It’s been well documented the excessive prices pre sale condos have been able to garner in Vancouver, and more recently in Ontario. As prices have escalated, and land values have soared, everyone has begun speculating on ever higher prices. This has made land banking a lucrative option, aided in part by record low interest rates which have allowed holding for longer periods of time to be much more feasible. With this, developers are paying a premium for land. Such as the recent sale of the high profile White Spot on W Georgia which garnered a jaw dropping sale price of $245 million, making it more than $615 per buildable square foot. In order to squeeze out any profit, developers are having to maximize density and prices. As a result, new developments are pricing in future expectations, and charging anywhere from 20-30% above current market value. Take for example a recent project on Main Street which was asking $1300-$1400 per square foot. Meanwhile, nearby buildings that are only a couple years old are selling for, on average, $1100/ square foot on the re sale market. I’ve often wondered how things would shake out if buyers of these pre sale units don’t

With a recent study from Demographia suggesting Vancouver ranked the third least affordable property market in the world, it appears there may actually be some hope for local Vancouverites, who have been “hit like a ton of bricks” by foreign capital, according to city mayor Gregor Robertson. China’s capital outflows fell precipitously in 2017. According to a report from Pictet Wealth Management, capital outflows fell by 67% last year from $500B $166B USD. That’s an even bigger drop from peak outflows of $761B USD in 2015. While it remains to be seen if Chinese authorities will be able to keep a lid on outflows, it appears the actions of Chinese president Xi have been more impactful than any Canadian homegrown policies. While perhaps just a coincidence, it appears the slowdown in China is begging to rear it’s head in Vancouver. Total dollar volumes (money spent) in Vancouver’s most expensive property segments have seen a steep decline since peaking in 2015. West Vancouver real estate, which is some of the most highly coveted real estate in the world, has seen dollar volumes plummet since peaking in 2015. Detached home volumes peaked in 2015 at $3.1B CDN and have since plummeted 42% to

The Bank of Canada hiked interest rates again today. Bank of Canada governor Stephen Poloz raised rates by another 25 basis points, it was the third time in the past six months. Rates have more than doubled in that time, going from 0.50 to 1.25. This is critically important considering the context of the current situation. Interest rates have been at historically low, emergency levels since the financial crisis. This has allowed households to absorb elevated house prices and a record amount of debt. Each rate hike reduces the ability to service that debt. A 1% rate increase to Vancouver mortgages would require an additional 9% of income. Following the Bank of Canada announcement the big Canadian banks all hiked their prime lending rate by 25 basis points. The prime lending rate is the annual interest rate Canada’s major banks use to set interest rates on variable loans, lines of credit, variable-rate mortgages, and HELOCs (Home Equity Lines of credit). In summary, every borrower carrying a line of credit, variable rate mortgage, or HELOC will be saddled with higher interest payments. This will put pressure on the HELOC phenomenon, which has seen balances increase by 500% since the year 2000

One of my favourite podcasts Macro Voices recently had a guest on to discuss Canadian Real Estate. You can listen to the full podcast here. The interview features Joshua Steiner of Hedgeye Risk Management. The interview had some insightful data on Canadian Real Estate and the economy from a macro perspective. Here are just a few highlights from the slide deck. Transfer Fees Make Up Nearly 2% of GDP Real Estate broker commissions, land transfer taxes, and legal fees all of which make up a typical real estate transaction, now equate to nearly 2% of Canadian GDP. This ridiculously mind blowing state equates to more than 3 standard deviations above it’s long term average. Household Mortgage Debt One way to avoid a financial crisis is to try and borrow your way out of it. This was the go to policy in Canada during the 2008 meltdown, as you can see in the chart below. Canadian mortgage debt has outpaced our neighbour to the south since 2008. The Fall of the Canadian Dollar The speculative rise in major Canadian housing markets is coincident with the 29% decline in the $CAD from July 2014 to January 2016. Of course this also lines

Mortgage rates are on the rise. This has been the growing trend over the past year. While normally a small rate increase wouldn’t be newsworthy, each little hike becomes increasingly more impactful with Canadians carrying record levels of household debt, record high house prices, and record low interest rates. It’s a concoction that has the whole world watching the Bank of Canada. Just last week the Canadian unemployment rate fell to 5.7% a 40 year low. This has put further pressure on the Bank of Canada to hike interest rates by another 25 basis points. As of today the odds of a Bank of Canada rate hike on January 17 sit at 86%. Further, the 5 year Canadian bond yield (which is closely correlated to 5 year fixed mortgage rates) has jumped, now hovering around 2%, the highest it’s been since 2013. Up nearly 75% from a year ago. Naturally, this has pushed up 5 year fixed rates at RBC from 3.39% to 3.54%. More importantly, this has prompted several of Canadas big banks to increase their overnight lending rates (the one’s used to stress test) prior to the Bank of Canada announcement next week. Both RBC & TD raised their overnight lending

Fraser Valley condos had an explosive year. As condo prices ballooned in Greater Vancouver buyers were pushed further and further away from the city. This is a typical phenomenon in Real estate booms called ‘the drive to qualify’.  Buyers who are desperate to enter the Real Estate market become more willing to drive further into the suburbs in an attempt to enter the market. As prices get bid up in the suburbs this attracts a growing investor base and only adds to higher prices. The run up in the Fraser Valley has lagged Vancouver, it started in the detached market and has now worked it’s way to the condo market. While Vancouver condos also had an exceptional year, growing by 13%, it pales in comparison to the 25% increase for Fraser Valley condos. Fraser Valley Condo prices Increases 25% in 2017 The average sales price of a Fraser Valley condo increased by 25% in 2017 to $326,014. The median sales price increased a whopping 30% to $310,000. Condo Buyers Spent an Additional $648M in 2017 With condo sales increasing to a record high (22% increase year over year) and the average sales pushing upwards of 25% it resulted in dollar

Vancouver Detached Market Heading Into 2018 On Much Different Note The Vancouver detached market is heading into 2018 on a much different note. December 2017 saw sales drop just 2% on a year over year basis but inventory is on the rise (up 9%) and beginning to put downwards pressure on prices. The average sales price for the year dropped 6.5% as highlighted in my recent Year in Review. Detached Sales Vancouver detached sales saw a small drop of 2% on a year over year basis. Much of the slowdown is coming from the West side of Vancouver where there were a paltry 37 sales in December, the fewest of any December in the past decade. The East side remains fairly robust, with sales clocking in just below the 10 year average. The 6 month moving averages paint a much clearer direction of sales. Peak sales appear to be a thing of the past. New Listings/ Inventory New listings for Vancouver increased by 4% on a year over year basis. As you can see below, new listings are still low and struggling to keep pace with recent 10 year averages. Despite new listings being quite weak inventory levels continue to

Vancouver Condo Inventory Falls to Incredible Lows in December Vancouver condo inventory plummeted to new record lows in December. Despite that, price growth appears to have tapered. After a previous 11 straight monthly increases, the average price per square foot dipped for the second consecutive month in December to $1020. Vancouver Condo Sales Vancouver condo sales increased 12% on a year over year basis. The 369 December sales were 7% above the 10 year average for the month of December. Surprisingly, the largest increase of sales came in the two bedroom segment. Vancouver condo sales on a 6 month moving average appear to trending downwards. New Listings/ Inventory Levels Vancouver condo new listings increased by a staggering 63% on a year over year basis. Not to be confused, this does not mean sellers are flooding the exits. New listings last year hit record lows so comparing the two can be quite misleading. Although, new listings were 6% above the 10 year average this December. Vancouver condo inventory hit new lows of 638 units for sale. This is the lowest total in recent history. Inventory levels continue to trend downwards. Sales to Actives Ratio The sales to actives ratio was 58%

Vancouver Real Estate Performance By The Numbers With the year 2017 coming to a close I’ve put together a compilation of stats summarizing the Vancouver Real Estate market. What you’ll find below are the average and median sales prices, dollar volumes, sales and new listings. These numbers are compiled using the full years worth of data. While these numbers won’t tell you where the market is at this exact point and time, it does provide an overall summary of the year and gives us a very good idea of the trends to follow heading into 2018. Keep in mind that most industry reports and media outlets use monthly statistics and then compare that particular month to the previous years month. This can cause for wild fluctuations, particularly when Governments are bringing in new policy measures rather frequently. Vancouver Detached Average & Median Sales Price The average sales price of a detached home fell 6.5% in 2017 from $2,825,000 to $2,642,000. The median sales price dropped 13% from $2,300,000 to $1,999,000. Again these metrics are not perfect, most of the price movements came from the higher end. But with a full years worth of data it’s clear the trend was down