- The Hysteria Grows in Vancouver
Home sales in Metro Vancouver were down 26% in August, compared to the same month last year. Sales have been trending downward in Metro Vancouver for a few months. The new 15% foreign buyers tax appears to have added to this trend by reducing foreign buyer activity, causing some uncertainty among local buyers and sellers .
But while observers expect an initial shock from the tax, they say sales are likely to rebound over time, pointing to the region’s strong cultural ties with China as well as the robust local job market. But, people who build homes in Metro Vancouver say they are bracing for serious losses over the next few months, as the effect of the 15 per cent real estate tax on foreign buyers penetrates the market. Bob de Wit, CEO of the Greater Vancouver Home Builders’ Association, is predicting the loss of 5,000 jobs in the region by the beginning of December.
Meanwhile, the City of Vancouver is receiving a lot of correspondence from citizens on the subjects of housing affordability and what role foreign money is playing in the market, a freedom-of-information request reveals. And some of it is explicitly racist.
And while home sales in Vancouver are starting to show signs of cooling after the introduction of a 15-per-cent tax for foreign buyers, things couldn’t be more different in the Capital Region, where for a sixth-straight month, sales records have fallen. The Victoria Real Estate Board says MLS data recorded 883 homes and condos sold last month, well over the 741 that sold in August 2015.
All in all, it is probably good that B.C. plans to hire a new superintendent to oversee the real estate industry and complete an overhaul of the provincial body that regulates it by early this fall.
2. Royal Bank Releases New Housing Report
Housing affordability in Vancouver had its biggest drop in 26 years during the first half of the year, but signs of cooling are beginning to show up there, and in Toronto, according to a new report from The Royal Bank. The cost of home ownership for a typical family in Vancouver has increased more than 12 per cent in 2016 alone according to new data. The bank says that costs have risen to 90 per cent of a family’s pre-tax income, which is more than double the national average of 43 per cent.
The bank said its home affordability measure — the percentage of median pre-tax household income necessary to service the mortgage, property taxes and utilities for all categories of homes — hit 90.3 per cent for Vancouver by the end of June after surging by 6.6 percentage points in the first quarter and 6.1 percentage points in the second quarter. Housing affordability has also seen its biggest six month drop since the early 90s.
Housing affordability also deteriorated slightly in the second quarter in Regina, but remained near the long-term average, which is among the most affordable of Canada’s 14 major cities, according to Royal Bank of Canada’s latest housing affordability report.
3. TD Counters With a Report of Their Own
A new study suggests the two hottest real estate markets in Canada appear to be headed in different directions, as Vancouver softens and Toronto looks to maintain its momentum. In a report published Tuesday, TD Bank said Vancouver has started what is expected to be a modest correction, which will be reinforced by the recent implementation of the land transfer tax on non-residents.
“Home prices are projected to decline by about 10 per cent in the region by mid-2017, before stabilizing later in the year,” TD said. However, even with a drop of that size, the bank noted that prices will still be well above were they were just one to two years ago.
4. Calgary Continues Downward Trajectory
The divide between detached houses and other segments of Calgary’s depressed real-estate market continued to widen last month. August numbers released Thursday show the estimated price for a typical condo in the city was down 0.76 per cent from July to $274,900, with prices now down 7.1 per cent from a year ago. The price of the typical detached house, as represented by the real estate board’s benchmark price, was up in August by 0.18 per cent from a month earlier to $503,200, for a 3.3-per-cent fall from a year ago.
Of more concern is the fact that more Albertans are having difficulty paying their mortgages on time, according to data from the Canada Mortgage and Housing Corporation. As of the end of June, the federal Crown corporation said 1,487 of its loans in Alberta were at least 90 days late in paying mortgages that CMHC insures. That’s up from 978 a year ago.
5. General Thoughts on the Canadian Housing Market
If you’ve been following headlines over the summer, you might think Canada’s real estate market is on the edge of total meltdown. One of the latest warnings came from a finance dude who traded for Lehman Brothers before they went bankrupt in 2008 (lol, right?); Jared Dillian told the Wall Street website Mauldin Economics that Canada’s housing market “is in extreme bubble territory,” adding, “I don’t see how it could get much worse.”
Sure enough, the sharp acceleration in Canadian home prices shows no sign of abating this year. For example, in London, 999 homes were sold last month, making it the best August on record. And in Toronto, high prices mean condominiums are playing an increasingly important role in the GTA’s housing market.
Economists, however, expect the pace will be reined in by high household debt and a growing lack of affordability, a Reuters poll found. Meanwhile, the share of survey respondents who expect a decline in local housing prices jumped by 8.5 percentage points, the most since weekly polling began three years ago for the Bloomberg Nanos Canadian Confidence Index. The increase to 20.5 per cent from 12 per cent dragged the broader sentiment index down from 2016 highs.
Even, the Canada Mortgage and Housing Corporation (CMHC) expects the housing market to cool off next year CMHC has released its financial report for the second quarter of 2016. It reveals that, as of June 30, the crown corporation insured $523 billion of homeowner mortgages. The average insured loan amount for the first six months of the year was $237,628, which is 0.5% higher than it was during the same period last year.
On the finance side, Canada’s biggest banks have been reporting very different rates of growth in their mortgage books, raising questions about whether they are changing their approach to lending amid widespread concerns about housing markets in Vancouver and Toronto. Once upon a time, loans made by the big Canadian banks were split evenly between personal and commercial ones. But as they grew, the banks tilted heavily toward a mix of loans that is now as much 75 per cent to households versus institutions and businesses.
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Gavin is a media relations consultant and news junkie based out of Collingwood, Ontario.