Fresh data from the Real Estate Board of Greater Vancouver revealed a massive 38.8 per cent year-over-year decline in home sales last month, a development that has provoked anxiety among observers wary of the effects of a recently-implemented foreign buyers’ tax and far-reaching changes to federal mortgage rules.
Experts warned that the combination of the tax and the regulatory revisions might prove too much for the Vancouver market, which is already exposed to major housing risks due to overheating and overvaluation.
“[Vancouver] is in a full-blown correction,” David Madani of Capital Economics told CBC News
. “Introducing [the new rules] now, the risk is that this could be the trigger or catalyst that everyone fears the most.”
Madani added that the October numbers represented the continuous decline of sales volume in the city, which began approximately February this year.
“I do think the Vancouver market is going to have a very, very hard landing that will probably drag out for a few years potentially.”
The analyst hastened to add, however, that this correction should be attributed to the credit cycle that led to record-low interest rates and a heavily leveraged client base, rather than to the foreign buyers’ tax.
“Anything that reduces the amount of credit available to purchase a home will slow the market down,” Madani explained. “So the housing mess that's been created over the past decades or so, it's not just about low interest rates, it's about the increased leverage in the system.”
These sentiments echoed those of Dominion Lending Centres
’ Dustan Woodhouse
, who earlier this month stated that the regulatory revisions burdened middle-class would-be home buyers unnecessarily.
“It is also worth noting that previous to Oct 17, 2016 the income required for this same purchase price was ~$88,000.00 per year. In other words an experienced police officer, teacher, nurse, or firefighter could pretty much pull that $597,000.00 purchase off on their own income.”
Woodhouse argued that instead of getting at the root of the price growth problem, the new rules only succeeded in penalizing would-be buyers who have stable verified income streams, exemplary credit scores, and no consumer debt loads.
“They [will need to] get themselves a $20,000 raise before they buy what they could have bought. Exactly what so many before them have bought, and what just ~0.30% of CDN’s ever stop making payments on.”
Vancouver carries the greatest probability of a bubble - study
Vancouver home sales plunge 38.8% last month, real estate board says