOZEN “NO-NO’S” according to senior mortgage advisor, Karen Gibbard:

DON’T:

  1. Buy a car;
  2. Change jobs;
  3. Change banks;
  4. Open new credit facilities;
  5. Move your money around;
  6. Make a large deposit to your bank account;
  7. Buy anything new on credit;
  8. Authorize anyone to make credit bureau enquiries;
  9. Guarantee or co-sign anyone else’s mortgage or other debt;
  10. Stretch the truth on your mortgage application;
  11. Spend the money you were going to use for closing costs;
  12. Overextend yourself –even if you qualify for it;

Buying a home is a stress test in and of itself, but there’s no need in making it worse than it has to be by doing things that the banks don’t like.

 

pazder law corporation logo

 

 

© 2018

https://www.pazderlaw.com

604-682-1509

Offices in Vancouver and White Rock

DISCLAIMER:  The foregoing is not legal advice.  It is for information purposes only. When undertaking a financially significant transaction such as a sale or purchase of real estate it is always recommended that you obtain professional advice to assist you to make the best decision. If you don’t know a good realtor, mortgage broker or banker, we can help you with that selection as well.

Ask a Vancouver real estate lawyer: is Canada’s real estate market ACTUALLY about to crash?

vancouver canada english bay purple sunset

Is Canada’s real estate market at extreme risk or out of danger?

Doug Porter, the chief economist at BMO opines in the above article that the worst is behind us and the “soft landing” that was hoped for has in fact materialized.

Forecasting and analytics company, Oxford Economics Group on the other hand still ranks Canada as the third riskiest real estate market in the world (“Our set of cross-country risk indicators points to housing market dangers being especially acute in Sweden, Australia, Canada and Hong Kong.”)

The BC Real Estate Association predicts a 12% growth in home sales next year, however the Canadian Real Estate Association is more pessimistic, predicting (“The market is held back by unprecedented decreases in sales activity in British Columbia, and weak (but stronger than expected) sales activity in Ontario. Both provinces are forecasted to see double digit declines by the end of the year.”)

Who is right?

Flip a coin –you will be about as accurate as the experts.

An interesting article from The Smithsonian entitled, “Why Experts are Almost Always Wrong” points out that expert predictions on everything from political events to technology trends to stock picking are only marginally better than random chance.

“In field after field, when it came to centrally important skills—stockbrokers recommending stocks, parole officers predicting recidivism, college admissions officials judging applicants—people with lots of experience were no better at their jobs than those with very little experience.”

So, getting back to our central question, is now the right time to buy a house in the Lower Mainland?

In our view, it is always the right time to buy a house in Metro Vancouver, notwithstanding the vagaries of interest rates, the provincial economy, the ineptitude of the current federal and BC governments, world energy prices, climate change, pipeline protests and the many other variables that can have an effect on real estate.

Metro Vancouver is one of the most desirable places to live in the world and tens of thousands of people are still moving here every year. That trend does not seem to be abating.

At the present time, the real estate market has slowed down, prices have come off their peak somewhat and inventory has increased.

Arguably, it’s now a buyer’s market, with even a few detached homes in Vancouver dipping below the $1M mark.

That means that a buyer can make an offer containing the normal due diligence conditions without having to bid against other buyers who are prepared to pay over the asking price with no conditions (as has been the norm for the past few years).

Unless one is a land speculator, a real estate buyer should be prepared to hold a property for five to ten years, in which case market fluctuations should have been ironed out and probably the home will have appreciated in value (although not necessarily at the blistering rate of the last ten years).

Is there still a risk that the prices could go down and stay down?  Of course, but what financial decision does not have any risk?

For instance, the decision NOT to buy also carries a risk.

Buyers who chose to rent for the last ten years have been literally priced out of the market –and rents have become sky high as well!  In retrospect, that decision proved to be a very risky one indeed.

While the past is not a reliable indicator of the future, the graph below shows that over the last forty years in Greater Vancouver, the general trend has been for prices to increase and when they have declined, that correction has not lasted long.

Greater Vancouver Residential Real Estate Sales 1977 to 2017 graph

No one –certainly not the “experts,” can predict when the present market slowdown will end (or whether prices will continue to decline further).

Given that fact, if you have the financial wherewithal to buy and are prepared to hold the property for five to ten years, then your chances of a financial loss would seem to be slim and your chances of a gain likely.

In this highly desirable part of the world this old real estate bromide still seems apropos:

“Don’t wait to buy real estate.  Buy real estate and wait.” (Will Rogers)

pazder law corporation logo

 

 

© 2018

https://www.pazderlaw.com

604-682-1509

Offices in Vancouver and White Rock

DISCLAIMER:  The foregoing is not legal advice.  It is for information purposes only. When undertaking a financially significant transaction such as a sale or purchase of real estate it is always recommended that you obtain professional advice to assist you to make the best decision. If you don’t know a good realtor, mortgage broker or banker, we can help you with that selection as well.

Foreign Money, BC Real Estate Prices and Line Dancing

news-reporter-commenting on-people-line-dancing

* this is a brief commentary on the recent Georgia Straight article “Josh Gordon: Vancouverites don’t need “re-education” about foreign ownership and housing affordability”:

Sometimes what is painfully obvious to the general populace is lost on the politicians, mainstream media, academics and others who may have also succumbed to the intellectually bankrupt concept of political correctness which ignores facts, rational arguments and eschews debate.

For 15 years foreign money has been allowed to destabilize Metro Vancouver real estate prices with the full encouragement and support of the then BC Liberals (as funded by the development industry).

The result has been to make much of the real estate in the Lower Mainland and other parts of BC unaffordable to local residents.

Long before this happened in BC, the most desirable major cities in the G-20 like New York, London, Paris, San Francisco, LA, Sydney and others all experienced this phenomenon.

None of these cities by the way, could ever “build their way to affordability” as the local development industry here suggests as the solution.

BC residents have been complaining about this for well over a decade, but to no avail.

Unfortunately long after the horses have left the proverbial barn, making housing affordable again, a popular slogan of all politicians running in local elections as of late, is about as likely to happen as “bringing back line dancing”.