Vancouver’s condo market saw the steepest decline in sales this month. Condo sales in the city dropped a rather concerning 46% year over year in November to a ten year low. While this steep decline may surprise some people, we have been cautioning of this for quite some time.
A weakening detached market which has pushed prices noticeably lower has finally trickled down into the condo market. The strength of the detached market was important for a number of reasons. Firstly, most first time buyers are receiving help from Mom & Dad. Per Will Dunning of Mortgage Professionals Canada First time buyers sourced $4 of every $10 of their down payment from the bank of mom in Canada between the years 2015 to 2018. The reality is, mom and dad have lost some equity over the past year or so, at least on paper. This makes it more difficult to refinance and/or tap home equity lines of credit which are frequently used to help with the down payment for first time buyers (The average HELOC balance in BC sits at $123,797). This may get even more difficult moving forward as OSFI has put pressure on the banks to reign in and begin stress testing home equity lines of credit which now represent 17.5% of total real estate secured consumer loans at the big six banks.
Weaker sales in the Condo market allowed inventory to increase 72% year-over-year. The large jump allowed inventory to accumulate to its highest total for the month of November since 2014. However it’s important to point out that condo inventory remains low on a historical basis.
The trend of declining sales and rising inventory has pushed prices lower. Condo prices, even for entry level units have been declining over the past several months. Unlike single-family homes, price discovery for condos is much less complicated. Each condo unit in a particular building are all quite similar, so once a lower price is set in a building it tends to reset the benchmark moving forward. As you can see, the average price per square foot peeked out in January 2018 following a rush of buyers aiming to get ahead of the mortgage stress tests. Since then the average price per square foot has been declining and now shows a 5% drop year-over-year.
The MLS benchmark price shows a more conservative 1.8% decline year over year after topping out in March.