As Van­cou­ver’s de­tached home mar­ket grinds to a screech­ing halt, could the pro­vin­cial econ­omy fol­low?

BC Business Magazine - - Contents - By Steve Saret­sky

Van­cou­ver’s out-of-con­trol de­tached home mar­ket has made many mil­lion­aires. What if it screeches to a halt?

The real es­tate boom grip­ping B.C., and the city of Van­cou­ver in par­tic­u­lar, has been his­toric on nearly all fronts. The frenzy to snatch up Van­cou­ver soil kicked off in 2013. Bid­ding wars for de­tached homes spread like wildfire, push­ing sales to a record in 2015, along with dol­lar vol­umes, which hit $8.9 bil­lion that year, ac­cord­ing to the Real Es­tate Board of Greater Van­cou­ver. The av­er­age sale price of a de­tached home in the prov­ince’s largest city surged 48 per­cent from 2014 to 2016, reach­ing an all­time high of $2,825,858.

In re­sponse to pub­lic angst about ru­n­away hous­ing costs, pol­i­cy­mak­ers at all lev­els dog-piled onto the real es­tate mar­ket, an­nounc­ing a for­eign buy­ers tax, two mort­gage stress tests and a hike in the prop­erty trans­fer tax, to name a few mea­sures. Mean­while, the Chi­nese govern­ment took swift ac­tion to curb cap­i­tal out­flows, re­quir­ing cit­i­zens to pledge that they wouldn’t use cash leav­ing the coun­try to buy prop­erty. Out­flows from China plunged 67 per­cent last year, ac­cord­ing to in­vest­ment firm Pictet Wealth Man­age­ment.

As a re­sult, mul­ti­ple offers van­ished and spec­u­la­tive ac­tiv­ity dried up, leav­ing would-be house flip­pers fac­ing a liq­uid­ity crunch.

Many sell­ers re­main will­fully op­ti­mistic about a re­bound in 2018, but it hasn’t been the start they were hop­ing for. In the first quar­ter, Van­cou­ver de­tached home sales fell to their low­est for that pe­riod in more than 27 years.

In­creased tax­a­tion has pushed for­eign bids to the side­lines, with a $3-mil­lion pur­chase now re­quir­ing those buy­ers to cough up $668,000 in levies upon clos­ing. Lo­cal pur­chasers have been stymied by ris­ing mort­gage costs and tougher qual­i­fy­ing rules. A typ­i­cal Van­cou­ver house­hold with an av­er­age mort­gage would have to part with an ad­di­tional 9 per­cent of its in­come to ser­vice a 1-per­cent rise in in­ter­est rates, the Na­tional Bank of Canada es­ti­mates.

With rates ex­pected to keep inch­ing up­ward in 2018 and the pro­vin­cial govern­ment in­tent on curb­ing house prices, a quick re­bound in Van­cou­ver’s de­tached home mar­ket could be a fad­ing pipe dream. Now it’s be­come ap­par­ent that banks have started pric­ing in ad­di­tional risk, rais­ing bor­row­ing rates and get­ting more se­lec­tive about who qual­i­fies for a loan. Home­own­ers hop­ing to re­new their mort­gages are also at the mercy of their cur­rent cred­i­tors fol­low­ing new B-20 mort­gage guide­lines that re­quire bor­row­ers to face a stress test if they want to switch. This al­lows lenders to squeeze them when it comes time for re­newal, es­pe­cially if credit con­di­tions con­tinue to erode.

Such head­winds leave the B.C. econ­omy, es­pe­cially its real es­tate and con­struc­tion in­dus­try, in a vul­ner­a­ble po­si­tion. The sec­tor now com­prises al­most 25 per­cent of pro­vin­cial GDP, Statis­tics Canada es­ti­mates. With some 55,000 hous­ing units un­der con­struc­tion, nearly dou­ble the long-term av­er­age, it’s been fir­ing on all cylin­ders. Un­less you’re hop­ing for a crash, it could be time to think about tak­ing shel­ter.

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