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The Real Estate Market is Still HOT!
At least in the townhome and condo market.
Real Estate Board of Greater Vancouver’s President Morrison said in the newest stats report that: “While home sales are not happening at the pace we experienced last year, home seller supply is still struggling to keep up with today’s demand. This is why we’ve seen little downward pressure on home prices, particularly in the condominium and townhome markets.”
See the full report here:
Low supply continues to limit Metro Vancouver home buyers
From the graph above, we can see that due to the lack of inventory compared to the sales volume, the price kept going up (at least in the townhouse and condominium markets).
The new BC Home Partnership program and the new Property Transfer Tax exemption amount will likely encourage more first time home buyers to enter the real estate markets and drive up the demand for entry level condos and townhomes even more.
The BC Government announced it will be increasing the first time home buyer property tax exemption to $500,000, saving first-time buyers up to $8,000 in property transfer tax on the purchase of their first home.
In addition, the Government is investing in housing supply and affordability by:
- Supporting the creation of nearly 5,300 units of affordable and supportive housing.
- Rental assistance programs for low-income families and seniors support over 33,000 households each year.
- BC HOME Partnership program will provide over $700 million in mortgage down payment assistance loans to an estimated 42,000 first-time home buyers over the next three years.
- Increasing the threshold for the first time homebuyers’ exemption from property transfer tax to $500,000 from $475,000.
The BC Government is trying help first-time home buyers get into the red hot real estate market but has not yet address the housing supply situation.
Finance Minister Mike de Jong said “We can’t just focus on getting more people into the market, on its own, without adding to supply, that’s just going to drive prices higher.”
It is taking a long time to get building approvals and the cities have a long backlog of proposed housing units. Currently, there are 69,500 application pending a zoning, rezoning or combined application.
Bob de Wit, CEO of the Greater Vancouver Homebuilders Association, said 69,500 is a “big number” in an area with an average of 20,000 housing starts a year.
In addition, the Government wants developers to pay for municipal amenities like community centres, parks, and skytrain stations but Vancouver Councillor Geoff Meggs said it “sounds like a complex new way for Victoria to impose the entire cost of transportation investments on municipalities.
Anne McMullin, the president of the Urban Development Institute warned that “In pricinple, it makes sense that new development should contribute to the cost of new transportation needs — but costs always get passed along.”
Real estate boards across the country are releasing their January numbers. According to the report (Metro Vancouver housing market off to a quieter start than last year) release by the Greater Vancouver Real Estate Board, Sales for all housing types continued to drop, falling 39.5% compared to same month last year and dropped 11.1% from December 2016. On the other hand, in Toronto, sales jumped nearly 12%, led by condos.
But a more accurate way of looking at the housing market is to take into consideration of both supply (inventory) and demand (sales). The sales-to-active listings ratio for January 2017 is 21%. Although this is the lowest ratio since January 2015, it is still above the 12%-20% for a balanced market.
Basically, the market is normalizing. It is not a extremely strong sellers market as we’ve seen in 2016 but we are still having multiple offers and no subject sales. If the home is in good condition and well priced, buyers are still fighting for it.
The following are sales to active ratio for 3 different regions in Greater Vancouver for different property types (if you would like data for a specific region, please email us):
It is a good time to buy single family house now because detached homes are in buyer’s market where buyers have more purchasing power.
Since 2006, single family house tripled their values while townhomes and condos only doubled in value in Vancouver, Burnaby and Richmond.
We have seen much stronger appreciation for single family homes compared to condo and townhomes.
- The B.C. Home Owner Mortgage and Equity Partnership program contributes to the amount first-time homebuyers have already saved for their down payment, providing up to $37,500, or up to 5% of the purchase price, with a 25-year loan that is interest-free and payment-free for the first five years.
- This partnership can help lower their monthly costs in the first five years
- During the first five years, no monthly interest or principal payments are required as long as the home remains the homebuyer’s principal residence.
- After the first five years, homebuyers begin making monthly payments at current interest rates and repay the loan over the remaining 20 years
- To be eligible, buyers must be preapproved for an insured high-ratio first mortgage
- Other programs are available to help first-time buyers save on property transfer tax.
- The First Time Home Buyers Program can save first-time buyers up to $7,500 when purchasing a home valued up to $475,000. Or, first-time buyers can access the Newly Built Homes Exemption, which can save buyers up to $13,000 in property transfer tax when purchasing a newly constructed or subdivided home worth up to $750,000.
For additional details about the B.C. Home Owner Mortgage and Equity Partnership program, please visit: https://homeownerservices.bchousing.org/
The Real Estate Board of Greater Vancouver (REBGV) released a report on Dec. 2, 2016 (click on the link below to read the full article):
Home sales and listings just below 10-year average
The sales-to-active listings ratio for November 2016 is 26.4% which is up 2% from last month. The ratio still remains in the seller’s market side.
REBGV president said “supply and demand totals have returned to more historically normal levels over the last few months.”
People are asking us about the effect of the Foreign Buyer Tax. Now the media is talking about the Empty Homes Tax, claiming we are living in ghost towns…
It is interesting to see how the BC government released data that foreign buyers only make up 5.1% of all home buyers in Greater Vancouver and then within the same month passed the legislation to implement the Foreign Buyer Tax, effective within a week without grandfathering.
I am not sure how the Empty Homes Tax is going to help make real estate more affordable. It seemed to me that the government is doing all these to avoid addressing the bigger questions….
Who is restricting the supplies?
It is all about supply and demand. The government is trying to curb the demand from foreign buyers which only make up 5.1% of all buyers according to their own data.
But who is restricting housing supplies?
According to Bob Rennie of Rennie Group, in the City of Vancouver and many other district, it is getting very difficult to increase density. At city council meetings, no one wants density but everyone wants affordability. They are on the opposite end of the scale. We only have so much land and we cannot build a new home without tearing down an old one especially in Vancouver west side. You cannot provide more supply in the limited land without increasing density or without going further outside of Vancouver.
It is taking longer and getting harder to build more housing supplies. The cities are charging more and more money to get those developments approved. And guess who will end up paying for the higher bills?
Now City of Vancouver are implementing the Empty Home Tax starting January 1, 2017. The media reports half of new condos are empty. But let’s see who’s buying all the presale condos:
Cardero in Coal Harbour by Bosa, priced at $1765/sq ft, has foreign ownership at approximately 10%.
River park Place in Richmond, all 114 units sold out within a month, according to its marketing firm, only has 7.5% foreign buyers and 1/3 of these foreigner owners will receive Permanent Resident status over the next 2.5 to 3 years.
Bob Rennie predicted that with the 2018 civic election coming up, approval for new development will stop by next summer. It is the supply side that he’s worried about.
In 2017, Canada is opening door to 300,000 new immigrants which is an increase from 280,000 last year and it will probably increase to 360,000 for the next 2 years. See article: Canada to let 300,000 immigrants enter country in 2017.
People have to live somewhere. And there’s real pressure on market, especially in Vancouver. But affordability can still be found in Surrey, Coquitlam and Burnaby, said Bob Rennie.
Sales to active ratio for November:
The townhome and condos market in all cities listed above remained in the seller’s market (ratio above 22 and colored orange) where demand is stronger than supply. The plus sign behind the number indicates an increase from last month. In most of the cities listed above, the sales ratio took a dip since March this year but started to come back up these couple months (see graph below).
What we’ve seen in the market is that there not as much homes for sale and if a good home that is well price come onto the market, serious buyers snatch it up right away. We are still seeing multiple offers although buyers now can put in subjects and negotiate prices. We are still seeing lineup days before a presale starts selling. Let’s take Richmond for example, if you are buying a condo this month, there are a total of 399 homes for sale compared to 852 homes in the same month last year. The supply has decreased by half and no wonder the price is not coming down.
The Table below shows the Sales/Active Ratio (Supply & Demand) and the HPI (Benchmark) Price for different areas and different property types in Greater Vancouver.
The Plus (+) sign behind the number indicates it has increased over the last month.
The Minus (-) sign behind the number indicates it has decreased over the last month.
Orange indicates Seller’s Market (>20%)
Green indicates Balanced Market (12%-20%)
Blue indicates Buyer’s Market (<12%)
Canadians now owe $1.68 for every $1 of disposable income. The ever mounting debt load is being driven by low interest rates. TransUnion suggests one million Canadians will be in trouble if interest rates rise just 1.0%.
On October 3, 2016, the Government of Canada announced changes to mortgage insurance rules. Effective October 17, 2016, all insured mortgages will now use the Bank of Canada five-year mortgage rate when calculating affordability tests.
In the same announcement, the Government introduced new requirements for taxpayers to report sales of principal residences even if they intend on using the principal residence exemption from capital gains tax. Permanent non-residents will now be disallowed from using the exemption.
Click here for more information on these changes.
How’s the 15 percent foreign buyer’s tax affecting the real estate market?
This is the most commonly asked question that I hear recently.
On July 28, 2016, BC passed the legislation to implement the 15% foreign buyer tax on all residential properties. Anyone who aren’t Canadian citizens or don’t have permanent resident status in Canada will have to pay this tax when buying residential real estate.
To answer the above question, we always look at the Sales Ratio Percent which is an indicator of:
SUPPLY. DEMAND. PRICE
The Sales Ratio (Sales-to-Actives-Ratio) is:
- Percent of which the current inventory of homes are selling
- Sales for the month (demand) ÷ active listings (supply) = percent of homes selling
- 10% sales ratio = 1 in 10 homes are selling
- 50% sales ratio = 1 in 2 homes are selling
When the sales ratio is 20% or more, it is a seller’s market and there will be upward pressure on price.
A buyer’s market is when the sales ratio is 12% or less, and there is downward pressure on price.
As of August in Greater Vancouver, the sales ratio is 27% which indicates there is more demand than supply and it is a seller’s market.
The Sales Ratio has peaked at 61% in March 2016 and is heading toward a more balanced market (see graph below):
The Real Estate Board of Great Vancouver reported that: “Metro Vancouver home sales return to typical August levels”
If we look closer by breaking down the data into different property types, we see that the single family home market has cooled down with a Sales Ratio of 14% in Greater Vancouver in August 2016 (see table below). This means the single family home market is in a balanced market and the price has flattened. The HPI benchmark price of single family home in Metro Vancouver has decreased $1,000 from $1,578,300 in July to $1,577,300 in August. The days on market (DOM) has also increased a little bit but it is still selling quite fast in just 15 days.
(Jul to Aug)
|House||$1,578,300||$1,577,300||13 to 15||14|
|Townhouse||$669,000||$677,600||9 to 10||42|
|Condo||$510,600||$514,300||10 to 11||48|
|Metro Vancouver||$930,400||$933,100||11 to 12||27|
On the other hand, Sales Ratios for townhomes and condos still remained in the 40s percentage points which indicate hot sellers market.
We probably will not see any significant price drop in real estate as long as the Sales Ratio remains above 12%. Below 12% we will start to see a downward pressure on price as we have seen before (see article here).
There is an interesting phenomenon that we see. As the real estate price increases, while the demand remain strong, people who cannot afford to buy single family houses began to buy townhouses. Last month, we are seeing an even stronger demand in Condos than townhomes now that the price kept increasing.
If we look at the above data by area, take Vancouver East, for example, we see that the Sales Ratio for houses is only 12.6%, while townhome remain pretty strong at 36.7% and the demand for condos even stronger at 59.9% (see graph below).
With the low interest rate staying low and Vancouver being one of the most livable place on the planet, people still want to own homes here. If not houses, or townhouse, a condo is just fine as long as we can live in this beautiful place.
Since foreign buyers only accounted for 5.1% of real estate sales in Greater Vancouver (see article here), the government probably should consider other factors that affect affordability. Some interesting articles here:
If you’d like to find out how the market is doing in your specific neighborhood and property type, don’t hesitate to contact Jordan or Jenny to find out! We’d love to chat with you.