Cooling red hot Vancouver real estate market healthier, says economist

A new forecast by Central 1 Credit Union predicts B.C.'s hot real estate market will remain robust for the next two years, despite fears a tax on foreign buyers is chilling Metro Vancouver sales.

But market overseers say the trend will even out and benefit other parts of B.C.'s housing market in the short term, with B.C. sellers remaining in a strong position.

Senior economist Bryan Yu said the new foreign buyers tax announced by the provincial government in July and rolled out on Aug.2  will temporarily slow sales in Metro Vancouver by about 10 per cent.

He says the 15 per cent levy on homes purchased by non-residents puts downward pressure on a market that was already beginning to slow after a blistering start to the year.

"The foreign buyer tax will result in a temporary but substantial short-term cut in Metro Vancouver sales trend ... the tax puts further downward sales pressure on a market already slowing from spring fever," said Yu

Outcry is growing from Greater Vancouver realtors who blame the new provincial tax for halting new sales and killing deals caught up in the unexpected levy, but Yu said losses will be offset by sales gains in other B.C. locations — such as Vancouver Island and the Okanagan.

The annual median price in Metro Vancouver jumped by nearly 20 per cent in 2016 to $705,000 dollars.

Yu said slower growth is healthier for the market because sky-rocketing Greater Vancouver prices seen during what he described as "spring fever" were unsustainable.

He predicts prices in the region will rise by about four per cent in both 2017 and 2018.

That is slightly lower than the B.C. Real Estate Association forecasts of 5.8 per cent average growth in Greater Vancouver home prices for 2017.

Central 1 Credit Union is a $15-billion-dollar firm that manages lending and acts as a trade association for 42 B.C. and 72 Ontario member credit unions — servicing 300 credit unions across Canada.

Invitations to B.C. Premier Christy Clark to comment on the effect of the new tax were declined, but the Ministry of Finance did offer this statement: 

"It's too soon to conclude how the real estate market has responded to the additional tax. ... As time goes on, we will have a better sense of how the market responds to the additional tax and to assess the effect of the tax. The intent is to slow the rate of price growth and cool demand while Metro Vancouver's housing market responds by building new homes to meet local needs."

Predictions from Central 1 forecast:

• The new foreign buyer tax will reduce Metro Vancouver area sales by 10 per cent.
• The provincial median annual price will rise 12 per cent this year to $480,000.
• The median annual price will gain four per cent in 2017, and 3.5 per cent in 2018.
• In Metro Vancouver, following a near 20 per cent gain in annual median price this year to $705,000, prices will rise 4 per cent in 2017 and 4.4 per cent in 2018 to $765,000.
• Housing sales growth rotates towards Vancouver Island and the Central Okanagan in 2017, before shifting back to Greater Vancouver by 2018.