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Is Vancouver’s Housing Market Taking a Downward Turn?

With the hustle and bustle of increased home sales in the Vancouver real estate market in recent years, one has to wonder if the market will see a downward trend. Starting in 2012, sales of new homes in the Vancouver area began falling; an indicator that the market was in transition. In addition, reports from late 2013 indicated that new job growth had stalled as a result of a weaker local economy. Coupled with the increased interest rates and stricter lending rules and regulations from mortgage brokers, the upside to buying a home a decade ago has become the downside to owning a home in today’s economy.
In consideration of the transition of Vancouver’s housing market is the issue of foreign investors. In the last twenty years, the influx of foreign investors has pushed the local housing market excessively high. Many locals feel the real estate in Vancouver is overvalued due to the foreign investment properties. As a result of all of this activity, the government opted to shutdown on the immigrant investor program. This may play a part in slowing down the real estate market. However, recent news indicates that the government is looking at reintroducing the program, but with a modified structure.
In addition to foreign investors, one has to take into account the very nature of Vancouver when considering real estate. The city has historically been one of the most expensive housing markets in Canada. The high cost of housing in Vancouver is in part due to the location of the city itself. The geography of the area offers physical limitations on availability for land to build housing. Condominium sales increased as a result of developers building up – and many people chose to move into these condominiums, even downsizing, because of the changes in the economy and their lifestyle considerations. But new mortgage rules could hamper condo construction by as much as one-half, starting this year. The Canada Revenue Agency has been investigating condo purchases and auditing and fining purchases that were made and then flipped – essentially penalizing investors for the HST rebate portion of their purchase because no one moved in and the property was not rented out.
As mortgage rates go up, the real estate prices in Vancouver may see a decline. This softening could potentially result in a balancing, or correction, of the local real estate market in Vancouver. This would result in a more even market in 2014, as opposed to the extreme, unbalanced market of mid-2013 when the housing market was volatile. Overall, growth has remained moderate in the Vancouver market, with a recent Royal LePage report indicating an increase of anywhere from two-point-three percent to four percent, year over year, for condominiums and detached bungalows, respectively. Real estate prices are projected to rise four-point-four percent in 2014 in the Vancouver area. But is this the market growth Vancouver is accustomed to? Only time will tell.