When it comes to modern day conveniences and technology, it is easy to see how things can change in a matter of months. If we look back over the years, or even decades, the changes are so staggering and significant that the younger generation has little concept of the way it was before. I was reminded of this recently while visiting my dad in the hospital.
I was looking for a little privacy to make a call on my cell phone when I stumbled upon a quiet area that used to house five payphones. If that in itself was not enough to remind me about the huge shift, I was further reminded of the 2 months I spent in Calgary’s Foothills Hospital recovering from a serious neck injury in 1978 when I was 14 years old. In order to communicate with my family who were a 3 hour drive away, the nurses would wheel my entire bed to the pay phone station and dial my parent’s number. Once the number was dialed, an operator would come on the line and ask how long I wanted the call to last, or if I would like to reverse the charges. My hospital gown had no pockets for loose change, so reversing the call was usually my best option. Once my parents answered, the operator would then ask if they would accept the charges for the call. Then, if they said “yes”, the call was put through and the charges would be on my parent’s next paper bill which they would receive by snail mail. Wow! How things have changed! From cell phones, texting, WhatsApp, Face Time, Snapchat, and a plethora of other communication apps and tools, it is quite the shock to see where we were just a few decades ago.
As we start a new year, I find myself asking what changed in the real estate market over the last 12 months. Alternatively, what stayed the same and what changed in 2016? As I chronologically go through the past year in my mind, I can honestly say 2016 had more change than any other in my 25 years as a realtor.
- According to an article in the Abbotsford News the BC Assessment Authority 2016 average assessments were up over 16% for Vancouver and 2016 assessments are up between 25-50% for Vancouver and Fraser Valley properties.
- The Federal Government created a new financing law on February 15, 2016.The minimum down payment for new government-backed insured mortgages increased from 5% to 10% for the portion of a house price over $500,000.
- Assignment sales, or “Shadow Flipping” (a term the media coined early in 2016), became an intense hot button. A buyer would enter into a purchase and sale agreement, and then “flip” or assign the contract in a short amount of time to another buyer for a higher price. In some cases, contracts were being assigned multiple times, to multiple buyers. After intense pressure from the media and public, the BC Liberals instituted a new law around assignment sales. In the past, all contracts were assignable without notifying the seller. Under the new law, the contract of purchase and sale could not be assigned without the written consent of the seller, and that the seller was entitled to any profit resulting from an assignment of the contract by the buyer.
- Housing inventory was at all-time lows. The single-family home inventory was at extreme lows in the spring, while townhome and condominium inventory followed mid-year. (Sign up here for to receive our statistical package)
- Average and Median prices were up as much as 35-50% year over year in the Greater Vancouver and Fraser Valley markets. (See Median graph or Average graph)
- Multiple offers and bidding wars became the norm in 2016, with the winning bid often being approximately 10% over the list price.
- Record sales volume month after month in Vancouver and Fraser Valley region. (See FVREB Monthly Sales graph)
- Vacancy rates were at all-time lows of 1% or less.
- Residential housing rents went up as much as 25-30% throughout the region.
- The Liberal Government of BC applied a 15% Foreign Buyer Tax to all properties in the Greater Vancouver area as of August 2, 2016.
- On October 17, 2016, the Federal Government put new mortgage laws in place. All insured mortgages would have to undergo stress tests to determine whether borrowers would still be able to make their mortgage payments if interest rates rose or if they were to lose their jobs. The stress test rate was pegged at 4.64%.
- The Vacant Home Tax. The Vancouver City Council approved a tax on empty homes; the first of its kind in Canada. Self-reporting owners would be assessed a 1% tax on homes that were not principal residences or that were not rented out for at least 6 months of the year. That meant that a $1-million home that was left vacant would be taxed $10,000. The tax will be implemented in early 2017 with the first payments due in 2018.
- Free money for first-time buyers from Premier Christy Clark. Anew provincially backed loan program will match the amount a first-time buyer has saved for a down payment—matching up to $37,500, or 5% of the home’s purchase price. The loan will be interest free for 5 years and on the 5 year anniversary, the current interest rate at the time will be applied. This had mixed reviews from the public, as well as from the real estate industry, with concerns about young Canadians being overleveraged with debt and what future interest rates may be in five years.
- Trump Mania produced more news stories and speculation about Americans fleeing their homeland and moving to Canada than any other US election or event in history. In fact, the Canadian government’s immigration website crashed on election night in the US. I do not expect a great deal of Americans will make their way to Canada, but time will tell.
What Didn’t Change
- Greed is always a constant. Year-to-year, decade-to-decade, and century-to-century; greed will always be prevalent. Moreover, real estate has always fueled greed. Especially with a year like 2016 that saw values leaping upward and supply at all time lows, the greed quotient was at an all time high.
- City and municipalities development approval process. The development permit approval process continues to be a challenging process, even though the cities and municipalities claim that they are open for business and the development process has been streamlined. It is not uncommon for a developer to spend 3-5 years developing and bringing a property to market; this in my opinion is one of the greatest factors in creating an unaffordable market. The time, holding costs, and energy to bring a development to market increases the costs significantly and ultimately the buyer’s purchase price. This slow moving approval also is the root cause for little or no inventory in the market place as well. Again, putting pressure on affordability in the market place.
- Unaffordability will always exist in Greater Vancouver/Lower Mainland. Hello, news bulletin! All world-class cities are unaffordable! Add dynamics to the mix like limited supply of development land, geographical & environmental limitations, and comfortable four-season climates that make this city a hotspot for the wealthy, and your unaffordability goes through the roof. Plus, the devalued Canadian dollar vs the US dollar gives the foreign buyer a deep discount. Affordability will never exist in the Vancouver.
- Government meddling throughout all levels. The federal, provincial, and city/municipal governments were busy meddling in the capitalistic world of real estate again. As mentioned earlier, new financing laws & changes, the introduction of foreign-buyer and vacant home taxes, contract assignment law changes, mortgage incentives, and new governance for the real estate industry played a large part in this meddling.
- The hot term of 2016: shadow flipping. Although this is a new term, assignment contracts have been around forever in BC. Under contract law, a legal contract could be assigned to another party or buyer. The catch was that the original buyer was solely responsible for the deal closing. For instance, if the original buyer assigned the contract to another buyer and the new buyer failed to close the deal, the original buyer was required to close or face legal consequences. Assignment deals will always exist.
- Bubble talk. Vancouver real estate market was certainly one of the hottest stories in Canada, if not the world, when it came to real estate in 2016. However, bubble talk was not a new story. The Vancouver market bubble and the potential for it to burst have been a hotly debated topic since the birth of Vancouver in 1887, then known as Granville. Throughout the history of Vancouver, there has only been one bubble burst in real estate: the bubble burst in 1912. A stock market crash and oversupply of building permits created the bubble burst. It took nearly a decade for the market to find its legs again. The Vancouver market was of such interest that Visual Capitalist put together a great infographic chronicling the Vancouver market.
Real estate will always be in the news. A quick Google search of the 3 essentials of life—food, clothing, and shelter—justifies its news worthiness; according to Google search, food returned a search of 3.4 billion searches, clothing returned 1.46 billion, and real estate returned 1.25 billion. So, unlike some dying trends like the payphone or telephone operators, we can rest assured that real estate will always be current and in the news.
The December 2016 Vancouver and Fraser Valley market saw a total reversal from what it was in December 2015. Single family homes in Vancouver went from a sizzling white hot sellers’ market to a damp cool buyers’ market. The most dramatic changes coming in the multi-million dollar properties in West Vancouver, Richmond, Vancouver West. While the more affordable Fraser Valley single family market felt a cooling. It wasn’t near as dramatic as Vancouver’s market with many areas moving from the white hot market of December 2015 to a balanced/sellers’ market this December.
Strata properties (townhome and condominiums) also experienced a reversal, however the market reversal in many locations has been one of a stronger sellers’ market. The sales volume has been down over the last number of months which would question why the market is still in a sellers’ market range. It is because of the low inventory levels throughout the region that has kept the sellers’ happy and the buyers scrambling for the right property and the right price.
Personal Real Estate Corporation
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STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales