The B.C. government’s measures designed to cool off the Vancouver region’s housing market will take full effect in 2019, setting the stage for a continuation of sluggish sales.
Numerous provincial policies, combined with the federal stress test that makes it tougher on borrowers, have already had a major psychological effect on the Vancouver area, said Bryan Yu, deputy chief economist at Central 1 Credit Union. Canada’s banking regulator implemented a stress test on Jan. 1, 2018, making it more difficult for buyers to qualify for mortgages.
Sales in the Vancouver region decreased an estimated 23 per cent in 2018 compared with 2017. The trend of vastly different expectations between buyers and sellers is expected to extend into 2019, said Mr. Yu, who predicts that regional sales could dip 0.8 per cent in 2019 compared with 2018.
“We will see an ongoing gap between what sellers are willing to sell for and what buyers are able and willing to bid for properties,” he said in an interview. “It boils down very much to an environment of low sales.”
The provincial NDP government will begin collecting what it calls the speculation tax in 2019. The annual tax is aimed mostly at out-of-province residents who own properties in British Columbia’s urban markets. Those assets tend to be secondary homes or vacation properties that are not rented out.
The B.C. government will also start imposing an annual surtax that targets homeowners of properties assessed at more than $3-million. The speculation tax and the new surtax are part of a wide-ranging package of housing policies originally unveiled in the BC NDP’s budget in February, 2018.
While the affordability crisis persists, median prices for detached houses, condos and townhomes in the Vancouver region could decline 3 per cent in 2019 compared with 2018, Mr. Yu forecasts. He adds that the trend of sluggish sales and flat or slightly lower prices could continue into 2020 and 2021.
In August, 2016, the previous BC Liberal government introduced a 15-per-cent tax on foreign buyers in the Vancouver area, contributing to the detached housing segment’s slump during the second half of 2016 and early 2017. Following a choppy recovery in the housing market in 2017, the BC NDP government raised the foreign-buyers tax to 20 per cent in February, 2018, and also expanded the tax to other urban markets in the province.
The Vancouver region’s real estate market faced "intense pressure” for much of 2018, exacerbated by rising mortgage rates, said Bank of Montreal senior economist Sal Guatieri.
“Demand has weakened so much that the few buyers out there are now able to get some price concessions from sellers,” Royal Bank of Canada economists Craig Wright and Robert Hogue wrote in a research note.
Still, Mr. Yu said British Columbia’s economy is forecast to stay strong over the next three years while the unemployment rate should remain relatively low, and there are no signs pointing to a looming global financial shock.
“Home prices are eroding, but they’re not going to crash,” he said. “We’ve hit a very soft spot in the housing sector, and that’s really a policy-induced event. The labour market is strong. We’re not in an economic recession or in a crisis of confidence.”
The median price for detached houses sold on Vancouver’s west side reached $3,218,333 in November, 2017. The median detached price has fallen 11 per cent since then, but it’s still out of reach for most prospective buyers at $2,860,000.
The market for condos and townhouses showed signs of resilience in early 2018, although it softened noticeably in recent months. The price for condos sold in Greater Vancouver averaged $690,190 in November, down 7.7 per cent since April.
But even entry-level condos remain too expensive for many first-time buyers, said Paul Kershaw, founder of Generation Squeeze, a lobby group formed to represent the views of Canadians in their 40s and younger. “Home ownership prospects for a younger demographic have been harmed more in British Columbia than in any other province,” he said.
The rapid rise in real estate prices from mid-2013 to mid-2016 in the City of Vancouver prompted many residents to move elsewhere in the province, helping drive up prices in markets such as Victoria and the Sunshine Coast, Mr. Kershaw said.
An analysis by Generation Squeeze found that the home ownership rate in British Columbia for residents between the ages of 35 and 44 was 67 per cent in 2016, compared with 78 per cent in 1977.
“We’ve had effectively an earthquake in B.C.’s real estate sector,” Mr. Kershaw said. “It isn’t just a Vancouver issue because over the past decade, it has spread to the suburbs and gone to other urban centres like Victoria. Even if you save enough for a down payment, hard work doesn’t pay off like it used to.”