Vancouver's long-awaited housing correction may be around the corner: prices are headed for a double-digit decline in 2017 as buyers drop out of the market, according to the head of Canada's largest real estate services company.
“Home prices had gotten so out of whack with the growth in underlying wages and salaries that there had to be a correction,” said Phil Soper, chief executive officer of Royal LePage, a unit of Brookfield Real Estate Services Inc. “And it'll happen in 2017.”
Royal LePage is preparing a formal forecast for release in early January based on data from Brookfield, which also runs the nation's biggest property valuation company. Those appraisals are used by banks, insurance companies and mortgage underwriters.
“We're looking at all these trends,” Soper said. “If it's not double digit, it'll be close to it.”
Buyers began to pull back earlier this year as prices shot out of range for most residents, with the typical single-family house skyrocketing nearly 40 per cent over a 12-month period. That helped put the Pacific Coast town at No. 1 on a global ranking of cities most at risk of a housing bubble by UBS Group.
A series of policy moves aimed at cooling the market — including a 15 per cent tax on foreign buyers and tighter mortgage rules — has “hammered” sentiment, accelerating a slowdown that had already begun, Soper said. The regional market is especially susceptible because such a large share of households' disposable income goes to housing, he said.
“It's a twitchy market — people live on more of a hair trigger,” he said. “When there's a change in external circumstances — like interest rates or economic confidence or government regulation — you feel it much more acutely if your mortgage eats up twice your disposable income compared to someone elsewhere.”
The number of residential property transactions fell in November for the fifth straight month in Canada's third-largest city. Typically, there's about a six-month lag between the time demand starts to slow and prices begin to fall, Soper said from his Toronto office.
“Thank goodness there's going to be a measure of sanity returning to the market,” he said. “It'll be healthy for the industry.”
Still, those expecting Vancouver to become affordable again may be in for a disappointment.
The typical single-family house has surged past $1.51 million (US$1.13 million), about 20 times the median household income in the region. Those types of homes are likely to see the biggest declines because they had run up so fast, Soper said. Still, a 10 per cent decrease would only bring prices back to about where they were in March.
“It's a beautiful part of the country, it's a vibrant city with a strong, diverse economy — it makes sense it's more expensive,” Soper said. “It just shouldn't be rising at 30 per cent a year. That's where you cross the line into insanity.”