After nearly half a decade of rapid escalation, a moderate correction in home prices in Metro Vancouver could be just months away.
A report released today by Montreal-based National Bank of Canada, the sixth largest bank in the country, stated prices for single-family homes in the region could fall by as much as 20% next year. Other housing dwelling types such as condos and attached dwellings will fall by 5% and 9%, respectively, and across all dwelling types there will be an overall decline of 10%.
This is all expected to occur over the next 12 months, but it would be relatively moderate given that house prices in the region have skyrocketed by 24% over the last two years.
Key factors began in February
Since late summer a number of industry analysts have asserted that the decline in the number of home sales began well before the August 1 implementation of the provincial government’s 15% tax on foreign buyer property transactions.
National Bank’s report pinpoints March as the precise start of the downward trend, and there were a number of factors.
Home prices jumped the month before and continued to rise through August at an average of 2.5% per month, which could have deterred potential buyers from completing a purchase.
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Additionally, in February, the minimum down payment for new insured mortgage loans was hiked from 5% to 10% for properties with a price over $500,000. And during the same month, the provincial government introduced its first significant tax measure to tame the housing market, specifically the luxury market – a new 3% tax on the value of homes purchased for more than $2 million.
All the while, the anti-corruption crackdown by the People’s Republic of China intensified and may have slowed down the outflow of capital from the country.
Vancouver’s “market has remained tight”
The report says Vancouver home prices have not waned proportionally with the steep dive in the number of sales since March because the “market has remained tight.”
“We estimate that in September, after seasonal adjustment, the ratio of listings to monthly sales (the number of months required to sell the listed units at the current monthly sales rate) had risen only to 3.5, leaving Vancouver still a buyer’s market,” reads the report. “In our opinion, sales will decline further… we think a price correction will begin soon.”
Mortgage policy changes by the federal government earlier this month that tighten the rules for first-time buyers are also expected to contribute to the retreat in prices.
“Indeed, the impact on sales of the new federal government measures should not be overestimated,” the report continues. “It could drive some potential homebuyers from the market, but other buyers could still be in a position to acquire a home in this urban area, albeit less expensive.”
Consensus on patterns
Another report by Royal LePage last week also hinted that prices may soon catch up to the sunken demand.
“This [attention from buyers] may continue to change in the coming months however, as prices tend to lag sales activity,” said Royal LePage general manager Randy Ryalls. “We could very well be headed for a more balanced market with both foreign and domestic interest beginning to normalize due to steep home price appreciation, general uncertainty, high taxation and tightened mortgage regulations.”
Earlier this week, the federal government’s Canada Mortgage Housing Corporation issued its first ever “red” warning for the nation’s housing market, largely due to the overheated markets in the Vancouver and Toronto regions.
It is believed that much of the interest in Vancouver’s real estate market has shifted over to Toronto, to the extent that Canada’s largest city is now also Canada’s hottest real estate market.
According to National Bank, home prices in Toronto have increased an average of 2.9% monthly over the past four months and the number of new listings has not kept up with the heated demand. Over the last year, the number of listings has declined by 37% but the number of sales has increased by 21.5%.