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.