Turns out 2017 might be the year when B.C. home buyers will finally get a break. But don’t bother throwing a party, yet.
Price drop is due to a lack of supply
The Canadian Real Estate Association (CREA) predicts prices will drop by about 7.8% in 2017 in B.C., primarily due to a lack of supply of higher-priced single family homes in the Lower Mainland and Vancouver areas.
CREA’s Chief Economist, Gregory Klump, likens this forecasted price decline as the equivalent of removing the basketball team from a Grade 8 class. “Throw in the basketball team and the average height shoots up. The same applies to markets with higher-end homes.” He continues by saying that, “The forecasted drop in B.C. home prices largely reflects an anticipated decline in single family home sales activity at the higher end of the market—particularly in the Lower Mainland,” says Klump.
New tax certainly helped
This trend of declining of home sales in B.C.’s Lower Mainland was confirmed by data collected by Zoocasa, a full-service national brokerage. According to Zoocasa Managing Editor, Penelope Graham, Vancouver “experienced a major deceleration in 2016.” While the decline started before the 15% tax for foreign buyers was quickly introduced by the B.C. government in early August 2016, the tax prompted homes sales activity to plunge 26% by September, according to the Real Estate Board of Greater Vancouver.
“Sales have been trending downward in Metro Vancouver for a few months. The new foreign buyer tax appears to have added to this trend by reducing foreign buyer activity and causing some uncertainty amongst local home buyers and sellers,” REBGV stated.
By December 2016, sales had dipped by just over 20% year-over-year, according to the British Columbia Real Estate Association, with sales dollar volume down 25.2%.
These declines in both sales volume and house prices will continue into 2017.
Just don’t expect cheaper homes
“Home prices had gotten so out of whack with the growth in the underlying wages and salaries that there had to be a correction—and it’ll happen in 2017,” said Royal LePage CEO Phil Soper. But don’t expect home prices to get much cheaper, says Soper. The dramatic appreciation over the last few years means that a massive correction would have to take place in order to see some real devaluation in housing prices. For instance, even if homes were to fall in value by 10%, prices would still remain near March 2016 levels—or 20 times the average income of the region, Soper explained to Zoocasa.com.
B.C. buyers will get a temporary break
Price declines won’t be uniform across all markets and all price points. Then there’s the added pressure of the spring buyer rush. This year’s rush could be even more pronounced now that the B.C. government has announced a new Home Owner Mortgage and Equity Partnership (HOME) loan, which goes into effect starting this February 2017.
In case you missed it: The B.C government will offer a subsidized loan to any first-time home buyer that can match the interest-free loan (for the first five years), up to maximum of $37,500 or 5% of the home’s purchase price. To qualify for the program, buyers must have lived in B.C. for at least a year (and been a Canadian citizen or permanent resident for at least five years). The household income must be below $150,000 per year, plus each household must prove that they’ve filed their tax return and paid taxes for the last two years. The loan will be amortized over 25 years, with interest set at prime plus 0.5% after five years.
Right or wrong, this extra loan might just be the right incentive for first-time buyers to get into the B.C. real estate market in 2017 (for more, read my post on the Smart way to use the new HOME loan).