*** The Sales Ratio is the ratio of sales in a month over active listings in that month
** Introduction of Foreign Buyers Tax was August 1, 2016
I get that but I’d like you to humour me for a minute. Having a quick look will help you to understand why prices shot up so quickly between 2015 and 2018. The first column shows the sales ratio. This very important number is the number of sales in a certain month divided by the number of active listings in that month. In March of 2015, the sales ratio was 55%. Anything over 20% is considered a “sellers market”. A sales ratio of 55% represents a very busy market. It’s no surprise that 6 months later, the average price shot up 8.5% to $920,000. Here’s an interesting note, the Foreign Buyers Tax came into effect at the end of July 2016. As you can see, the average price fell between August, 2016 and March, 2017. It’s also interesting to see that the sales ratio after March 2017 fell and continued to fall more dramatically this past month. A quick look at average price in 2018 show a fairly significant adjustment to the downside. Port Moody, by the way is too small a sample size. The average price in March 2018 is skewed by a few high value sales and is not reliable. In my estimation, prices are down 10-12% from their peak last year.
The big news is that prices of detached homes are lower now than a year ago, probably by 10-12%. While detached home prices have slid the most, attached homes are off only slightly. This has an effect on buyers and sellers. If you are a move up buyer, say from an apartment or townhouse to a detached home, this price adjustment is good for you. The price gap between your apartment and a detached home has shrunk by roughly $100,000. However, the opposite holds true for down-sizers. For folks buying down from a detached home to an apartment or townhouse, the opposite holds true. The gap between your house and your future apartment is getting smaller, meaning you will come out with less at the end of the day.
The question is, will these conditions persist? The forces causing downward pressure on the market are real. Since 2016, government measures such as the stress test on borrowers have reduced the amounts that Canadians are able to mortgage. These actions have amounted to a government driven market cooler. There are plenty of people that want to buy homes but at present, there appears to be a mismatch between what these buyers can afford and the prices being asked by sellers. In the end, the market is driven by sellers that must sell. These sellers are forced to “go to the market” by reducing prices until they sell. These sellers are everywhere, make no mistake. At the end of the day, prices will decrease until a we reach a new equilibrium where buyers and sellers have accepted the “new normal”.
It makes some sense that the gap between attached properties and that old mainstay of the baby boom generation, the detached house, is shrinking. Increased demand by those same baby boomers for smaller attached homes will remain strong. In addition, buyers entering the market make the attached home their first stepping stone, adding to strong demand for condos and townhomes. This dynamic will likely keep attached prices high relative to detached homes for the foreseeable future.