'You're starting to witness the slowdown': declines expected in today's Vancouver real estate figures
Mortgage stress tests, interest rate hikes, new provincial taxes all in effect together for the first time
People hoping for Vancouver's housing bubble to burst could find reasons to be optimistic today.
Monthly real estate figures for the Lower Mainland will be released for every municipality, with predictions of significant drops in total sales compared to a year ago.
"When we look across most markets in B.C. over the first quarter of this year, sales are down," said Cameron Muir, chief economist at the British Columbia Real Estate Association.
Real estate agent and industry blogger Steve Saretsky says the drop is largely due to new mortgage stress test rules, but the cumulative effect of interest rate hikes and new housing taxesby the government are also playing a role.
"Prices can't rise by 30 per cent on an annual basis forever. The greatest price gains are behind us, and you're starting to witness the slowdown," he said.
"All those new policies coming into effect, I don't think, are bullish for real estate in the short term."
Muir and Saretsky say industry data shows median prices for detached homes in Vancouver and surrounding municipalities are dropping slightly — but that relief won't extend to the condo market, where the benchmark price of an average unit has increased by 31.1 per cent over the last year, to $641,800.
"I still expect prices to rise in most product types, and that's largely a result of a lack of supply. We're still sitting at 10-year lows," said Muir.
Effect of a slowdown?
An extremely robust housing market has greatly contributed to B.C.'s economy in recent years, with the real estate, rental and leasing sectors accounting for 18.4 per cent of the province's GDP in 2016, according to Statistics Canada.
"There's no question that a slowing housing market could result in a slower economy. Does that lead to a recession eventually?" asked Saretsky.
Last week, Muir published an analysis attempting to predict that possibility. The report estimated that a 35 per cent decline in average home prices would result in a recession, with GDP growth falling to negative 0.5 per cent within a year.
Unemployment, meanwhile, would rise from 4.9 to 7.5 per cent.
"Nearly 70 per cent of British Columbia households own their home. A relatively minor 10 per cent negative shock to home prices would extinguish $90 billion of their wealth, or $70,000 of the average home owner's equity," according to Muir's report.
"While some may see this as a paper loss, it will have a significant impact on the economy, as declining household wealth reins in consumer spending."