The decline in the pace of home sales in the Vancouver region appears to have sped up significantly in the first two weeks of August, which experts say could be a sign both buyers and sellers are hesitating after a new tax on foreign investors injected a massive amount of uncertainty during that period.
Sales of single-family homes in the first two weeks of the month dropped by 66 per cent compared with the same period in 2015, according to new data from the Real Estate Board of Greater Vancouver. The number of apartments and condos sold from Aug. 2 to 15 also dropped 42 per cent compared to the same period last year.
It is not clear how much of that decline is related to the new tax, or what the figures might say about the influence of foreign buyers in the market. The provincial government's own data showed one in 10 transactions over five weeks in June and July involved people who were not Canadian or permanent residents, but some observers suggest the number could be higher.
The Vancouver region's hot housing market had already been softening for months. Year-over-year sales volumes of detached homes were down 19 per cent in June and 31 per cent in July. The board's new data show that in the last two weeks of July alone, sales were down 42 per cent over the previous year.
Experts were reluctant to attribute the decline in sales in August directly to the 15 per cent foreign buyer tax, which applies to sales in Vancouver and 21 nearby communities. But they said locals and foreigners alike have stopped pursuing deals as the market reacts to the levy against a segment of buyers that were involved in as many as one in five transactions in some communities.
"If you were looking to purchase in the market and then a 15-per-cent foreign buyer's tax was introduced, would you want to purchase that week [of Aug. 2]?" said Jon Bennest, economist and principal at Urban Analytics real-estate consulting firm. "Would you want to purchase two weeks from then or would you perhaps say, 'Maybe I should just wait a month and see what happens to the market. Or wait two months?'"
The new tax could also be contributing to people's fatigue over the record-breaking volume of sales the region has experienced since last year, he added.
"At some point, you can't just keep increasing and increasing in perpetuity," he said. "People are suggesting maybe you don't have to buy this month and maybe you can hold off and wait a bit."
Tom Davidoff, an economist at the University of British Columbia and leader of a group of academics pushing for a real estate tax on foreign capital, said it is impossible to determine whether the data prove the provincial government correctly assessed the level of foreign investment in the market.
To do that, he said, would require a breakdown of sales in cities such as Burnaby and Richmond, where recent government data showed foreign buyers were involved in about 18 per cent of all transactions.
Adding to the uncertainty, sales last summer were "anomalously strong" during the time buyers and sellers traditionally take a holiday from the market, Prof. Davidoff added.
"This summer we don't have that torrid pace," he said.
National Bank senior economist Marc Pinsonneault said climbing prices across Metro Vancouver are likely a larger factor in the declining sales than the new foreign tax.
"[The rising price of homes] convinced people to – instead of buying – be on the sidelines," he said.
Mr. Bennest said supply is not sufficient right now to meet demand – local or otherwise – so prices are unlikely to fall in the near term.
Premier Christy Clark, who faces an election next spring, said when she announced the tax in the middle of last month that she hoped it would limit international demand to rein in "these silly price increases that we've seen" in Metro Vancouver. The cost of a detached home in the area has risen by more than 30 per cent in the past year, and multimillion-dollar houses are common. Critics say the policy does nothing to stop the inflationary pressure of foreign capital, arguing many foreign buyers can simply register a home in the name of a local person.
Earlier this week, Fitch Ratings said Vancouver's cooling market leaves home prices in that region more vulnerable to potential changes in Canada's economy.
"We feel that the foreign investors have been propping up real estate in Vancouver, creating more demand, which is raising prices," said Susan Hosterman, director of U.S. structured finance at Fitch Ratings.
"With them potentially out of the picture, Vancouver is more susceptible to Canadian supply and demand behaviour, which is mainly driven by employment."
While Vancouver's job growth has been strong, Ms. Hosterman said it was a question of how long that will last given lacklustre job creation in other parts of the country.
Vancouver's unemployment rate was 5.4 per cent in July, according to Statistics Canada, one of the lowest amongst Canada's major cities.
With a report from Reuters