By Gagandeep Ghuman
Published: April 16, 2018
Frustration and anxiety are predictable emotions for those who missed the real estate bus in Squamish.
But even though home prices will probably never return to what they were just a few years ago, there may just be a brief window of opportunity to get into the market, according to experts who study real estate trends and data.
Andrey Pavlov is a professor of finance at the Beedie School of Business at Simon Fraser University. He says low interest rates, foreign buyers in the Metro Vancouver region and a lack of inventory had been pushing prices in the region upwards since 2014.
Housing prices in 2017 were at an all-time high compared to any other past year, but there is no guarantee this trend will continue in 2018, at least in the short term.
There may even be a reversal even if it’s a temporary one.
“This is the highest prices we have seen in any time in history but this year is going to be trickier with banking rules restrictions and interest rates rising but incomes staying the same. The market may stay flat and with the increase in federal or provincial taxes, it may even fall. Unless banking rules are relaxed, people are going to have to spend less on everything and that does include real estate,” Pavlov says.
That change is manifesting itself slowly.
“Rising interest rates and stricter mortgage requirements have reduced home buyers’ purchasing power, particularly for those at the entry level of our market…On the other hand, our detached home market is beginning to enter buyers’ market territory.” Jill Oudil, REBGV president.
In February, the Real Estate Board of Greater Vancouver reported that residential property sales in the region registered a nine per cent decrease compared to last year. Home sales in February, it reported, were 14.4 per cent below the 10-year February sales average. Detached home sales were down 39.4 per cent over the same period, attached sales were down 6.8 per cent, although apartment sales were 5.5 per cent above the 10-year February average.
“Rising interest rates and stricter mortgage requirements have reduced home buyers’ purchasing power, particularly for those at the entry level of our market,” said Jill Oudil, REBGV president said. “Even still, the supply of apartment and townhome properties for sale today is unable to meet demand. On the other hand, our detached home market is beginning to enter buyers’ market territory.”
Cameron Muir is the chief economist at BC Real Estate Association. Muir is usually optimistic if not entirely bullish about the real estate market but even he acknowledges there will be some impact on the demand, even if it might be short lived.
If you have been planning on buying some real estate, there may be a small window of opportunity coming to get into the market, if one agrees with what Muir has to say.
“The mortgage stress test for conventional mortgages will certainly have an impact on demand and that would take 5 to 7 per cent of sales out for period of 4-5 months and then we will likely return back to the trajectory to which we are already on,” Muir says.
In a report analysing the new stress test, TD Canada Economists Beata Caranci and economist Diana Petramala estimate the new tests will depress demand and shave off anywhere from two to four per cent of the average price level.
Muir says he has seen these cycles in the past. Real estate demand in Vancouver, for example, did suffer when the BC government introduced the foreign buyers’ tax. Even locals, he says, were skittish and waited to see how the market would react to the ban.
But after a few months, home buyers realised the prices were not going to fall as drastically as they may have imagined and decided to get into the market again. The stress test will have an impact on housing but it won’t bring the market to the tipping point for it’s just one variable.
Tom Davidoff, a professor of real estate at the Sauder School of Business, says it’s difficult to forecast prices because the new rules exempt local credit unions and many borrowers got pre-approved last year as the changes were announced in October in 2017. Still over time the stress test will certainly lead to a reduction in credit availability, he says, which can affect housing prices.
But there is yet another variable that shapes both demand and supply and that is the BC’s strong economy, Muir says.
“The cumulative impact of four years of very strong economic performance has led to some pretty strong employment growth numbers. In some sector we are seeing full employment levels, and unemployment rates are falling. We also have strong migration levels and we have seen an increase in immigrants coming from other provinces,” he says.