Derek Turci

Office: (604) 262-1581 |

I'm back and I thought I'd change it up this month with my thoughts on buying in this uncertain market. 

Who wants to visit open houses when it's 32 degrees outside?! I have to say, the thought of being drenched in sweat while touring from one place to another isn't exactly my favorite way to spend a weekend, but there are some reasons why it might be worth braving the punishing temperatures.

1) Interest rates are on the rise...again: Yes the Bank of Canada raised interest rates again in July by 25 basis points and that's lead to higher rates for mortgages. Rates have been raised 4 times in the past year and may continue to do so if the BoC believes the economy will continue to pick up. If you are thinking about buying in the near future, talk to your mortgage broker of choice and get a rate hold. Let me know if you or a friend of yours needs help finding a broker.

2) Up-size potential: Tired of hearing the kids fight in that broom closet sized "bedroom?" Are your living room, bedroom and kitchen all the same room? You may be reaching the point where it's time to start thinking about an up-size. Currently, the market softens the higher up the price ladder you go. You can see in the market update that the sales ratio for detached homes is much lower than for attached housing options. This makes it a great time to sell your sought-after condo and take advantage of the slower detached market. In addition, the spread between detached housing and attached housing is getting smaller, so food for thought if you're in the financial position to upgrade. 

3) Less competition: Jokes aside, I've noticed fewer buyers at open houses and most of the listings I inquire about are still available and have had no offers. Interest rates are up, lenders are making it difficult to get financing and affordability all play a part. Compared to the same time last year, booking buyer tours is a lot easier now and opportunities to negotiate-down prices are becoming much more common.

4) There is uncertainty in the market: Has the bubble finally popped? This question comes up every time the market slows down even for a few months. I'm not going to pretend I know the answer to this, but I will say that every time people get nervous, the natural reaction is to take a step back and "see what happens." If most people step back, those who come forward will have an emptier, and more favorable playing field. There's a risk, no doubt, in being bold but there could be good opportunities for those who don't wait.
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Detached Enters Buyer Market Territory but Attached Supply Still Struggles to Meet Demand


Luckily most of the snow has melted away but I'm kinda looking forward to sunnier days!


The month of February saw increased sales when compared to January but they were below the 10-year average by about 14%. Despite this, median sales prices continued their upward trend for all 3 categories of homes.

We are still seeing the most activity in condos and townhouses with the sales-to-active ratio favoring the home seller. The market for detached homes is favoring home buyers throughout the Greater Vancouver Area but still favors sellers out in the valley. Overall, the market has shrunk with lower inventory levels when compared to prior years. This can be seen in this exciting chart below.



So what does this mean?
Home Buyers: There are fewer homes to look at than prior years, however it appears that there are fewer buyers as shown by the lower sales numbers and SA ratio. Qualified home buyers are seem to be facing less competition compared to previous years.
Home Sellers: Sellers are seeing less competition as there are fewer homes on the market but need to price carefully due to the reduced number of buyers.

Obviously, this is a very broad overview of the market and will vary greatly depending on the type of home, location, condition, etc. 

As Jill Oudil, President of the Real Estate Board of Greater Vancouver stated:

“Rising interest rates and stricter mortgage requirements have reduced home buyers’ purchasing power, particularly for those at the entry level of our market. 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."

"The spring is traditionally the busiest time for home buyers and sellers in our market. We’ll wait to see how they react to the taxes and other policy measures that our provincial and federal governments have introduced so far this year,”


Interest Rates, New Lending Rules, and New Measures for Housing Speculation

  • Rising Interest Rates: The Bank of Canada raised interest rates by 1/4 point in January and we can expect that rates will be hiked a few more times this year given the current conditions. This will likely have an effect on the housing market as higher rates increase the cost of borrowing and eat into disposable income.
  • Stress Tests for uninsured mortgages: New stress tests came into effect in January of this year for uninsured mortgages which has made it more challenging to secure mortgages. I have also noticed that lenders require more time to do their due diligence and are also requiring more documents and details from buyers.
  • 2018 NDP Budget: I covered this in details in my previous post but the biggest takeaways are increased Foreign Buyer Tax, increased property transfer tax for properties worth over $3 mill and a new Speculation Tax.
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My goal with this article is to break down the initiatives that target the Real Estate Market and help interpret what it could mean to you. I boil it down for you at the end of the newsletter in case you want to skip the boring details!

As you have probably already heard, the NDP released its first budget yesterday which focused a lot of attention on the housing crisis which has dominated headlines for the past few years. Action was needed, and expected, as housing prices skyrocketed throughout Metro Vancouver (the average home is now at $1.6 mill and average condo at $665,400) and the Fraser Valley.

Efforts concentrated on addressing the major factors that are believed to be contributing to the crisis:

  1. Improving affordability & supply of homes for purchase
  2. Improving affordability & supply of rental housing
  3. Cracking down on loopholes, money laundering and tax evasion

Improving Affordability & Supply of Homes

  • Speculation Tax: Additional Property Tax will be applied to homeowners, both foreign and domestic, who do not pay income tax in BC. The tax will be $5 per $1000 of assessed value in 2018 and will then jump to $20 per $1000 of assessed value in 2019. It will apply to Metro Vancouver, Fraser Valley, Capital, and Nanaimo Regional districts and in the municipalities of Kelowna and West Kelowna. Although details are still unclear, it appears there will be exemptions for principal residences and long-term rentals.
  • Foreign Buyer Tax Increase: Effective Feb 21, the Foreign Buyer Tax will increase from 15% to 20% and will be extended to the Fraser Valley, Capital, Nanaimo, and Central Okanagan Regional Districts.
  • Property Transfer Tax: PTT on residential properties above $3 million will increase to 5% per cent from 3% per cent.
  • Provide 114,000 affordable homes over the next 10 years: This point is a little unclear whether this includes rental units or affordable homes for purchase. The plan is to invest $6.6 bill in the next 10 years to fill housing gaps for growing families, seniors and those fleeing violence.

Improving Affordability & Supply of Rental Housing

  • Building 14,000 rental units: The Province is investing $1.8 bill over the next 10 years in rental housing
  • Supplying new housing for the marginalized: About $565 mill will be allocated to supply new units of student housing, those facing homelessness and for women and children who are victims of domestic violence. Student housing will be increased through a new plan that will allow post-secondary institutions to build on-campus housing thus alleviating pressure on rental housing in the surrounding areas.
  • Renovictions and Demovictions: Changing laws in order to prevent “renovictions” and “demovictions” providing more support for renters and to close loopholes used by landlords.
  • Taxing Short-Term Rentals: AirBNB will begin collecting 8% PST and up to 3% Municipal tax. The government is looking to do the same with other short term rental platforms in the future.
  • Reviewing Homeowner Grant: The current grant helps home buyers but not renters. The Province will be reviewing this program to make sure both owners and renters benefit.
  • Property Tax Exemptions: Offering Property Tax exemptions for purpose-built rental housing.

Cracking-Down on Loopholes, Tax Fraud and Evasion

  • New database to track pre-sale assignments: This info will be shared with Provincial and Federal tax authorities to make sure taxes are collected from pre-sale flipping.
  • Hidden Ownership: New registry for beneficial ownership, getting additional information from Property Transfer Tax Form and other means of understanding and keeping track of who owns BC real estate.
  • Strengthening Provincial Auditing and enforcement powers.

Derek, Stop Explaining and Tell Me How this Affects Me!

Ok fine! As you can see, the budget focuses on those who look to profit from the hot real estate market and view it as a tax shelter, a store of wealth and/or as a market place for speculation. Most of these initiatives are not targeting local home owners and renters with the exception of perhaps the Home Owners Grant, tax collection on short-term rentals and possible future initiatives for pre-sale assignments. Although they may not directly affect you as a home owner or potential buyer/seller, they may have an indirect impact by disrupting the market.

This is big news and will likely flood the media over the next few weeks as the government begins to fill-in the details of the plan. Market places are like cats; they don’t like change and are happiest when they can do their thing in a stable and predictable routine. Historically, news like this tends to slow the market down as people digest the info and figure out the impact. It will be interesting to see how this will play out as we enter the spring market which is typically the most active period of the year.

Here are my thoughts on the short-term impact of these changes:

If you are a happy traditional home owner: This likely won’t impact you except for having to hear about it for the next 6 months from the news and your friends. You may see a dip in sales and have to listen to your irritated neighbor blame his Realtor for not selling his overpriced home. Home prices may correct depending on how much of an effect foreign buyers really have on our market.

If you’re looking to buy: High end homes will likely suffer the most because of the new Property Tax and the potential loss of foreign investors from the marketplace. We may see less competition for single family homes and less pressure from home investors in the condo market. Could be a good time to get serious about up-sizing or buying your first home if the market stalls.

If you're looking to sell: Be realistic and price your home sharply. I really believe that everything sells at the right price. There is a shortage of affordable homes for sale right now and there is a lot of pent-up demand from buyers who have struggled to compete and new buyers looking to take advantage. 

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If One Word could Characterize 2016, It Would be Change 

2016 Started off with an overheated market to put it nicely. This fevered market saw multiple offer situations that resulted in some head-spinning sale prices. In an effort to cool the market, hastily implemented regulations soon started to be announced from the City of Vancouver, The Province and finally by the Federal Government. These changes to the real estate market seem to have had the desired effect with market activity dropping considerably in recent months. The newest variable is the surprising result of yesterday's U.S. presidential election which may cause even more uncertainty in the months to come. Here is my attempt to clarify all of this information that is flooding your news feeds.

 

Surprising Election Results

Oh yes, I believe we have all had our fill of U.S. politics for this lifetime. The financial markets have welcomed President Elect Donald Trump with mixed feelings. It remains to be seen how the election results will effect the Metro Van real estate market. Factors that could impact the market could be the expected future of US-Canadian relations; Specifically, how our current trade deals will be affected over the coming months and consumer beliefs on the supposed influx of US citizens to Canada. Only time will tell how the market interprets Mr. Trump's entry into the oval office.

 

Changing Practices for Insured Mortgages

As of Oct 17, all insured mortgages will need to undergo a "stress test" which evaluates the applicant based on the Bank of Canada rate in addition to the contract rate. For example, a five-year fixed mortgage application at a lender rate of 2.39% would have been qualified at that rate. Now the applicant will need to qualify at the BoC rate (currently at 4.64%). The biggest effect is that high ratio (less than 20% down) applicants will qualify for less than before. New announcements are coming out all the time so the best thing to do would be to contact your mortgage specialist to find out the latest and greatest. Let me know if you don't have one already.

 

Additional PTT for Foreign Entities

In July, Christie Clarke announced that foreign entities would be charged an additional tax of 15% Property Transfer Tax on their real estate transaction. This new tax affected all residential transactions that completed after August 2, 2016 meaning deals that firmed-up prior to the announcement, but were not yet completed, would be subject to the tax. As a result, a number of deals collapsed as home buyers walked away from their deposits in order to avoid the additional tax. In addition, this resulted in speculation about the future of the Vancouver real estate market. Click here for more information.

 

City of Vancouver Vacant Home Tax

The city of Vancouver announced a vacant home tax in June targeting investment properties with a tax ranging from 0.5%-2%. The preferred method  of collection was through BC Assessment.

"The City would work through the Assessment Roll to levy appropriate property taxes on empty and under-occupied investment properties, using data already collected on primary residence and rental income through the Homeowner Grant and income tax collection processes.

The 'residential vacant' classification would be administered annually and would likely involve a self-declaration and audit/complaint response process."  - Source: http://vancouver.ca/news-calendar/vancouver-takes-next-steps-on-taxing-empty-homes.aspx

Recently, staff recommended a 1% empty home tax should be implemented on all non-principle residences that are unoccupied for 6 months of the year or more. This tax is scheduled to come into effect some time in 2017.

 

So Where is the Opportunity in All This?

The good news is that, for the moment, the real estate market has cooled and sale prices have stabilized and even dropped in some areas. For home buyers, this means that there are opportunities to once again negotiate on price. For home sellers, home prices are still high and activity is still strong for attached homes. We are entering into more balanced market conditions which means that everyone has an opportunity to get a fair deal done. Please stay positive and let me know if you have any questions!

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Well, as many of you may know, the stats are in for the month of August 2016. As expected, the market slowed-down which is to be expected for this lazy summer month. I mean, why write offers or walk through open houses when you could be at the lake barbequeing with friends!

 

One of the most frequently asked questions right now is how the 15% Transfer Tax for foreign entities (I say entities because the tax also includes foreign corporations) is affecting the market. The simple answer to that is that it depends on where we are talking about and what type of home we are talking about. I went through a pretty thorough explanation of this on my previous article so feel free to have a read of that too. The honest truth is that it is too early to see the actual effects of the market. As I see it, the market took a step back as there was a lot of confusion about who is considered a foreign investor. We will have a clearer idea of the impact towards November when we ge the results for the fall market. Stay tuned for more info...

 

So here is the breakdown of the stats for detached homes in the Greater Vancouver Region, Westside and Eastside Vancouver:

 

3-Year Sales to Active Ratio

The sales to active ratio tells you whether it's a Buyer's, Seller's or balanced market. In August, the ratio indicates that we are now in a buyer’s market for detached homes.  


Sales to Active Ratio



10-Year Average Sales Price

Sales prices have stabilized in recent months with a drop in August. In August, the average home sold for $1.507 million in the region, $1.507 million in Van East and $3.983 for the Westside.

Average Sales Price




Average Percent of Original Price

For the first time since the beginning of the year, we have seen prices that are below asking price. In August, 

·        the average detached home sold for 97.6% of asking for the region, 97.9% in Van East and 96.1% for the Westside.

Average Percent of Original Price

 

 

 

Total Inventory

·         In August, there were 5,248 detached homes for sale in the Region. Of those, 634 were in Van East and 634 in the Westside. Compared to the same month last year, this represents +5.6 for GV, +40.3 for VE and -8.2 for VW.

Total Real Estate Inventory

 


 


 

 

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Over the past month I’ve been asked the same question from pretty much everyone I have spoken to.

 

“How is the market responding to the 15% tax on foreign investment and what do you think will happen to the market now?”

 

Just hang-on while I take out my crystal ball…. But seriously, what is really happening out there? The statistics from the REBGV have not yet been published therefore it is impossible to say with any degree of certainty what impact the tax is having. What we can do is look at historical trends up to this point and then compare them to the August stats when they come in.

 

We have all heard the news that the market has stalled and prices are dropping due to reduced pressure from foreign investors. However, we must keep a few things in mind when we read these articles.

1) What type of real estate is being analyzed?

2) Where are they talking about?

3) How much of this slow-down can be attributed to the typical seasonal cycle of the Greater Vancouver real estate market?

4) How will the public interpret this information? Are they optimistic or pessimistic?

 

Type of Real Estate

There are a lot of different homes and each type will attract a different type of buyer. For example, Westside Vancouver detached homes have seen a significant slowdown but the Westside condo market was still going pretty strong. This is especially true if you consider that we are in the summer which is normally a slower part of the year. Let’s look at the sales-to-active ratio up to July. This ratio tells us whether we are in a seller’s market (.21 and higher - seller has the advantage), balanced market (.15-.20 - equal playing field for buyers and sellers) or a buyer’s market (.14 or less - buyer has the advantage). 

 

Westside Detached

 

 

Westside Condos

 

You can see both products were down in July. However, you’ll also notice that the detached market is around the same percentage as July 2014 and slightly lower than July 2015. Again, the summer period is typically slower than the spring or fall so we are actually on par with historical levels. This is considered a balanced market which is quite a healthy place to be. Now compare this to the sales-to-active ratio for condos which was at .49 in July. That is a very strong seller’s market which will continue to put upwards pressure on prices.

When reading reports or listening to the news, think about what type of home they are talking about. The media typically provides very broad stats and rarely drills-down to specific types of homes.


Where are we talking about?

Let’s talk about the where now which adds a further layer of complexity to my answer. You might now regret asking me this question ;). Anyways, each city will react differently to the tax because it only affects the Greater Vancouver Regional District so places like Mission and Abbotsford are not included. Click here for more details. We must also think about who the buyers are in each area. From what I have seen in open houses and feedback from other agents, areas like Port Coquitlam, Maple Ridge and Langley are attracting buyers who are mainly residents of Canada and live in the area. They are looking for a primary residence and not an investment. This would imply that these markets are being driven more by domestic demand and not so much by foreign investment as these areas are still affordable to the middle class. In these three cities, we are still seeing strong demand for single family housing as well as townhouses and condos as seen below.

 

Detached Homes

 

 

Townhouses

 Now you might say that these areas have plummeted too but look at the numbers. The detached Sales-to-active ratio is .38 for Langley, .32 for Maple Ridge and .33 for Port Coquitlam; all of which are strong seller’s markets. Townhouses are performing even better with .93 in Langley, .83 in Maple Ridge and 1.08 in Port Coquitlam. What the media sometimes fails to do is look back far enough. Personally, I believe that the numbers from the last few months have been unhealthy and completely unsustainable; therefore, I think it’s probably a good thing that they drop.


Seasonal Cycle

 

Look at the chart above for total sales and you’ll quickly see that there is a pretty strong seasonal cycle to our real estate market. It is important to consider this when reviewing any market reports. When the numbers are released for August, remember that this month is normally quite slow regardless of the tax.

 

Public Interpretation

Last but not least is public interpretation of market information. I personally believe that this point is often overlooked by many people. Each person will read and interpret market data differently and will also be exposed to the opinions of others including the media, real estate boards and analysts who in turn interpret the data in their own ways. For example, if you have a stake in a market and you keep hearing from your neighbors, the news and your favorite analyst that the price of your commodity will drop, you will be more inclined to sell that commodity now as opposed to next year. Public interpretation is very difficult to forecast so I’m a little hesitant to provide my opinion on this matter so I will leave this to you.

 

I hope this article provides some insight and that it will help you to view the upcoming reports more critically. I’d be happy to hear your feedback on this topic so please don’t hesitate to reply or give me a call!

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Many home sellers I speak to have a hard time justifying the upfront costs of staging to the potential benefits down the road. Studies have been done that support both sides of the argument. A recent study by Michael Seiler, Professor of Real Estate and Finance at the College of William and Mary showed that buyers would be willing to pay the same price for a home whether it was staged or not. Other studies show the opposite, that home sellers  would receive a higher sales price and benefit from a faster sale if their home is staged.

 

You can find many studies online that support both arguments but here is a list from my experience of some low cost things you can do to increase your home’s appeal.

 

1)      Furnished homes show better than empty ones: You may think that an empty home will seem larger, but sometimes the opposite is true; Especially for smaller homes. Having some furniture inside will help buyers visualize whether their furniture will fit in the space and will also make the home feel more inviting.

 

2)      Clutter and filth are a big turn-off: Even the most experienced home buyers have a hard time looking past cluttered and dirty homes. Clutter makes it difficult to understand the actual size of rooms and the time spent avoiding junk is all time taken away from actually looking at the benefits of your home. If you don’t do anything else, take the time to de-clutter your home!

 

3)      Removing personal items: Family photos and controversial art all take away from buyers’ ability to picture themselves living in the home. Remove these decorations and consider replacing with more generic items.

 

4)      Strong odours and loud noises: Avoid cooking any fried meals before showings and open houses.

 

5)      Making small aesthetic repairs: Buyers tend to overestimate the costs of re-painting, fixing chipped moulding and damaged fixtures. Repairing these small defects gives buyers less opportunity to chip away at your asking price and will also give the impression that the home has been cared for.

 

6)      Don’t ignore the exterior: First impressions matter so make sure your yard and driveway are tidy and well-kept.

 

So to answer the question, staging may make more sense when you have a vacant home or a home with little or no furniture. You may consider having a 1-on 1 consultation with a professional stager to get some tips on how to make your home look as presentable as possible. I work with several staging companies so contact me if you are interested in this service.

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Imagine buying a car that has no service manual or planned maintenance program. How would you ever know when you need change the oil or rotate the tires? For years, strata councils had little to work with when it came to maintaining their buildings and this led to the neglect of a lot of important hardware resulting in premature breakdown and replacement of building components, damage to other building components and wasted money. It also led to unexpected special levies that could financially cripple home owners.

 

Depreciation reports are like a service manual for buildings. Building engineers perform an audit of the building’s hardware and provide the current condition as well as the expected remaining life for things such as the roof, boilers, building exterior, windows and more. This is an incredibly powerful tool that strata councils can then use to prepare comprehensive maintenance plans and budgets that will maximize the life of hardware and reduce the long-term costs of ownership.

 

This is an important report that will help you make a better decision when it comes to deciding on your future home. Knowing about upcoming repairs will help you understand whether the building’s reserve fund will be adequate to cover future expenses or whether you can expect a levy in the near future.

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One question I often get from clients is about leasehold properties. There are different types of ownership and it is important to understand these differences and what you actually own.

 

For a freehold type of ownership, the owner has full use and control of the land and the buildings on it, subject to any rights of the Crown, local land-use bylaws, and any other restrictions in place at the time of purchase. It’s the highest level of ownership for the common citizen.

 

In a leasehold, the land that the building is on is actually rented to the developer for a set period of time and the developer sells or rents out portions of the buildings. In addition, leaseholds may be pre-paid by the developer or not. The land can be rented from the city, federal government, First Nations Bands, universities or even private individuals.

 

So why would you accept this lower level of ownership? Here’s a good old fashioned pro/con list.

 

Pros

1)      Significant savings: You can typically buy leaseholds for much less than comparable freehold properties.

2)      Leaseholds are often found in prized neighborhoods: False Creek, UBC, Champlain Heights and the West End are some of the most sought after areas to live in Metro Vancouver. Leasehold homes allow you to buy into the lifestyle of these neighbourhoods at a discount.

 

Cons

1)      Rising land values may work against you: If lease payment haven’t been prepaid by the developer then the individual owners  will need to make annual lease payments to the land owner. Many lease agreements allow the land owner to occasionally increase the payments to reflect current land values. This can sometimes lead to dramatic hikes for the leasehold owner.

2)      All leases eventually expire: No one knows with certainty what will happen when a lease is near the expiry date. There is no guarantee that the land owner will renew. Banks in particular do not like uncertainty and generally request 25-30% down payments to mitigate the risks

3)      Leaseholds take longer to sell: The uncertainty around leaseholds typically makes them harder to sell. Higher down payments and questions about whether the lease will be renewed are contributing factors

 

For more information about leasehold properties, please read this great article published by REW.ca. Leasehold: Own a Home (But Not the Land It’s On) or contact us!

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Welcome to my blog! Since I started this new website, I figured now is the time to start writing about my adventures in the Metro Vancouver real estate market. In a sea of blogs, dry stats, shared facebook posts and boasts about how many awards were won, I think it would be refreshing to write about what goes on behind the curtain. Obviously, I won't be disclosing all the nitty gritty but this blog will provide readers with useful tidbits, dangerous pitfalls, many other things I learn in this line of work.

 

Feel free to comment and provide feedback. Maybe even share with some friends. Hope you enjoy.

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