British Columbia’s foreign-homebuyer tax for Metro Vancouver was no panacea for massive price gains in the red-hot housing market, experts suggest.

“If it was damaging to begin with we would see significant drops in the prices of these homes,” Aaron Chen, president of local brokerage AISA Real Estate Services, tells BuzzBuzzNews.

“What it really did was to cause a lot of investors or homebuyers to step on the sideline, to see if the prices come down or not,” he adds.

Last year in July, Greater Vancouver home prices saw a 30-plus per cent year-over-year increase compared to 2015.

But when the tax was introduced in early August 2016, monthly price gains began waning, suggesting the tax was having a cooling effect on the market, at the time Canada’s hottest.

In fact, according to BMO Economics prices declined 4 per cent from their peak in the five months following the levy’s introduction, which came by way of a surprise announcement from the provincial government.

Commenting on Ontario’s recently implemented foreign-homebuyer tax, BMO Senior Economist Robert Kavcic addressed the limited effects of BC’s measure.

“While peak price growth might be behind us, the question is how much the market will cool from the unsustainable [30-per-cent-plus] pace, and how long will the adjustment persist?” Kavcic asks.

“If Vancouver is any guide, the answers appear to be somewhat and not too long, at least while interest rates are pegged at current levels,” writes Kavcic, answering his own query.

From January to April 2017, the benchmark price of a home in Metro Vancouver increased five percent to $941,000, says the Real Estate Board of Greater Vancouver (REBGV), showing resilience in the tax’s wake.

Part of that has to do with Vancouver’s global appeal, Chen says. Vancouver is considered a desirable city by many beyond Canada’s borders, so the AISA president suggests the foreign-buyer tax won’t deter overseas buyers from entering the market.

“In short, Vancouver is in high demand for the affluent, and when comparing prices from where they come from they feel, even at the prices today, it still seems like a bargain to them,” says Chen.

Last month, Greater Vancouver saw a 25.7 per cent decline in sales compared to April 2016 but sales were still running 4.8 per cent above the 10-year average for the month, says REBGV.

With continued demand striking the market, Chen says sales and home prices are predicted to continue on the upswing looking ahead.

“You will see more transaction volumes for sure and prices are definitely creeping up as we speak,” says Chen. “It may not move as fast as we had in the last three years but we’re very bullish with regards to the Vancouver market going forward,” he adds.

As demand rages on, supply levels on the resale side of the market are dwindling.

In April, Metro Vancouver had a total of 4,907 new listings, a decline of about 20 per cent from the same month last year, according to REBGV.

And with developers facing higher land costs in the area, Chen says costs are being passed down to homebuyers.

“The development site prices continue to rise like there’s no tomorrow, therefore driving up the cost to develop these sites. So as an end result they won’t be able to sell it for cheap,” says Chen.

“And developers are [building] because they sense the demand. That’s why they are willing to buy land at unprecedented prices continuously year after year in the City of Vancouver,” Chen adds.

While the Vancouver market bounced back, Chen still doubts the rate of growth moving forward will match last year’s record-breaking performance.

“Assuming the political positions don’t change I don’t think we’re going to see what we’ve witnessed last year moving onwards,” says Chen.

For the third year in a row, British Columbia will be Canada’s bright spot in terms of economic growth this year, according to RBC’s quarterly economic outlook report released June 12. 

B.C. will see its economy grow 3% in 2017, RBC said, which is higher than the Canadian average of 2.6% and up from the 1.9% previously forecast for the province in the bank’s last quarterly report. RBC said the reason for the more optimistic outlook is that not only has B.C.’s economy shown little evidence of a slowdown despite the 40% downturn in Vancouver’s housing market last year, but it appears that downturn has run its course.

“Our view now is that the market will continue to recover gradually through the remainder of the year,” RBC said in the report. “This means that we no longer expect the housing sector to weigh on economic growth as much as we thought previously.

“Still, we see clouds forming over the B.C. housing market again next year when we anticipate interest rates beginning to rise.”

Because of this uncertainty for housing due to the possibility of a rate hike, B.C.’s economic growth is expected to moderate to 1.8% in 2018, which is lower than the average forecast growth for all of Canada next year of 2.1%.

A risk to the B.C. economy this year is the fact that the coalition government between the NDP and Green parties spells uncertainty for two huge projects in the province: the $8.3 billion Site C dam and the $7.4 billion Trans Mountain pipeline expansion. The GreeNDP partnership has already stated it plans to ask for further regulatory review of Site C and that it will use “every tool available” to block Trans Mountain.

As well, uncertainty in the softwood lumber conflict with the United States poses a very real threat to forestry-dependent communities in the province. 

Strengths in the B.C. economy include a strong labour market – employment growth of 3.6% is forecast – and sales for provincial retailers, wholesalers, restaurants and manufacturers. 

Alberta is expected to come in in second place with 2.9% growth this year, followed by Ontario at 2.7%

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Home buyer activity returned to near record levels across the Metro Vancouver* housing market in May.

Residential property sales in the region totalled 4,364 in May 2017, a decrease of 8.5 per cent from the 4,769 sales in May 2016, an all-time record, and an increase of 22.8 per cent compared to April 2017 when 3,553 homes sold.

Last month’s sales were 23.7 per cent above the 10-year May sales average and is the thirdhighest selling May on record.

"Demand for condominiums and townhomes is driving today’s activity," Jill Oudil, Real Estate Board of Greater Vancouver (REBGV) president said. “First-time buyers and people looking to downsize from their single-family homes are both competing for these two types of housing.”

New listings for detached, attached and apartment properties in Metro Vancouver totalled 6,044 in May 2017. This represents a 3.9 per cent decrease compared to the 6,289 units listed in May 2016 and a 23.2 per cent increase compared to April 2017 when 4,907 homes were listed.

The month-over-month increase in new listings was led by detached homes at 27.1 per cent, followed by apartments at 22.7 per cent and townhomes at 14.1 per cent.

The total number of properties currently listed for sale on the MLS® system in Metro Vancouver is 8,168, a 5.7 per cent increase compared to May 2016 (7,726) and a 4.5 per cent increase compared to April 2017 (7,813).

"Home buyers are beginning to have more selection to choose from in the detached market, but the number of condominiums for sale continues to decline," Oudil said.

The sales-to-active listings ratio across all residential categories is 53.4 per cent. By property type, the ratio is 31 per cent for detached homes, 76.1 per cent for townhomes, and 94.6 per cent for condominiums.

Generally, analysts say that downward pressure on home prices occurs when the ratio dips below the 12 per cent mark for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.

“While sales are inching closer to the record-breaking pace of 2016, the market itself looks different. Sales last year were driven by demand for single-family homes. This year, it's clear that townhomes and condominiums are leading the way,” said Oudil. “It’s important to work with your local REALTOR® to understand the different factors affecting the market today.”

The MLS® Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $967,500. This represents an 8.8 per cent increase over May 2016 and a 2.8 per cent increase compared to April 2017.

Sales of detached properties in May 2017 reached 1,548, a decrease of 17 per cent from the 1,865 detached sales recorded in May 2016. The benchmark price for a detached property is $1,561,000. This represents a 3.1 per cent increase over May 2016 and a 2.9 per cent increase compared to April 2017.

Sales of apartment properties reached 2,025 in May 2017, a decrease of 5.8 per cent compared to the 2,150 sales in May 2016.The benchmark price for an apartment property is $571,300. This represents a 17.8 per cent increase over May 2016 and a 3.1 per cent increase compared to April 2017.

Attached property sales in May 2017 totalled 791, an increase of 4.9 per cent compared to the 754 sales in May 2016. The benchmark price for an attached property is $715,400. This represents a 13.1 per cent increase over May 2016 and a 1.9 per cent increase compared to April 2017.