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"What do you think is going to happen with real estate Bill?"

A question I am faced with daily.

This I know.  Real estate in the Vancouver (and surrounding area) have been deeply affected by foreign buyers, (mainly from China) with an abundance of wealth looking to enjoy a clean, safe haven to live in or at least visit regularly. Add to these homebuyers, those that seek to take advantage of the demand to buy a finite number of detached homes to hold and ride the rising prices and sell off for huge profits. 

I could see the increase in demand and resulting price increases when I saw the value of the Canadian dollar fall against the US dollar.  With the currency in China tied closely to the American currency, the Canadian devaluation meant Canadian real estate fell in value next to the Yuan Renminbi.  In other words, real estate in Canada went on sale.  A buyer from China found they got a pile of more Canadian dollars in exchange for their Chinese Yuan Renminbi.  The buyer from China could offer 10% to 15% more to buy real estate in Vancouver and not cost them a cent more in their currency. 

Below shows how many Canadian dollars obtained per 1 Yuan Renminbi. The buying power of home buyers from China increased dramatically and peaked in January of 2016. 

Below shows how many Canadian dollars it took to buy one US dollar. The peak was January of 2016.  Investors in the US found Canada attractive to buy.  Remember those Canadians that took advantage of buying cheap US real estate? Some Canadians now saw an opportunity to realize currency exchange profits and sold their US property investments for Canada. 

The steady devaluation of the Canadian dollar against the US dollar and the China Yuan, peaking in January of 2016 was matched by the steady and dramatic increase in real estate prices in Greater Vancouver and in particular, detached homes. 

Note that  with the increase of the value in the Canada Dollar versus US and China currencies, the number of sales of detached homes in Greater Vancouver showed a steady slide down with the price increases now longer rising as before.  

Foreign buyers are no longer able to take advantage of the currency "sale" and with the newly added 15% foreign buyers tax added late in the game (August 2016) by the BC Government plus the new mortgage qualification rules introduced by the Federal Government (October 2016) it makes one wonder how much the real estate market can take before home buyers look elsewhere to invest. 

Yes, there will be people coming to buy in one of the most beautiful places to live in the world but the wave looks like it has past.  Where will prices go from here?  With the prices for houses in Greater Vancouver too high for most Canadians, I would look at where the Canadian dollar goes.  Should the Canadian dollar rise more than it is now next to foreign currencies, I suspect the foreign buyer will offer what they get in return for their currency - less Canadian dollars. 

Bill de Mooy

The real estate market has its cycles - its ups and downs.  These cycles can be long or they can be short-lived. The question is 'where are you in the cycle with your house plans?'

With 'experts' saying there will be a market correction, it's time to ask yourself how risk adverse are you. 

Using Richmond, BC as an example housing market, the facts show the sales slow down has been trending the middle of 2016. With prices of houses climbing to unaffordable levels for most Canadians, home buyers turned their direction towards town houses and condominiums. With cries of "foul" from the voters, the provincial government placed a new income generating tax on 'evil' foreign home buyers of 15% on residential properties in Metro Vancouver.  Add this with the market already showing signs of a slow down in the sales of detached properties and you have an anchor thrown out of a moving boat. (People in the know are telling me that foreign buyers are swallowing up commercial properties with these prices climbing to dizzying levels).

The federal government tosses in new mortgage rules for high ratio financing and we have a second anchor tossed out of the moving boat. 

The first time home buyers are squeezed between low vacancy rates, high rents, and climbing housing prices.  To find something they can afford to buy, they must move further out from where they work only to find an inadequate public transit service and travel by car is both expensive on gas, tolls, insurance, and travelling time is longer with traffic jams.

What's a first-time home buyer to do? With the new rules resulting in qualifying for a lower mortgage, do first-time home buyers move out yet further to find a less expensive home to buy?  Or will home sellers of such properties be forced to lower their prices?

Paul Ashworth predicts the Bank of Canada rate will fall because of the slowing economy as "the boom inevitably goes into reverse."

Which brings me to the subject of this article. Whether the 'experts' are correct in their predictions as to when, how deep and how long the housing adjustment will be, the question for you is, can you or are you willing to wait it out?

They are not making any more land and the population of Canada continues to grow, with much of the growth coming from immigration, I'm led to understand. I hear from a BBC interview that the trend towards of living in urban centres continues to grow. I cannot avoid concluding that any 'housing adjustment' will not be long. 

Long is a relative term.  If you are thinking of selling in the near future and risk is something the keeps you up at night, pehaps it is time for you to sell now to "bank" some or all of your equity. 

For those who have no plans to move for a while, relax. In my 32 years as a Realtor, I've seen the housing market adjust up more than adjust down. Mind you, "down" is a great time to "move up". 

Which ever stress level you are in, call me and we can discuss what's the best course of action for you. 

Bill de Mooy

604-274-2222

Housing Market Update (October 2016)
Watch BCREA Chief Economist Cameron Muir discuss the September 2016 statistics:

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