The Current State of The Vancouver Real Estate Market
Below is a transcription of this Video
Let’s talk about what happened in the month of November!
We continued our softening trend all around the Greater Vancouver Regional District. Sales were 35% below the 10-year average for November. It was also the slowest November that we have had on record since 2008 (which was right in the middle of the U.S. banking crisis).
There is not any one specific reason that is the cause; it is an accumulation of several things. The price of oil, tariffs on steel and aluminum, Canadian debt levels at all time highs, combined with wages for the average Canadian not increasing, are all contributing factors. We have had all kinds of government intervention with Foreign Buyer Taxes, Vacant Homes Taxes, Speculation Taxes, and increased Property Transfer Taxes.
The latest thing to come out this week, is regarding the money laundering issue. Who knows how much this has been affecting the current market, or what kind of long-term effect it will have moving forward. The biggest thing we have on the Government end is the rising interest rates. Rates have already gone up 5 times in the last 18 months, and they are expected to go up 3 or 4 more times in 2019. The current Bank of Canada rate is 1.75% and the bank has stated they would like to get it up to a 2.5% or 3.5% rate. This will have a significant effect on homebuyers!
Let’s talk a little bit about the stress test that was implemented at the beginning of 2018 and what that’s done to buyers. As you can see from the graph behind me, in June of 2017, you qualified at a rate of 2.74%. So if you had a family income of $100,000, and you qualified at an interest rate of 2.74% with 20% down, you could purchase a $900,000 home. With the stress test, you now have to qualify at 2% higher then the actual posted rate. So today, you would have to qualify at a rate of 5.84%, which qualifies you to buy a $650,000 home. Your purchasing power has decreased almost 27%!
If rates go up another percent over the next year, and we are sitting here in December of 2019, you would be qualifying at 6.84% and you will only be able to purchase a $575,000 home, where you could have purchased a $900,000 home 1.5 years ago. That is a big change that is going to have an effect on prices. It is probably going to affect the condo market significantly. Developers are extremely cautious right now. Many of the land assembly stuff you saw going on around Cambie, Oak and Granville, those signs are sitting up much longer now. Developers are nervous and are very cautious before they enter any new projects.
One of the things that concerns me, is all of the pre-sales that people have already bought for buildings that are already under construction. Many buyers bought with no intent of moving into them or even completing on them. They have been selling their contracts and assigning them during the construction phase and making themselves some money. I’m wondering how many of these people have bought multiple units, and aren’t going to qualify for a mortgage if they do have to close on these properties? What if they can’t? What is that going to do to the Developers? That could create some real problems down the road.
What is the upside to all of this? We live in one of the most beautiful cities in the world. Vancouver is landlocked and it will always be a good long-term investment. As you can see from this other graph that is up now, the market always comes back. This is a 40-year graph behind me, and if you look at any of downsides, it has always bounced back. Even after the U.S. banking crisis of 08-09, by the end of 09 the prices were already higher then they were before the meltdown in 2008. One of the things that could change the market is the by-election in Nanaimo that will happen in February.
Some of the early polls show the Liberals are neck in neck with the NDP, in a long-term NDP riding. If the Liberals did take power, that could have some positive effects on the market in that it would likely give the developers a more optimistic outlook. Stay tuned!