Declining Home Sales
The current depressed home sales due to multitude of factors will result in the rapid increase in supply of homes and the build up of pricing pressure on home prices. The current market is the reverse of 2015 to 2017 when the supply of homes was low causing double digit gains in prices from 2015 to 2017.
The continued drop in home sales in Greater Vancouver and Fraser Valley during the first 4 months of 2019 is expected to exert pressure on home prices. While home sales have already dropped from its peak in 2016, sales may remain depressed due to:
- Severely unaffordable home prices that few local residents can afford to buy.
- Stress test limiting the number of buyers able to get the financing they need for their home purchases.
- Difficulties in mainland Chinese buyers getting their funds out of China for home purchases.
- Buyers waiting on the sideline as most are expecting home prices to go lower.
Money laundering drove up B.C. real estate prices by 5%: reports
An estimated $5.3 billion of laundered money into B.C. real estate in 2018 hiked housing prices 5 per cent, two special reports released Thursday by the provincial government show. Right now we have an estimate of the amount of money that went in over a single year.
There’s been a 70 per cent increase in property value over a three-year period in the Greater Vancouver region. The impact of money laundering on specific regions, such as Greater Vancouver, could be much higher.
HPI Price Projection
The long term home price growth for Greater Vancouver is as illustrated by the upward slopping red-colour price channel. The green price line showed the rolling 12-month HPI price, and the price just rolled over in 2018. Detached home prices already reported to have dropped more than 11% year-over-year, townhouses 7.5% and condos 6.9%.
If the price decline follows a steeper decline as shown in (1), the HPI home price will reach the long term price channel sometime around 2021 and 2022 and if the HPI price decline is more gradual, it will reach the support channel in late 2022 and 2023.
The current slow housing market is likely to be drawn out for a few years as the housing demand problem in Greater Vancouver area cannot be resolved in a few short years. A more normal and orderly market will result in a more significant decline in home prices that are currently severely unaffordable. A recent report cited "Average Vancouver home prices could lose $100,000 from 2018 peak".