Foreign buyer tax cuts into September sales, tightening of mortgage insurance rules to further drag on market.
Downward sales pressure continued in September and price levels flattened as the shock of the foreign buyer tax and its impact on confi dence worked its way through Metro Vancouver’s housing market. MLS® sales in the combined Metro Vancouver and Abbotsford-Mission area declined about seven per cent from August on a seasonally adjusted basis to 3,800 units, with unadjusted sales down 30 per cent from a year ago.
The benchmark price eased slightly from August by 0.3 per cent to $829,400, but was unchanged once seasonal factors were adjusted for. The average home price rebounded after an August drop, suggesting signifi cant variations in recent data due to sales composition. While price levels re showing signs of rolling over, the benchmark value was still 30 per cent higher than a year ago with detached and townhome levels leading the gain.
Weak momentum is expected to extend through a three-to-six-month period as foreign and domestic buyers digest the tax impact and delay purchasing decisions. However, this week’s announcement of plans to tighten mortgage insurance criteria means the malaise can now be expected to deepen over the next few months and extend into mid-2017.
The details are outlined later in this note, but the key policy measure for households is that eligibility for mortgage insurance on high loan-to-value loans (less than 20 per cent down payment), requires the buyer to qualify at the posted fi veyear fi xed-term rate, which is typically signifi - cantly higher than actual contract rates. While the foreign buyer tax impacted a relatively small part of the market, higher qualifying rates mark a much broader reach into domestic demand that will slow activity at the entry-level and mid-tier Some buyers will be priced out of the market and remain in rental accommodation for longer, while others will lower their expectations and purchase lower priced homes. October could see some stability in sales as buyers lock in their purchases under previous rules, but this is temporary, as sales will likely decline further.
The current sales-to-inventory ratio points to a buyers’ market in the detached market, while ratios for apartments and townhomes have declined but in September were still at levels typically associated with a sellers’ market. Declining trends have reflected fewer sales, rather than a supply uplift, as new listings have shown no signs of rising. Weaker market conditions due to the series of recent policy shocks and associated uncertainty are expected to erode the benchmark price index by about fi ve per cent. Lower Mainland MLS® sales are forecast to decline two per cent this year, despite being up 12 per cent through the first three quarters, followed by an annual decline of 10 per cent in 2017. Annual pricing in 2017 will remain close to 2016 levels as prices will rise by mid-year.
We expect the market to soften but no substantial correction is forecast due to continuation of strong economic conditions and employment growth. Add in income growth, population gains and desire for homeownership will cushion the shock. Lack of employment losses in the economy mean sellers’ can be patient and sit on the sidelines, suggesting a low sales and flat price environment.
Source: B.C. Economic Briefing Volume 22 • Issue 40 • Week of October 3-7 2016 | ISSN: 1981-35
Bryan Yu Senior Economist, B.C., Central 1 Credit Union