The raging fire of unsustainable rising prices seems to be consuming the Greater Toronto housing market including satellite cities like Barrie 90 km away and Hamilton 65 km away. The big concern for Stephen Poloz,Governor of the Bank of Canada is the effect a real estate collapse would have on the Canadian economy. The Greater Toronto Area (GTA) economy is larger than many of the smaller provinces combined. Right now it is being sustained by a soaring housing market with a 35% price increase for detached homes between March of 2016 and 2017.
Although the hot housing market in BC is included in the mix of BoC worries the Vancouver home market in the higher detached end has not been leveraged by local speculators as much as the Toronto market. The Vancouver buyers have deeper pockets. Vancouver has more international buyers some of whom may be impacted by CRA enforcement of FINTRAC and money laundering laws, the principal residence crackdown on exemption from capital gains rather than mortgage debt.
Vancouver Skyline by Jerry Meaden
It does seem like the Chinese government imposed restrictions on sending funds outside their country is having an impact on the ability of some buyers in the $2million price range to access money in a timely fashion. Deals are falling apart over the availability of deposit funds and the heightened requirements around down payments by Canadian lenders. Many corporate and ultra-wealthy individuals who have money in foreign banks are able to avoid these restrictions and can and do purchase homes in the $5million+ price range. There are bona fide buyers in the $20million+ price range. The benchmark price for detached homes on the Westside of Vancouver is currently $3,461,700. This is a 12.7% increase from March 2016. The low Canadian dollar makes the costs of purchasing here about 40% less than in comparable high value currency locations.
The concern now is the pressure on condos and townhomes. There are so few listings that the prices are being driven up by competition and location. There is one recent sale of a 450 s.f. condo near Kits Beach being listed at $399,000 on an assessed value of $365,000 selling with 21offers for the extraordinary price of $700,000.
BC Assessments are finalized by July 1 of the previous year. In 2017 the assessments are reflecting sale prices of 2016 before there was any interference in the market by the government in the form of the Foreign Buyer Tax. The imposition of the FBT created the expectation that sale prices would be considerably lower than assessments and many home owners who are house rich and cash poor rushed to appeal their assessments. It turns out that homes are now selling just below or considerably above the BC assessment price. In the lower price ranges condos and townhomes are selling higher because there are between 2 and 20 offers on every property. In North Vancouver and Richmond townhouse prices are up over 17% between March 2016 and 2017.
According to the Real Estate Board of Greater Vancouver the sales-to-active listings ratio for March 2017 is 47.2%, a 15% increase over February. Generally a downturn in price occurs when the ratio dips below the 12% mark and home prices rise when the ratio surpasses 20% over several months.
Many buyers are moving out of Vancouver and other close-in locations like Richmond and Burnaby to buy in outer areas like New Westminster and Abbotsford which were quite affordable for 2 and 3 bedroom condos for a long time. Prices are rising there due to demand. Year over year prices in March for condos rose +17% in New Westminster; in North Surrey or Whalley +18%; in Abbotsford +30%. In new developments buyers are willing to pay more than the original price for an assigned contract. If buyers are willing to accept the inconvenience and expense of ferry travel they can buy a detached home in Powell River on the Sunshine Coast for under $300,000. Prices and demand is rising due to buyers leaving other once affordable areas like Squamish where detached home prices went from $450,000 to $700,000+ in a short time span.
In the Vancouver Sun there is a big discussion going on about the role the City of Vancouver under Mayor Gregor Robertson has played in the rising unaffordability of new construction. The cry is for more affordable homes so that young families and employees can live in the city. The problem is that Vancouver didn’t want to upset the political applecart or their major campaign donors so placed no restrictions on rezoned land. The idea was to build more affordable family friendly larger condos near transit but the land along the main streets and particularly the Cambie corridor got bid higher and higher until the only units built in the approved condo buildings sell for over $1million and are available to foreign buyers and downsizing baby boomers. They listened to their voters who didn’t want low-rise development on the fringes of their neighbourhoods and still placed no restrictions on the rezoning so any lowrise condos or street entry townhomes will be predictably unaffordable no matter where they are built.
The planners and City Council are projecting demand along the UBC subway line which may never get built and allowing developers to buy up existing commercial properties and start lobbying for higher heights and more density on the property. Over many years no City Council has defied the voters to preserve the character of the city and to enforce high architectural standards. As a result beautiful neighbourhoods are blighted by huge mansions of no redeeming style. Vancouver charges the lowest property taxes of any major city in Canada. There is never enough money to support worthwhile endeavours and all that there is available is directed away from solving the middle class housing crisis.
In the current provincial election campaign promises for housing solutions are being offered by all sides. Some are draconian in method and may have the result of destroying the momentum that all facets of the real estate industry have contributed to the best provincial economy in Canada.There is a rising public demand for a solution but no easy answers after 30 years of mismanagement by the Social Credit, NDP and Liberal governments. Expo86 was the watershed moment when things went wildly awry. It used to be that Vancouver was a city where you could enjoy a champagne lifestyle on a lemonade purse. It’s wonderful to be wanted by the world but we could have made less self-centred choices. Singapore is a wonderful example of a forward thinking,forward planned city that benefits all its residents despite enormous international demand to live there. Australian regulators are worried that it’s housing bubble is about to burst with great damage to the economy. The prices in Melbourne rose 14% and in Sydney 19% in the past year. The conditions of a resource based economy with low interest rates, high levels of consumer debt and international investors resonates with that of Canada.
Around the world it is a damned if you do and damned if you don’t list of financial choices and regulations. Finance Minister Morneau is huddling with the Premier of Ontario and the Mayor of Toronto to try to prevent a possible meltdown of Canada’s two turbulent housing markets of Toronto and Vancouver.