Housing correction is coming
Cheryl Chan
The Vancouver Sun
The forecast for a double-digit price drop in Vancouver’s housing market makes for a nice or nasty surprise for 2017, depending on where you are on the property ladder, but experts say it still won’t make the city affordable.
Royal LePage CEO Phil Soper said prices are headed for double-digit decline in 2017 as buyers drop out of the market.
“Home prices had got so out of whack with the growth in underlying wages and salaries that there had to be a correction,” said Soper. “And it’ll happen in 2017.”
Royal LePage, a unit of Brookfield Real Estate Services, is preparing a formal forecast for release in early January based on data from Brookfield, which also runs the nation’s biggest property valuation company. Those appraisals are used by banks, insurance companies and mortgage underwriters.
“We’re looking at all these trends,” Soper said. “If it’s not double digit, it’ll be close to it.”
The prediction is the latest in a series of reports by real estate groups and financial institutions forecasting a long-awaited correction in Vancouver’s overheated housing market.
Last month, the B.C. Real Estate Association released a report predicting an 8.7 per cent drop in home prices in the region for 2017, with the average MLS price dropping from $1.03 million in 2016 to $940,000 next year.
In October, the National Bank predicted a 20 per cent decline in the price of detached homes in Vancouver, a nine per cent drop for attached homes, and five per cent price decrease for condos.
There’s no question the market is getting buffeted by headwinds, said University of B.C. economist Tom Davidoff.
Recent government interventions such as the 15 per cent foreign homebuyers’ tax and tighter mortgage rules have cooled the market but are not yet fully reflected in prices, Davidoff said. “I think it’s a reasonable guess prices are going to end lower in the year than how it started.”
But he said cheaper housing prices are not a sure thing.
Interest rates, housing supply, foreign demand from China, the exchange rate, as well as the province’s new interest-free loan program for qualified first-time home buyers announced last week, are all factors that could affect real estate prices in Vancouver, even tip the playing field in favour of a price increase.
“I’m not ruling it out,” Davidoff said, noting there is a broad range in the statistical distribution of where prices could be in 2017. Some indicate a decline as low as 50 per cent, while others suggest a jump in prices.
The mid-range forecasts, however, point to a modest correction following months of slumping sales in the Greater Vancouver market.
Typically, there’s about a six-month lag between the time demand starts to slow and prices begin to fall, Soper said from his Toronto office. “Thank goodness there’s going to be a measure of sanity returning to the market,” he said. “It’ll be healthy for the industry.”
Still, those expecting Vancouver to become affordable again may be in for a disappointment.
The typical single-family house has surged past $1.51 million, about 20 times the median household income in the region and more than 20 per cent more than what it cost in November 2015. A 10 per cent decrease would only bring prices back to about where they were in March.
“We are never going to be cheap,” noted Davidoff.
In a tumultuous world, Canada will remain a prized destination and haven. “Having a stable democracy with a beautiful environment, over time, is going to be a real strength of Vancouver,” he said. “In the long run, I’m reluctant to bet against Vancouver, but in the short run I can see the risks.”
B.C. housing critic David Eby sees a “no-win” situation in Vancouver’s housing market, one he blamed on government inaction.
A double-digit price dip will be “quite severe” for the many homeowners who heavily-leveraged themselves to get into the market the last few years.
“If prices stay where they are, families can’t afford to live in Vancouver. If they fall, a lot of families will be hurt … I can’t see an outcome here that has a happy ending for many people.”
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