Housing Market Slows to a Simmer in BC

 

The British Columbia Real Estate Association (BCREA) reports that: august

 

 

 

 

 

 

 

 

9,900 residential unit sales were recorded by the Multiple Listing Service® (MLS®) in July, ↓ 3.4 per cent from the same month last year.

Total sales dollar volume was $6.57 billion in July, ↑ 5.4 per cent compared to the previous year.

The average MLS® residential price in the province was 9.1 per cent year-over-year, to $663,411.

Year-to-date, BC residential sales dollar volume ↑ 45.5 per cent to $56.5 billion, when compared with the same period in 2015.

Residential unit sales ↑ 25 per cent to 77,261 units, while the average MLS® residential price was ↑16.4 per cent to $731,189.

 

New Property Transfer tax, can cost foreign buyers an additional 15% on the purchase of a home in Vancouver

Effective August 2, 2016, an additional property transfer tax applies to residential property transfers to foreign entities in the Greater Vancouver Regional District.trasfer tax

The additional tax applies on all applicable transfers registered with the Land Title Office on or after August 2, 2016, regardless of when the contract of purchase and sale was entered into.

The Greater Vancouver Regional District includes Anmore, Belcarra, Bowen Island, Burnaby, Coquitlam, Delta, Langley City and Township, Lion’s Bay, Maple Ridge, New Westminster, North Vancouver City and District, Pitt Meadows, Port Coquitlam, Port Moody, Richmond, Surrey, Vancouver, West Vancouver, White Rock and Electoral Area A.

The additional tax does not apply to properties located on Tsawwassen First Nation lands.

 

Who this effects:

-Foreign corporations or taxable trustees

– Foreign nationals are transferees who are not Canadian citizens or permanent residents, including stateless persons.

It also included Foreign corporations:

– Not incorporated in Canada

– Incorporated in Canada, but controlled in whole or in part by a foreign national or other foreign corporation, unless the shares of the corporation are listed on a Canadian stock exchange

-Taxable trustees that are a foreign national or foreign corporation, or a beneficiary of a trust that is a foreign national or foreign corporation.

When does it apply?

The additional tax on property transfers to foreign entities is 15% of the fair market value of the foreign entity’s share of a residential property

This tax applies in addition to the general property transfer tax.

The additional tax does not apply to non-residential property. The value of the residential portion of a transfer is calculated in the same way as for the property transfer tax.

The additional tax does not apply to trusts that are mutual fund trusts, real estate investment trusts or specified investment flow-through trusts.

The additional tax must be paid with the general property transfer tax at the time the property transfer is registered with the Land Title Office.

Municipalities are also perusing the thought of vacant home tax so stay tuned there may it more to come!

Buying a Grow-Op in Vancouver, Still and issue?

The biggest issue with homes that used to be Maharajah Grow Operations would be your financing. Banks are less likely to finance a former grow op home because of the grow opunknown factors that the grow op could have caused to the home and the stigma behind them. Often there are holes cut into floor joists and ceilings, and they tamper with the wiring of the home which can cause a high risk for fires. Moisture caused by the growing of the plants is another issue the banks have with the homes, no matter how much the home has been repaired, or remodeled mold can still be present and pop up whenever conditions are right. Even with remediation of the home it still will also carry the grow op title, thus causing resale on a grow op homes to be significantly lower and much harder of a sell. Banks today are very conservative and stingy with funds regardless of an issue like a grow op so when you add that extra complication into a deal they are often unwilling to give the buyers financing.

With people trying to think of “outside the box” ways to get into the housing market in Vancouver, it is buyer beware when purchasing a former grow op home. If you dot your I’s and cross your T’s it could be the right option for you.

Vancouver Real Estate Numbers are Being Manipulated by the Liberal Government

I think it’s pretty clear to see that Mike de Jong and the Liberals are “Gerrymandering” or foregin buyersmanipulating the numbers to suite their agenda and get a good head line.  Since when was 3 weeks in the month a good measurement of time. June 10-29th clearly is cutting out the most active period of time that Vancouver Real Estate transactions happen (the beginning and end of the month.) Oh and by the way, the BC Land Titles Office is closed on weekends so Saturday’s and Sunday’s don’t count for evaluating when transactions are recorded so by starting on the 10th (a Friday) it makes the sample size of days look bigger but they really just padded their timeline. As well, why only look at June when March, April and May are much stronger months for sales?  The government has the data why not give a larger sample? This is very hollow attempt to look at numbers and I think it’s pretty plain to see the Liberals are doing everything but look at the Elephant in the room when it comes to Vancouver Buyers and the Foreign Investor. They are trying to say that Foreign Buyers are only 3% of the market when it’s really more like 10% or possibly even more according to the recent Business in Vancouver article. Mike de Jong and the Liberals are controlling the message due to conflicts of interest like Bob Rennie being the campaign fund raiser for the Liberal party and it is wrong.

Home buyers remain active across Metro Vancouver

Last month’s Metro Vancouver Real estate numbers have been released, and even though the market is still very active, there shows a slowing heading into the summer months. Below is the paraphrased report.

Home buyers continue to compete for homes listed for sale across the Metro Vancouver housing market.

Last month’s sales were 28.1 per cent above the 10-year sales average for the month and rank as the highest selling June on record.

“While we’re starting to see more properties coming onto the market in recent months, the imbalance between supply and demand continues to influence market conditions,” Dan Morrison REBGV president said.

“Since March, we’ve seen more homes listed for sale in our market than in any other four-month period this decade,” Morrison said.

Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark, while home prices often experience upward pressure when it reaches the 20 to 22 per cent range in a particular community for a sustained period of time.

 

The sales-to-active listings ratio- June 2016 it is 56.3 per cent.  The lowest it has been since February, but it is still considered a sellers’ market.

 

Home Price Index- Metro Vancouver $917,800 ↑ 32.1% from June 2015

 

Residential property sales in June were 4,400 units – ↑ 0.6% from the 4,375 in June 2015 but ↓7.7% from May 2016 when there were 4,769 units sold.

 

New listings totaled 5,875 in June ↑ 1.2% from June 2015 where 5,803 were listed. This is ↓ 6.6% from May 2016 where 6,289 properties were listed.

 

Current Listings on MLS- 7,812- ↓35.9% compared to June 2015 and ↑ 1.1% from May 2016

 

Sales of detached properties in April, 2016 for Metro Vancouver:

– 1,562 units – ↓ 18.6% compared to 1,920 sales in June 2015.

The benchmark price ↑ 38.7% from the year before to $1,561,100.

 

Sales of apartment/condo properties in April, 2016 for Metro Vancouver:

 2,108 units –   ↑ 18.8% compared to 1,774 sales in June 2015.

The benchmark price of an apartment property ↑ 25.3% from the year before to $501,100.

 

Sales of attached property/town homes in April, 2016 for Metro Vancouver:

– 730 units – ↑ 7.2% compared to 681 sales in June 2015.

The benchmark price of an attached property ↑ 28.1% from the year before to $686,900.

 

Will the Vancouver Real Estate Bubble Burst in 2016? Part 5, The Finale!

 

Part 5 of 5:  The ‘How Did We Get Here?’ Moment.

 

Conclusions about the bubble:

 

We have talked about the geography, economics, and history of Vancouver and their effects on real estate. The fact remains we have something people want, and they are moving here to get it.  As Vancouver city’s Civic Government moves to create density, detached homes are bulldozed for more condos…Thus, further shrinking the detached housing stock; thus further driving up the cost of a scarce resource. I commented to my wife, as we drove through the intersection of Cambie and King Edward, that we will one day be able to tell our kids about how there used to be houses along those streets. Much like how my Grandfather told me the same thing from way back when I was a little kid. Time changes the landscape. As we look over time, we see that prices have changed as well.

 

30 yera graph

 

 

 

 

 

 

 

Since the 80’s when interest rates were up at 20%, there have been only a few corrections in Vancouver and they were typically short lived.  The bottom line is the cost of a chocolate bar at one point was 25 cents. Today it is worth a $1.50, and there is no chocolate bar bubble.  We are in the middle of an “Oil Crisis” with the Province of Alberta taking a royal walloping at the moment, but the price of gas has not dropped back to 34 cents a litre like when I was learning to drive. There is no oil bubble about to burst.  The price of homes will never go up forever.  There have been and will be ups and downs, ebbs and flows, and the market will turn at some point. But sure as the sun will rise, so will the cost of housing in Vancouver.

Vancouver held Expo’86 which put Vancouver City on “the Map.” The Apex Summit was held in Vancouver boasting our structure as an international city. The 2010 Olympic Games showcased our city to the world in a spectacular fashion. Our Mayor Gregor Robertson wants to make Vancouver “the most livable city in the world.” While we are not yet in the league of London, New York or the Tokyo’s of the world, we are getting a taste of what they are like. We have been seen by the world and they are coming.  We are a hub of multiculturalism and tolerance, with strong social safety nets on the Pacific Rim. We have created a place that is the envy of others all around the globe, and because of that, we are now starting to pay the price.  It is being paid in the price of real estate.

Will the Vancouver Real Estate Bubble Burst in 2016? Part 4

Part 4 of 5:  The Matter of Interest

 

There are “two sides to every coin” as they say.  Currently, we have seen what happens when we have an over-heated market and prices sky rocket. Sellers cash in their “lottery tickets.”  This capital brings more money into the economy. (This was the intention of the Foreign Investor Program discussed in the previous blog.) For instance, Baby Boomers are now set-up for retirement, down-sizing, and cash in the bank; plus, maybe distributing some wealth to their grown-up kids. One of the consequences, however, is the buyers suffer from escalating affordability.

We have also seen, the opposing forces of a Buyers’ market in the United States when people couldn’t sell their homes which was a devastating buyers’ market in some places in 2008.  So it is clear that neither a Sellers’ Market nor a Buyers’ Market are healthy for the Vancouver market; although, both markets can make people a lot of money.

The purpose of this blog however, is to talk about the bursting of the bubble of course!  So how would this happen? The bubble won’t just burst on its own!  What if interest rates jumped?

Well, in an attempt to slow down the market in 2008, 2009, and 2010, the government changed amortization periods. This had the equivalent effect of raising rates.  Interestingly, as you can see in our chart below, at the point where amortizations were decreased to a maximum term from 30 years to 25 years, this essentially was the same as raising rates by 1%.

Consider, prior to 2008, with a 35-year or 40-year amortization, you had a longer time to pay off the mortgage and rates were higher. So when you lower the amortization term, and thus the time-line-to-pay, the mortgage payments will have to go up.  If you happen to reduce the amortization term but hold the payments constant, in the case below, you will see that magically the effective interest rate declines.

In the example below, using a one million dollar mortgage you can see the effect of changing the interest rate and length of amortization… by “pushing and pulling” the right levers you will find a similar payment amount.

 

Mortgage        Rate   Amortization   Payment

$1,000,000     4.49     40                    $4462

$1,000,000     4.14     35                    $4491

$1,000,000     3.49     30                    $4471

$1,000,000     2.49     25                    $4475

 

So, what happens when rates go up?  Well, the government can choose to roll back amortization again and soften the blow.  They now have a counter lever to help the bubble from bursting.  Interestingly, what this also illustrates is that people with 25 year amortization terms and buying at 2.49% have the same buying power as someone buying at the 4.49% rate in 2008.

An interesting side note is that in January 2016 mortgages in arrears in BC were only at 0.28%.  This would further indicate that people are managing in the current market place and in fact they are doing better than in 2010 when I first wrote about the bubble not bursting. (In January of 2010 the mortgage arrears rate in BC was 0.40 %.)

What else could burst the bubble? Closing the door to foreign buyers?  We have seen the government terminate the Foreign Investor Program.  Would-be participants have the resources to find another way into the country. The answer is likely yes. Now that foreign investors have experienced our West Coast lifestyle, their interests are likely insatiable.

There are of course always massive global events such as “Nine-eleven Twin Towers event” and the Credit Crisis in the USA that could cause corrections.  We can’t necessarily time when an event will happen.

Here’s the thing:  safety is boring, banks are boring, and they do not make for sexy headlines… like real estate bubbles. So it’s not heralded by the media. No one really wants to talk about the fact that banks are much more conservative. They now ask for more significant documentation that was not previously required, when qualifying for a loan. Banks have been much more careful with whom they do business and how they do the business.  Regulation has played a massive role in Canada protecting the consumer from themselves.

While there could certainly be a shake up, I don’t know if we will see the calamitous depths people are looking for. This is what is known as a black swan event and it could be argued it is really more of a separate issue than the bubble bursting. Of course no one really wishes for this type of event because the consequences will typically reach far beyond simply the affordability of Vancouver Real Estate.

What about affordability? Locals can’t afford to live here! What is the breaking point? Young people can’t afford to live in Vancouver. This is another discussion entirely. As much as some people hope that the bubble would burst so that people may get into the market, the shear will of the masses will not make this happen. I guess the question becomes, can people make it into the market place in Vancouver? Is affordability out of reach, or should we simply put our hands up and give up? Has the paradigm of home ownership shifted? Well these are all a question of perspective (and another issue to cover in another blog).

Look for Part 5 Coming out Saturday Morning!

Will the Vancouver Real Estate Bubble Burst in 2016? Part 3

Part 3 of 5:  Government intervention-Yes or No?  Let the Government Save us!

 

We have had a Geography lesson, and an Economics lesson so how about a History lesson?  For those of you that have bought real estate in BC or Vancouver, you may be familiar with the Property Purchase Tax (PPT). You may have had to pay the PPT or may have avoided it as a First Time Buyer.  If you are a buyer purchasing property over $500,000, or have owned property anywhere in the world (unless you are buying newly built property), then a tax is payable: 1% on the first $200,000 and 2% on the balance of the property purchase price.

This fun little tax was introduced by former Social Credit Premier Bill Vanderzalm as a luxury tax in 1987.  The whole idea of it was to tax speculation and wealth of foreign buyers. (Sound familiar?)  95% of the homes at that time were below the $200,000 threshold.  Nearly thirty years later, do you think this “Luxury tax” has had the desired effect? Are people still paying it and buying ridiculously expensive real estate? Does this help affordability?

In 25 years, from 1987-2012, this PPT raised a total of $11.9 billion dollars for the Provincial Government.  The government relies heavily on this source of funding. It is unlikely it will go away because the government is intoxicated with this source of revenue.   The only way to eliminate it, would be to replace it with another tax and we can see what happens when they tried to bring in the HST (Wait a second…What was Bill Vanderzalm doing?  Once again he had to be involved!)

How about another idea?  Since our economy is not running in a top gear, how about we bring in foreign investors to help spur on the economy. This was previously the idea of our Federal government with the Canadian Immigrant Investor Program.  It was created to promote the immigration of business people and their families.  Individuals had to have a minimum net worth of CAD$1,600,000 and make an investment of CAD$800,000.

Both of these programs were introduced to help Canada and BC.  Left unchecked, or once the government became addicted to the funds, these programs have both had the reverse effect of helping affordability.  So if we do sound the call to government to implement a plan, we better be very, very carful we are sure we know what we are getting into…and what the long term and potentially unexpected consequences could be.  As the past Provincial and Federal governments were initially well intended with their actions, their policies did very little to assist with affordability.

 

So what next, what if the scales are tipped? Well let’s look at that in the next Blog and we can discuss what could happen if the tables were to turn!

Look for Part 4 of our series coming out Wednesday Morning!

How to be a battle hardened Vancouver Property Buyer

In the current marketplace there are many stories about the unsuccessful multiple bids of some bkeysuyers. Clearly they have every reason to feel jaded toward the Vancouver real estate market. The following is a prescription for curing the “I don’t got no Vancouver real estate blues”. While this list is primarily aimed at the condo buyer, most of it will also relate to detached properties.

 

 

How to be a battle hardened Vancouver Property Buyer

  • Have your realtor show up with a bank draft attached to your offer (you’re committed right?)
  • Be prepared to spend upfront money, with risk for appraisals and property inspections
  • Have your offer include the sellers preferred dates (or provide the offer with blank dates)
  • Make a non-subject offer (with appropriate buyer protection clauses)
  • Prepare to “slay the dragon”, depending on the number of offers, you may have to spend $000’s over the list price
  • Get into the property ASAP (sneak previews get you off and running)
  • Prior to offer day, have your finances in order, read all strata documents, and inspect.

If mentally and financially, you are not into this type of (the few, the proud, the brave) buying, and hey, this is not every ones’ cup of tea, there is a work around. A capable buyer’s agent can help steer you through the Vancouver real estate battle field. Ask us how we help our clients buy real estate.

 

Will the Vancouver Real Estate Bubble Burst in 2016? Part 2

Part 2 of 5:  Monetary Influences.

 

The Economy is a complicated game.  In the last blog we talked about Supply and Demand.  I made the argument that in the face of overwhelming demand and limited supply this is a very good reason why the (so called) ‘real estate bubble’ will not be bursting.  But, what about all the other factors?   Another traditional push and pull factor on the real estate market has been interest rates.

Graph
Source: http://www.ratehub.ca/prime-mortgage-rate-history June 2, 2016

With consistently record-low interest rates for an extended period of time, we have not had the more typical ebb and flow to real estate sale prices that we have traditionally seen.

The slight changes to interest rates formerly gave a more ‘boom and bust’ style to the events in the market place.  People would get a rate “on hold,” and if rates went up people would jump into the market.  Tepid buyers sitting on the fence would also jump in pulling potential buyers from future markets creating a frenzy of activity, only to be followed by an echo effect, with a lack of buyers. As a result of this frenzy, the markets would soften, and we would see minor corrections to inventories and prices.  With the new paradigm of consistently lower interest rates, we are not seeing the formerly more traditional movements up and/or down in interest rates.  This means there is no room for the market to catch its breath. With the current state of the Canadian Economy and the flat nature of the Gross Domestic Product (GDP) rates are predicted to remain low for at least the next few years.

Other monetary levers and economic conditions circulate around the value of real estate in Vancouver, for instance the value of the Canadian dollar.  With a devalued Canadian dollar, compared to the American “Green Back,” Canadian real estate is on sale!  Many foreign buyers are not only looking to make an investment in real estate with an appreciation play (lift) in the real estate market, but are also looking to make a currency play as well.  This market influence will not have a sudden and abrupt stop to it, but will gradually shift in buying habits as the value of the Canadian dollar changes.

Regional employment and the local economy are also factors.  When you look at the current provincial economy and job growth, BC is on top (especially next to the crippled Alberta economy). BC, and in particular large Urban Centres like Vancouver, are seeing large gains in employment.  People move to where the jobs are located, (especially with so many recent layoffs in the province next door). Vancouver is a vanguard for new employment opportunities. This will continue to fuel the appetite for real estate, further discouraging the bubble to burst.

With Vancouver and Canada experiencing low interest rates, a lower dollar and strong employment factors regionally in BC and Vancouver, we will continue to see people gravitate to the city, looking to make moves in the Vancouver Real Estate market.

 

Are these points swaying you? Do you buy this?  This leads to the question: Well, what should we do about this? Should the government step in? Well, check in next week and we can talk about Government intervention – Yes or No?

Look for Part 3 coming out on Saturday Morning!