As 2016 draws to a close, we think it is important to take the time to reflect on this past year. The housing market in Metro Vancouver has been a particularly interesting one with the introduction of the foreign buyer’s tax, the CMHC mortgage rules, and the first-time buyer down payment assistant program. And so, we leave you with “A Year in Review”, an insightful Q & A with Scott Brown that discusses the year that was and what’s ahead in 2017.
- This is definitely a year of perceived unprecedented highs and lows. Has the market been as volatile as it seems, or has this been blown out of proportion?
I think it has been an unprecedented year of “highs” to be sure. At the outset of this year we projected the annual sales total would yet again surpass the year prior. You will recall last year’s total was a surprising 16,000+ new multi-family homes sold. With the accelerated start to 2016, combined with a lack of supply, the first half of the year recorded sales of approximately 13,000 units. This figure was higher than a number of recent previous years’ annual totals. At the same time, significant price appreciation occurred and consumers continued to respond with great urgency, rapidly buying scarce supply before prices increased again.
On the heels of this heated activity, ironically, in the middle of summer which is typically our warmer weather yet slower sales season, the Provincial Government intervened with the new “foreign buyer tax”. As this new policy was still being digested, the market was fed two additional government interventions – new mortgage qualification rules and an empty home tax. Although these interventions certainly have presented a challenge, the sky is not falling.
While the second half of the year has definitely been more challenging for developers, homeowners and prospective new home buyers alike, I would not call the experiences of late “lows” in the market. Slows maybe, but not lows. I like what Barret Sprowson of Intracorp had to say. He made the analogy that “if you are driving in car at 160 km per hour – the first half of 2016 – and then you approach a construction zone and have to quickly slow to 60 – 80 km per hour – the second half of 2016 - it feels like you are going awfully slow. However, you are actually still moving at a considerable rate of speed”. That was the second half of this year and the sustained demand we are experiencing will still result in a record setting 2016, despite how some might feel.
- What do you see as having been the main influence on the market this year: The foreign buyer’s tax or the new CMHC mortgage rules?
Personally, the main influence of the market this year isn’t either one. The big story and main influence continues to be the lack of supply. I cannot understand how some argue that supply isn’t the major issue. Is the law of supply and demand not in effect anymore?
Limited supply comes at a cost to the consumer and the developer. In particular the amount of time and money that has to be invested to get a new development approved and then built is escalating. The consumer ends up bearing some but not all of these costs directly. They do however, bear the brunt of higher prices due to limited options. Look no further than only one actively marketed townhome project in all of Burnaby/New Westminster to see my point.
Of course, the most talked about influence is the new foreign buyer tax. It certainly has impacted single-family home sales. However, the targeted Chinese community is still resiliently buying multi-family real estate, since the tax and the overall condominium market is performing remarkably despite the aforementioned interventions.
- TransLink and local mayors have been very vocal about their desire to significantly expand SkyTrain and light rail lines across Metro Vancouver. How do you see this affecting real estate going forward?
Anyone who commutes for any length of time has to be in favour of enhanced public transit. Our region is projected to grow more and more and traffic is projected to get even worse. So more transit will influence the type of new developments in the vicinities around new stations as well as the values of properties in the area. To see that influence, simply look at the new development under way today on North Road. Would that have been possible without the new Evergreen line?
I for one am keeping a close eye on the impact that the Evergreen Line will have on existing property values and on new development in key markets such as Port Moody. I also expect to see more development activity near existing SkyTrain routes that have yet to be fully leveraged such as King George Station and Gateway Station.
- What are some of the lessons that we can take away from the experiences in real estate this year, both for first-time buyers and for investors?
The first-time buyer needs to treat their parents very well, with an increased interest in having a large deposit, this might just be the key to owning that first home. Joking aside, parental assistance is a major stimulant of new home buying. More seriously, I think first-time buyers should focus on reducing consumer debt, saving for a larger deposit and essentially preparing themselves in the event that interest rates finally do increase the projected 1-2 percent over the next few years. I also think first-time buyers might want to clarify their needs vs. their wants with respect to new home ownership. This includes re-thinking what neighborhoods are acceptable to them and which ones might just surprise them (“Gee, this is not my father’s Oldsmobile”), and considering going East or South to own at a relatively more affordable price.
- Was there anything this year that really took you by surprise, in terms of projects that did really well when they didn’t seem promising, or projects that failed to live up to the hype?
Last things first. I cannot recall a single project in the Metro Vancouver area that didn’t live up to the hype. As for surprises, hmmm, nothing really surprised me other than the foreign buyer tax. I was, however, very impressed by: the absorptions and appreciated values in Brentwood, Metrotown and along North Road in Coquitlam; the new price points in Vancouver Downtown despite the new tax; the pace at which prices rapidly increased across the Metro Vancouver area; and the sustainability of both demand and pricing levels.
- What do you expect for 2017?
After an extremely accelerated start to 2016 with respect to sales absorptions and pricing, the times of late have seen more moderate market activity as well as some uncertainty. Regardless, we hold a positive outlook for 2017. We do, however, think that the annual sales total for the coming year is unlikely to surpass the high water mark posted in 2016. That being said, we expect 2017 to see another 15,000+ new multifamily homes sold, causing the coming year to be one of the best years in the past decade. However, sales could surpass this year’s record levels if interest rates and lending policies remain relatively stable, and developmental approvals occur on a timelier basis.
Given the concerns about interest rate increases and additional policy changes such as the B.C. Liberal Government’s recently announced first-time buyer down payment assistance initiative, we expect a quick start to 2017! Affordability challenges will continue to drive many home shoppers to suburban markets including Surrey and Langley. Consumer urgency will also be re-kindled as new home shoppers look to buy in advance of these possible changes. This quick start, combined with the ongoing challenge of limited supply, may result in another season of price appreciation. This could be expected in the First Quarter and Second Quarter of the coming year, but not likely at the same magnitude experienced in the Second Quarter of 2016.
Similarly to last year, we do expect all large scale launches in the Metro Area to live up to their hype. In addition, we expect the suburban markets to continue to be very active with respect to condominiums and townhomes. The focus will especially be on smaller, lower price point homes in key markets like Maple Ridge and Langley. We also project that there will be an increase in aging buyer demand focused on larger format townhomes. These townhomes’ sought after features will include master-on-the-main/ground level homes and larger condominiums in select locations throughout South Surrey, Murrayville, Yorkson and Abbotsford areas.