FINANCIAL SAVVY: Buyer’s market looming?

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his recent Third Edition of The Smart Canadian Wealth-Builder.

At the beginning of 2018, major Canadian residential markets were still clearly in seller’s market territory, with sales-to-listing ratios of 40 to 50 per cent. As the year unfolded and the full effect of new mortgage stress tests, foreign buyers’ taxes, vacancy taxes, and the imminent implementation of BC’s Speculation Tax emerged, the sales-to-listing ratios plummeted.

In Greater Victoria for example, the sales-to-listings ratio in March 2018 hovered near 50 per cent. By December it had dropped to around 20% – technically, still a balanced market. The rapid rate of decline however, has threatened the emergence of a Buyer’s market in 2019.

One of the primary drivers of residential real estate has always been the first-time home-buyer. A recent survey of its members by the B.C. Notaries Association confirmed not only fewer such buyers in 2018, but also that those buyers were relying on significantly greater external assistance than in past years, toward their down payments.

Having lost some 20 per cent of purchasing power due to new stress tests and rising interest rates, many first-time buyers, without extra family assistance, are now faced with major delays in their ability to enter the market.

An October, 2018 CMHC report revealed that 85 per cent of first-time buyers already spend the maximum they can afford on their first home purchase; this leaves little room for absorbing the impact of new lending regulations and higher rates.

When the pool of first-time buyers shrinks, new construction slows as inventory of unsold strata units increases; and existing strata owners are delayed in their ability to sell before moving up to a higher-value home. The upward-ripple effect on re-sales and purchases is felt at all price levels – impeding sales volumes, and eventually triggering a seller’s market until the downward cycle once again begins to reverse, and affordability increases.

Other than in the over-million dollar segment of Canadian residential markets in which prices have plummeted, prices nationally have not experienced significant declines. The full impact however, of new regulations and higher rates, will only be felt in 2019.

Regardless of how residential real estate fares in 2019, one thing is clear. In every major Canadian market, the spectacular price increases of the last decade will not be seen again for some years. That does not make residential real estate a poor long-term investment; however, in the shorter-term, we should be happy if we achieve even inflation-only levels of price increases.

A retired corporate executive, enjoying post-retirement as an independent Financial Consultant (www.dolezalconsultants.ca), Peter Dolezal is the author of three books, including his recent Third Edition of The Smart Canadian Wealth-Builder.

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