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).
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.
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.
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.
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!