Vancouver’s frothy housing market appears to be melting down.
Home sales in August are down sharply compared to a year ago, reports Jill Slattery at Global News.
Slattery cites data from MLS listings, which show that sales in West Vancouver fell 94% year-on-year from August 1 to 14. Three homes were sold in the area, versus 52 in the same period last year.
Meanwhile, the latest numbers from the Canadian Real Estate Association (CREA) show that national home sales fell for a third straight month in July, led by Greater Vancouver and Fraser Valley.
But prices continued to rise.
Signs of a slowdown in sales could be a relief for economists who have been warning that the jump in Vancouver’s house prices is unsustainable. In West Vancouver, for example, Global News notes that prices are up 450% since 2001, but incomes have not risen by that much.
“At some point, there will be some mean reversion,” said Gluskin Sheff’s David Rosenberg in a July note about home prices, adding that Vancouver’s housing market was in an “outright bubble.”
Vancouver and Toronto are Canada’s two hottest housing markets, where prices have soared amid strong demand.
Some of this demand has been from rich foreign buyers who are speculating in the market. To combat this, a new 15% property transfer tax on foreign buyers in Metro Vancouver kicked in on August 2, so its impact is not yet fully known. But sales were dropping even before the tax was initiated, Global News reports.
Bank of Canada Governor Steven Poloz recently cautioned against speculative buyers who are betting on higher prices with the aim of selling for a profit later — a practice known as flipping.
Some buyers borrow to make these trades, adding on to their existing debt. Poloz was concerned that a small rise in interest rates or a loss of income could make such people vulnerable.
Like the US housing market, Vancouver also has a shortage of housing inventory and an affordability crunch.
And the recent drop in sales could taper further home price increases later this year, according to Capital Economics’ Paul Ashworth.
Global News noted that the average home price in the City of Vancouver fell nearly 21% in the 28 days through August 17 to $1.1 million. But because that’s on average, it could primarily reflect declines of more expensive homes.