Home Buyer Demand Continues to Decline

The Real Estate Board of Greater Vancouver released its monthly statistics package today with the following numbers:

  • May 2018 sales were 19% below the 10-year May sales average
  • May 2018 sales increased 9.8% from sales numbers in April 2018
  • May 2018 total home listings increased 38% from May 2017
  • May 2018 total home listings increased 15% from April 2018
  • Total number of home listings (homes available for sale) last month was 17% below the 10-year May average

Even though May’s sales number were below the 10-year May average, it increased almost 10% from April of this year.

Although home inventory increased 38% from the same month last year, it was still 17% below the 10-year May average.

Phil Moore, REBGV president said “The selection of homes for sale in Metro Vancouver has risen to the highest levels we’ve seen in the last two years, yet supply is still below our long-term historical averages.”

Read full article by clicking on the link below:

Reduced demand is allowing housing supply to accumulate

 

The following table shows the sales-to-active ratios for May 2018 vs April 2018:

For detached homes, the market is balanced with supply and demand. But for condos and townhomes, the market still remained in the sellers’ favor.

Although the ratios for condos and townhomes were declining, analysts say home prices often experience upward pressure when it surpasses 20% per cent over several months. Maybe we will see a slowing down of home price increase and if the ratio kept declining, maybe we’ll see a price dip if the ratio dropped below 20%.

As we can see from the 3-year graphs below, although the sales to active ratios had dippped, the price kept increasing as long as the ratio remained above 20%. We saw the ratio dropped dramatically in the later half of 2016 and the price reflected the extended decline.

Sales to Active Ratio for all property types in Greater Vancouver for the past 3 years:

MLS Home Price Index* for all property types in Greater Vancouver for the past 3 years:

Below is the MLS Home Price Index* for all property types in Greater Vancouver since 2005:

Source: Real Estate Board of Greater Vancouver

*For definition of MLS Home Price Index, please click here

More home sellers and less home buyers 

More sellers are listing their homes for sale and less buyers are looking to buy home. According to REBGV president said, “the mortgage requirements that the federal government implemented this year have, among other factors, diminished home buyers’ purchasing power and they’re being felt on the buyer side today.”

As a result, we are seeing the sales to active ratio declining except for single family homes where the ratio stayed the same. Although the demands (ratio) for townhomes and condos were lower in April than in March, they remained in the sellers markets.

The sales-to-active ratios for April 2018:

  • For all property types, the ratio was 26% (down 4%, still in seller’s market)
  • For detached home, the ratio was 14% (same ratio as last month, balanced market)
  • For townhomes, the ratio was 36% (down 4%, still in seller’s market)
  • For condos, the ratio was 47% (down 15%, still in seller’s market)

 

“Market conditions are changing. Home sales declined in our region last month to a 17-year April low and home sellers have become more active than we’ve seen in the past three years,” Phil Moore, REBGV president said.
Read full article by clicking on the link below:

Home sales down, listings up across Metro Vancouver

Real Estate Market Activity Slows

Although buyers still had to compete for condos last month, we are seeing less people coming through open houses and less number of offers in each multiple offer situation. There are signs that the market is slowing down.

“High prices, new tax announcements, rising interest rates, and stricter mortgage requirements are among the factors affecting home buyer and seller activity today.” Phil Moore, REBGV president said in the statistics report released last week.

The sales-to-active ratios for March 2018:

  • For all property types, the ratio was 30% (up 2%, still in seller’s market)
  • For detached home, the ratio was 14% (up 1%, entering balanced market)
  • For townhomes, the ratio was 40% (up 2%, still in seller’s market)
  • For condos, the ratio was 62% (up 2%, still in seller’s market)

Although there were less demand from buyers and a 30% decrease in home sales in March 2018 compared to a year ago, the Sales-to-Active Ratios were still increasing across all property types.

Phil Moore explained “Even with lower demand, upward pressure on prices will continue as long as the supply of homes for sale remains low. Last month was the quietest March for new home listings since 2009 and the total inventory, particularly in the condo and townhome segments, of homes for sale remains well below historical norms.”

Read REBGV’s March 2018 Market Highlight’s here

Changes to BC Speculation Tax

On March 26, 2018, the provincial government announced it is making some changes to the speculation tax first introduced in February as part of the BC Budget 2018.

  • The new Speculation Tax will now be limited to Nanaimo and Greater Victoria, exempting Parksville, Qualicum Beach, the Gulf Islands and Juan de Fuca areas
  • The original Fraser Valley location will be reduced to Mission, Abbotsford and Chilliwack, exempting Kent, Hope and Harrison Hot Springs
  • Bowen Island and Whistler which is suffering a rental crisis are exempted.

The government unveiled three rate structures for the tax as well:

  • 2% full rate for foreign property owners
  • 1% for out-of-province owners
  • 0.5% for British Columbians who own multiple properties but don’t rent them out for at least 6 months of the year.

Read more about BC Speculation Tax here

Taxes and other policy changes in real estate

BC’s Speculation Tax

  • It will be levied on empty homes owned by people who do not pay income tax in the province.
  • It is an annual property tax.
  • It will be applied in Metro Vancouver, the Fraser Valley, Kelowna, Victoria and Nanaimo.

Already people are saying the speculation tax is more like the empty homes tax. It does not really affect people flipping (buying and selling homes for profit in a short period of time) but people with vacation homes, satellite families or snow birds will be affected.

In an article by First National Financial LP, BCsays it does not know if the plan will actually make housing more affordable but it does expect to collect $1.3 billion in new revenue over the next three years. Read more here.

More articles about the Speculation Tax:

Why B.C.’s new real estate speculation tax is not a speculation tax

 

Vaughn Palmer: Speculation tax caveat makes B.C. property owners antsy

Foreign Buyers Tax

  • The foreign buyers tax that was put in place in 2016 will be increased from 15% to 20%.
  • It will be expanded to apply in Metro Vancouver, the Fraser Valley, Kelowna, Victoria and Nanaimo.

Real estate groups question expansion of foreign buyers’ tax to Okanagan, Vancouver Island

Property Transfer Tax Changes

The property transfer tax rate is:

  • 1% on the first $200,000,
  • 2% on the portion of the fair market value greater than $200,000 and up to and including $2,000,000,
  • 3% on the portion of the fair market value greater than $2,000,000, and
  • if the property is residential, a further 2% on the portion of the fair market value greater than $3,000,000 (effective February 21, 2018).

You can find information about these changes at gov.bc.ca/propertytransfertax

Condo market still hot despite new mortgage rules

REBGV president Jill Oudil said “Demand remains elevated and listings scarce in the attached and apartment markets across Metro Vancouver,” in the Feb 2, 2018 stats report. Read full report here: Home buyer demand depends on property type

We can see the buyer demand and seller supply from the sales-to-active ratios:

  • Sales-to-active listings ratio for Jan2018 was 26.2% for all property types (upward pressure on price if ratio remained 20% for sustained period – which has been the case since March 2015)
  • Sales-to-active listings ratio for different property types in November:
    • 11.6% for detached homes (downward pressure on price if remained below 12% for sustained period of time)
    • 32.8% for townhomes (seller’s market – upward pressure on price)
    • 57.2% for apartments (seller’s market – upward pressure on price)

In today’s market, if you are buying single family houses, there are less competition and more selection in homes. House buyers have more luxury to pick and choose and negotiate the price. If you are in the market today to buy condos, get ready for multiple offers! For condo buyers, you have to have your financing and emotions ready.

So all this talks about statistics and ratios, what most people want to know is still the price. Will it go up or will it come down? Sellers want the price to go up and buyers want the price to go down.  So here’s a comparison of two charts, the first chart is the Sales to Actives ratio that tells the supply and demand of homes. The second chart is the MLS HPI price that measures typical, pure price change.

Both charts started with data in 2005. Thirteen years of data is a long enough time frame to see the general trend. Looking at the charts we can see ups and downs in the ratios or supply and demand over the years. But when we look at the home price, there trend is generally an upward trend. Although there was a dip around 2009 when the financial market crashed in the US, the price recovered the next year. Then we see several years of flattening or slowly increasing in price before the price shot up again.

No wonder people say, don’t wait to buy real estate, buy real estate and wait.

In January, typically a slow month, we sold a condo for $54,000 over asking price in a multiple offers situation. The unit sold for $29,000 more than a similar unit which was sold just one week ago. The condo market is still hot depsite the new mortgage rule with more stringent stress test for borrowers that came into effect this January.

According to Residential Mortgage Quarterly Review by First national Financial LP, the new rules have the Canadian Real Estate Association forecasting a slowdown in home sales in Canada. None the less, it expects to see prices rise in Quebec, New Brunswick and Nova Scotia. The energy dependent provinces Alberta, Saskatchewan and Newfoundland and Labrador are expected to see no movement or slight declines.

But for British Columbia, the price are expected to hold steady. Read full article here.

The Real Estate Board of Greater Vancouver released its monthly stats report today

Metro Vancouver continues to experience above-average demand and below-average supply

In the report, REBGV president Jill Oudil said: “We’re seeing steady demand in today’s market. Home buyer activity is operating above our long-term averages, particularly in our townhome and condominium markets.” “While we’re seeing more listings enter the market today than we saw at this time last year, we have a long way to go before our home listing inventory rises back to more historically typical levels.”

We can see the buyer demand and seller supply from the sales-to-active ratios:

  • Sales-to-active listings ratio for November 2017 was 32% for all property types (upward pressure on price if ratio remained 20% for sustained period – which has been the case since March 2015)
  • Sales-to-active listings ratio for different property types in November:
    • 16% for detached homes (balanced supply and demand when ratio between 12-20%)
    • 36% for townhomes (seller’s market – upward pressure on price)
    • 68% for apartments (seller’s market – upward pressure on price)

The sales to active ratio for all property types in Greater Vancouver had remained above 20% since March 2015, putting upward pressure on home prices (see graph below):

As a result, home prices have been increasing since March 2015 when the Sales-to-Active ratio has reached above 20% for sustained period of time. Below is a 5 year graph of the HPI benchmarks which represent the price of a typical property within Greater Vancouver:

Canadian Mortgage and Housing Corporation’s outlook on the housing market

CMHC has released its latest Housing Market Outlook which is released annually at the beginning of the fourth quarter and looks ahead over the next two years.

In general CMHC sees a stable, but slowing housing market.

Housing starts are expected to decline over the next two years as the economy strengthens and the Bank of Canada withdraws stimulus – that is, interest rates continue to rise.

CMHC is forecasting posted, 5-year mortgage rates of 4.9% to 5.7% next year and 5.2% to 6.2% in 2019.  That is an increase of as much as 160 bps over the time horizon of the outlook.

Existing home sales are forecast to drop.  This should be no surprise given the record setting pace of sales through 2016 and early 2017.  As well, the pace of price increases is expected to slow down.

CMHC predicts the national average price for a home should fall somewhere between $494,000 and $511,000 this year.  In 2019 the range is expected to be between $499,000 and $524,500.

CMHC is also forecasting ongoing growth for GDP, employment and immigration.  But the agency expects consumer spending to decline as interest rates increase.

To download the report, click here

October 2017 home sales were 15% above the 10-year October sales average.

Sales-to-active listings ratio for September 2017 was 33.1% for all property types

Sales-to-active listings ratio for different property types:

  • 16.8% for detached homes (balanced supply and demand)
  • 44.8% for townhomes (seller’s market – upward pressure on price)
  • 66% for apartments (seller’s market – upward pressure on price)

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REBGV president Jill Oudil reported: “Conditions continue to vary significantly based on property type. The detached home market is well supplied with homes for sale, which is relieving pressure on prices. It remains a much different story in the townhouse and apartment markets. Buyers of these properties continue to have limited supply to choose from and are seeing upward pressure on prices.”

“The growth in our provincial economy and job market is contributing to today’s demand,” Oudil said. “The federal government’s announcement of plans to tighten mortgage requirements for the seventh time in the last eight years also helped spur activity in the short term. Many buyers are trying to enter the market before the changes are in place.”

Click here for full report

New controversial mortgage stress test

The biggest news in real estate this past month is no doubt the controversial mortgage stress test.

It will be aimed at people with heavier debt loads and at least 20% equity. Given where Canada’s home prices and debt levels are, this is easily the most potent mortgage rule change of all time.

It’s like a two-point rate hike: Uninsured borrowers can qualify for a mortgage today at five-year fixed rates as low as 2.97%. At the beginning of next year, that hurdle will soar to almost 5%. Meaning, you could need upward of 20% more income to qualify for the same mortgage that you could get today.

The Office of the Superintendent of Financial Institutions (OSFI) said this change will make sure people can afford much higher rates and it will substantially increase the quality of borrowers at Canada’s banks. OSFI argues that this will insulate our banking system from economic shocks.

In a Globe and Mail article, critics say this new mortgage stress test will push borrowers to riskier lenders, click here to read the article.

Many questions were raised:

  • Whether this was all necessary, given already slowing home prices, provincial rule tightening, rising rates and the fact that uninsured default rates are considerably lower than for people with less than 20% equity.
  • Does growing debt risk in the non-prime mortgage market, combined with home price risk and a potential drop in employment and consumer spending truly lower banks’ risk?

Industry economists like Will Dunning said scores of borrowers will be forced to defer buying, pay higher rates, find a co-borrower and/or put more money down to qualify for a mortgage. Click here to see the video.

OSFI says its responsibility is to keep banks safe and sound. Overly concerning itself with the side effects of its mortgage stress test is not its mandate.