Our Market Update June 8, 2015
It’s been very active Spring for the Vancouver real estate market. The number of units sold in BC is expected to be the highest since 2007, the Real Estate Board of Greater Vancouver HPI price for detached homes has risen by 10% since December and buyers are active in the market giving rise to bidding wars. This has been in the face of much talk about curbing foreign ownership and speculation.
In North Vancouver the story is very similar. We may not have a swath of +$3million sales driving the upper end of the market and skewing the averages. But there has been a lot of activity in detached homes in general as is apparent form the North Vancouver Median Price graph and the Sales to Active Listings Ratio.
The people coming to North Vancouver are often professional/upper middle class families that are being pushed out of Vancouver, as well as people downsizing from those areas. From the detached listings we’ve sold the vast majority of people coming through seem to be families looking to live here or small local builders/renovators (for the fixer-uppers). We’re not getting lots of offers from numbered companies or foreigners living abroad, so it seems that what Cameron Muir, Chief economist for the BC Real Estate Association, said on CKNW AM980 on Friday is likely correct. He indicated that ‘foreign buyers’ are only making a small percentage of the market and that the main driver of the market is from local interest. So the real danger may not be from foreign investors pricing locals out of the market but from locals taking on huge sums of debt to compete with one another because of the perceived threat of foreign buyers. It is a fact that local buyers are taking on large amounts of debt. An April 28 article by the Motley Fool references the Canadian debt-to-disposable-income ratio, which I talked about in our January newsletter, and said: “Canadians are awash in debt. Mortgage debt is to be expected, but it isn’t just houses we’re borrowing against. Credit card and vehicle debt are also at record levels and student loan debt continues to be a problem. In the fourth quarter of 2014, Canada’s debt-to-disposable-income ratio grew to 163.3%, setting a brand new record. To put it into context, the ratio in the U.S. peaked at around 160% back in 2007.” They also mentioned that HELLOC growth has increased 10 fold from 2010 to 2013. Low interest rates and borrowing from parents have been and continue to be big factors in driving the market. In a recent survey by BMO it states: “42 per cent of current home owners looking to upsize their home are expecting financial help from family. Another 42 per cent of first-time buyers are also expecting their parents or relatives to help pay for their first home, up 12 percentage points from last year.” Another stat that was used in the Motley article is the OEDC Housing-Price-to-Rental ratio (a measure of the profitability of owning a house) which indicates that the Canadian housing market is overvalued. The mission of the Organisation for Economic Co-operation and Development (OECD) is to promote policies that will improve the economic and social well-being of people around the world, however, the accuracy and relevance of this ratio is debated.
In the Greater Vancouver housing market it seems that the change that may affect the Price-to-Rental ratio is the rise in rental rates. Older apartments are on their way to demolition and replacement with investor owned condos. Tenants will be evicted and then have to rent back at much higher rates. This was made very clear in Business in Vancouver April 29, 2015 article where a Real Estate Agent dealing in multifamily apartment sales said that Mainland Chinese Buyers are scooping up Burnaby apartments. The agent said: “One buyer from China flew over here and paid $40 million cash for a Metrotown site.” This adds to the news of 36 Burnaby apartment buildings being bought last year. Reports like these give an example of where the real foreign investment is, in the high end detached properties and expensive development properties. There has been a lot of talk about what to do about foreign (or Chinese) speculation/investment. But given what all the data says about the market it seems that any measure levelled towards the individual or small time investor who plans to live here will not be effective and will probably only further erode affordability. I’m sure this would be the case with any speculation tax, like what the Mayor of Vancouver and others have proposed. The affordability issue needs to be addressed by targeting more than just the local real estate market. Vancouver has been called a ‘hedge city’ and in a talk in Singapore by Black Rock investments, the world’s largest asset manager, they related that art and real estate are the new gold. The Black Rock CEO said: “…the other store of wealth today is apartments in Manhattan, apartments in Vancouver, in London.” This confirms the global nature of Vancouver real estate. So, it seems to me, that a really good way to combat both affordability and xenophobia in this global city is to target money laundering and illegal activity. In interviews with Kim Marsh, a Vancouver financial crime specialist, and David Mulroney, former ambassador to China, it is apparent that “hot money” is playing a factor in our market and that Vancouver is “emerging as a critical money laundering hub” for international criminals.” Hopefully if this issue was targeted by the government it would mean that a lot of that ‘hot money’ would be taken out of the competition for investment properties and detached housing. This, I think, would be a better solution than targeting vacant housing which really doesn’t seem to be much of a problem anyway. The government has committed to creating a website to try to address vacant homes in Vancouver. Currently there’s already a website that tries to keep track of and post photos of vacant homes in Vancouver, however there is a relatively small number of houses on the site and many of these could be in the process of demolition/re-building. So it would be great to have more data on vacant homes as the biggest unknown could be in apartments and the stats which many of the headlines are based on are from 2011 census data.
However, when it comes to affordable housing there are still options for people who want to live here. The condo market, despite the recent cries of vacant housing, has not experienced much price change in the last number of years. For example condos in Kits are still as unaffordable (or affordable) as they were in 2008 according to the Median Price graph for that subarea
This might not be a completely fair comparison as newer condos are smaller in general and so the average price per square foot has gone up. But this has only increased a modest amount in comparison to the average price of detached properties which gets all the press.
So in conclusion the market is being driven by global interest and local borrowing. At the same time the perception of Chinese speculators and unaffordable housing may be more perception than reality. The angst that is being felt about Vancouver real estate prices and affordability likely has more to do with the economic realities of the entire world that it does about any single local factor. The current boom in detached housing prices may mean it’s a good time to sell and downsize to a condo …or it might mean that it’s best to hang on and ride the wave. The decision making process is many faceted and we would be happy to help you by applying our expertise to your individual situation.
Have an awesome summer!
Terrence and Craig
Least Expensive Active Listing in North Van
101-212 Forbes Ave