Over the past few months, one of the country’s hottest real estate markets has been showing signs that the bubble may be about to burst. But what makes real estate forecasters so sure, and could the market already be on the decline?
The US Housing crash
A recent article in Forbes suggests the Vancouver real estate market is starting to resemble a pre-2008 Phoenix, Las Vegas, and San Diego. How so? Out of control prices are one culprit, with data revealing that the price of a single detached home has gone up from an average of $400K in 2002 to $1.75 million, a whopping 337% increase in fifteen years. With price-to-rent ratios going up, as well as taxation and interest rates, plus a decrease in foreign investment, experts warn the signs are all there.
Another factor worrying speculators is the fact that, in the coming year, 47% of mortgages are expected to reset. Better Dwelling warns that, while the Bank of Canada may consider the rate hikes manageable, highly indebted borrowers are at risk, with the site warning some of those borrowers have a mortgage debt that’s 450% or more of their annual income. Payments that spike by around 1%, or a few hundred dollars a month, could be more than they can afford.
Evidence it’s already happening
The Huffington Post recently revealed that real estate sales in Vancouver in September were down 43.5% compared to the same time a year ago. The supply of unsold homes, specifically in B.C’s Lower Mainland, is growing, leading to an adverse effect on sale prices. However, townhouses and condo sales are steady.
A Buyer’s Market?
While it’s bad news for home sellers, buyers also shouldn’t expect bargain basement prices. A Globe & Mail report states that factors like the federal stress test, still make it tough for buyers, especially ones looking to buy for the first time. Likewise, the prices, even if they’re on a downslide, remain prohibitively expensive. The market is still generally considered the least affordable in Canada.
The likely outcome
BC Business states that the most likely outcome of the Vancouver Housing Bubble is that prices may modestly decrease or flat line, while higher foreign buyer tax and other speculation and school taxes on more expensive homes could lead to a shift from income to wealth taxation. Thus, the city could become more equitable or inclusive as far as real estate goes, but even still, that’s just speculation, and how the scenario plays out is anyone’s guess.