House prices held steady, but overall sales in B.C. have plummeted since the winter boom months, according to a new study of the provincial residential real estate market .
Sales in the first three months of the year fell by as much as 26.7 per cent, says the report by Landcor Data Corporation, which uses all sales figures for the province, not just those reported on the Multiple Listings Service.
The results equate to a drop in the total dollar value of residential sales of 25.8 per cent compared to the end of last year. By the fourth quarter of 2009, sales amounted to $14.41 billion in B.C. By the end of this first quarter in 2010, sales totalled $10.7 billion.
It's a reflection of uncertain times, says Landcor president Rudy Nielsen. There is consumer concern about the rise in interest rates, the upcoming Harmonized Sales Tax on new housing, and fear about taking on too much debt.
"I don't care what economist you talk to, nobody has a good handle on where we're going right now," said Mr. Nielsen. "It's got to be based on what happens this summer. We have the HST coming in, so we still have to see what effect that has, and we have to see the direction the world is going with the recession problem."
That said, the B.C. housing market is hardly slipping sideways. House prices have held up. In Metro Vancouver, the average house price this first quarter is $721,000, with a median price of $671,000. The luxury home market - homes worth more than $2-million - is thriving, fuelled in part by new Mainland Chinese buyers. And compared to the first quarter of 2009, when the market was still reeling from a recession, sales are up 68.3 per cent this first quarter.
Other factors affected overall sales value so far this year, including the usual quiet after the holiday season, and the run-up to the Winter Games in February. Market activity dried up in February, and didn't bounce back until March.
"As soon as the athletes left town, the activity quickly rejuvenated, rebounding by more than 50 per cent in most markets," says the Landcor report.
Strict new changes to mortgage rules on secondary property investments that went into effect in April might have influenced that market activity. The new rules require that a 20 per cent down payment is required instead of a mere 5 per cent. As well, new buyers applying for a variable rate mortgage had to meet the credit requirements of a 5-year fixed rate. Alexandra Rebagliati, a realtor in Kelowna, says she was getting little sleep as buyers rushed to beat the rule change.
"I hadn't slept that month, writing deals for secondary home buyers trying to get their secondary home before the new mortgage rules went into effect on April 19.
"Add to that the 7 per cent new home hike coming July 1 thanks to the HST, and you could understand why realtors were getting very little sleep."
A Canada Mortgage and Housing Corporation report also out this week says the market was affected late last year and early this year by a pent-up demand and record low borrowing rate. That situation drove the average MLS price up 20 per cent. However, the CMHC report says balance will be restored as mortgage rates slowly climb.
In B.C., the CMHC forecasts an increase in listings relative to sales will throw some cold water on current prices. By 2011, only modest price growth is expected for the existing home market in B.C.
Metro Vancouver has been given the dubious distinction of having the highest housing costs nationwide, according to the Canadian Real Estate Association.
No doubt due to the high cost of housing, BC reesidents also have the distinction of carrying the biggest mortgage debt - $50,000 more than the national average. It makes the thought of increasing rates a daunting situation for many confused homeowners.
Chilliwack homeowner John Armstrong says he has two houses, each at variable rates below prime. He's got three and a half years left on one house, five years on the other, and he's rolling the dice and staying with the variable rates.
"I read and read and researched as much as I could, and then went with my feeling that prime can't come back too fast or get too high without causing many collateral problems in the economy," says Mr. Armstrong. "So we'll see how right I am. It's kind of a slow-motion bet, waiting for the cards to be turned over during the next couple of years but, like they say, the Lord hates a coward."
In Calgary, arts consultant Ian Menzies says he's undecided.
"We are struggling right now with whether to lock in, or stay with our floating rate," he says. "My wife works in the financial industry and still, it is hard to get solid advice on what the right move will be. It would cost us around $400 extra a month to lock in now at a 5-year fixed rate. But if the rates are going to go steadily up over the next several years, then when we are forced to re-set our rate, in less than three years, it could be even more costly to us in the long run.
"It's a very tough call right now. Half the wisdom says the global economy will likely continue to flounder, so rates will continue to be low, but the other half says that stability and growth are returning, and the threat of inflation will necessitate jacking the rates up and up. As I say, a tough call, but for now at least, we are leaving it open."
Regardless of rates or recession, it seems British Columbians have adapted to debt. According to an Investors Group poll, the median mortgage balance per household in B.C. is $50,000 more than the national average. During the recession, the Certified General Accountants Association of Canada found 47 per cent of British Columbians took on more debt. The national average was 37 per cent. That debt load might have something to do with the generally held belief in B.C. that to be "outside the market" is to be living in exile.
"British Columbians, unfortunately, carry proportionately more personal debt than the average Canadian," says Mr. Nielsen. "The CGAAC also noted that BC'ers post a negative savings rate of -3.4 per cent. Many financial experts feel this willingness to take on debt is fuelled by the rise in home prices - the 'get in the market while you can' type thinking," says Mr. Nielsen.
The good news is, the economic afterglow of Vancouver's Winter Olympics is predicted to add 0.7 per cent growth to the provincial economy in 2011.
Special to The Globe and Mail