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March 11, 2019 | Property Markets and the Road Back to Affordable Shelter

Danielle Park

Portfolio Manager and President of Venable Park Investment Counsel (www.venablepark.com) Ms Park is a financial analyst, attorney, finance author and regular guest on North American media. She is also the author of the best-selling myth-busting book "Juggling Dynamite: An insider's wisdom on money management, markets and wealth that lasts," and a popular daily financial blog: www.jugglingdynamite.com

The latest stats on the Vancouver property market are showing encouraging signs of necessary mean reversion. See Vancouver’s cooling house market shrinks price of a house by $1-million:

  • The average price of detached houses sold in Vancouver has fallen 33% to $2m in February from $3m in October 2017–more than $1-million in the last 16 months.
  • Total residential sales last month in Greater Vancouver declined 32.8% compared with a year earlier to 1,484 transactions.
  • Total listings for detached homes, condos and townhouses in the region have risen 48% over the past year to 11,590 properties for sale in February (Real Estate Board of Greater Vancouver (REBGV)).
  • Within the City of Vancouver, the average price for detached properties sold last month declined 22% compared with February, 2018.

While owners watch hundreds of thousands in notional market value fall off their balance sheets, lower prices are needed to restore rational valuation and affordability metrics in an area that has been an epicenter of unproductive speculation and money laundering over the past decade.

Tighter lending standards and the recent speculator’s tax are catalysts at work here. Under the new rules, if a foreign owner leaves their property vacant, Vancouver can tax the owner for 1% of the property’s assessed value and the province can claim another 2%.

Another factor is stepped up efforts by the Chinese government to stem outflows of domestic capital to foreign land banks. See more on this in China’s Bid to bring cash back home will impact these three places.

On the upside, owner’s of previously empty properties are now opting to rent so they can avoid the speculator’s tax and the Vancouver area is seeing a rise in more affordable housing options. This is all part of the road back to restoring some sanity for shelter costs.

The global credit bubble of the past 15 years, enabled prices and rents to soar along with homes that are irrationally large and expensive to maintain. I have long thought that this, coupled with the natural impulse of aging boomers to downsize overhead and upkeep, would culminate in a correction phase where McMansions are turned into multi-dwelling units for young and old. It seems that is underway now, see Why are hundreds of luxury mansions being rented for cheap? Similar trends are spreading in other over-valued property markets as well.

In Vancouver, where sky-high real estate prices have made ownership impossible for many, it’s suddenly not too difficult to live like a king.

Last week, author and housing advocate Kishone Roy found approximately 800 Vancouver-area mansions for rent on Craigslist for prices well below what they would normally command.

Many of the mansions have ocean views and offer luxury amenities such as swimming pools, in-home cinemas, built-in saunas and wine cellars. In several cases, the homes are fully furnished. Here is a direct video link.

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March 11th, 2019

Posted In: Juggling Dynamite

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