We hope the Summer treated you well and produced great memories for you and your loved ones! Now that the Fall is in sight, we settle into our normal routines, kids are back in school, and hockey is just around the corner.
This year has brought us a crazy market to say the least and, to top it off, the B.C. government threw us a curve ball with the newly implemented 15% foreign buyer tax. The repercussions are yet to be determined but one thing is for sure, it gave the market an excuse to slow down from a pace that we all know was unsustainable. As a result, sales numbers have dropped significantly and the media jumped all over it with headlines like “Is the Metro Vancouver real estate market in free fall?", "Canada's housing market nears extreme bubble”, "Fear and loathing in the Vancouver property market". It's enough to leave the impression that property values in Vancouver's sky-high real estate market could be collapsing.
Indeed, if we dig into the latest stats released by the Real Estate Board of Vancouver, the average price of a home in the region has actually fallen — drastically. The average price of a single-family detached home topping out at $1.8 million earlier this year, and then dropping sharply to $1.47 million last month. That's a loss of $330,000 on the average home but not so fast. The truth is, unless you're dealing in the upper end of Vancouver's luxury market, the average price shouldn't mean squat to you. Why? Average prices are exactly that. They take all the homes being sold, including those worth $5 to $25+ million, and put them in the same box as the typical single-family residence. It takes just a few of those stratospheric deals to significantly skew the average value for the whole market Therefore, when the flurry of activity at the luxury end of the market dropped off this Summer with the reported prices of some homes dropping by millions, it is not surprising to see average prices dropping dramatically too.
But that's not what the numbers say is happening across the rest of the market. Typical homeowners should not be looking at the average price and concluding that the value of their real estate is suddenly in free fall. A more accurate gauge of value is calculated by the industry based on what they call the benchmark. A benchmark home is much more like the one most of us live in. The number of bedrooms and bathrooms are measured in single digits. The square footage is not in the 4,000+ range and the views include neighbours' backyards or other buildings, not panoramic vistas. So when you look at the benchmark prices for Metro Vancouver homes, they have not walked off a cliff plunging into free fall, they are in fact still climbing, albeit just barely.
Words like peaked, flattened, stalled apply for now but there’s also a chance that this is just a hiccup in a market that continues to be undersupplied. Inventory is still low compared to historical averages and interest rates aren’t going up anytime soon. The big question is demand. How many buyers are still out there? Well, the figures show the number of buyers in the market is still out pacing sellers, and so far there are no signs of panic selling, boarded up homes, and speculators defaulting on multiple underwater mortgages.
On top of that, there is ample evidence that those wealthy foreigner buyers never left B.C. Many just have flocked to Victoria, where the tax does not apply, luxury homes are a relative bargain and sales climbed 19 per cent in August.
There is no doubt Vancouver has supercharged real estate values, as prices have outstripped wages for years, and griping about real estate is more popular than the weather. But, unless there is a mass exodus from this city, that's all unlikely to change.
So when the next headline makes you wonder if the bottom has fallen out of the market, and home values are in free fall, take a deep breath and remember: the typical homeowner has a lot less to fear than the average.