High prices in Vancouver: Is this the new normal?

When it comes to Metro Vancouver’s housing market, Michael Ferreira has been around the block. Founder and managing partner of Urban Analytics, he’s followed the ups and down of Lower Mainland real estate for more than 20 years, so his annual address to the Urban Development Institute (UDI) is always a highly anticipated event — and this year was no exception.

Price and Demand

Speaking to a sell-out audience, Ferreira said he can’t recall a “more interesting time” as the industry continues navigating through unchartered territory. Ongoing transfers of wealth from local boomers to their children, plus low (though rising) interest rates are creating an unrelenting demand and continued supply shortage that results in high prices in Vancouver.

Towers frequently sell out in a couple of weeks yielding staggering sales figures that seem staggering — especially when those numbers would have been higher if more units had been available. Burnaby, he noted, is the front-runner in concrete highrises so far this year with 1,583 sales, followed by Vancouver with 1,295 and Richmond with 968.

But it was Marcon’s Clarke + Como in Burquitlam that Ferreira singled out as a truly “fascinating” example of the severity of the region’s condo supply shortage. The 49-storey tower launched in early summer with 6,000 names on the priority registration list. From that list, 3,600 people made suite requests — a document handed to sales staff that indicates the specific suite they want to purchase. Only 350 units were available, leaving more than 3,200 potential buyers unsuccessful.

In the smallest of the Tri-Cities, Quantum Properties created a stir when it sold 170 units (at an average home price of $500-per-sq.-ft.) in just over 10 days at Montrose Square, a wood-frame lowrise located in downtown Port Coquitlam. “It’s almost as though people all of sudden remembered Port Coquitlam existed,” Ferreira said, adding that a few years ago developers would have been lucky to get $300-per-sq.-ft. in that area.

Here’s some food for thought though: with price increases of 50 per cent in the past two years, even a 20 to 30 per cent decline would still put homeowners ahead of where they were two years ago.

Stresses Rising

In addition to uncertainty about changing provincial housing policies and rising interest rates, Ferreira expressed concerns about the stress test soon to be applied to all mortgages – not just high-ratio ones. Currently, a hypothetical couple with 20 per cent deposit would qualify for a $573,500 mortgage (based on a 3.29 rate) which translates to a maximum purchase price of $717,000.

But when the clock strikes midnight on December 31, that same couple will need to qualify at 5.29 per cent, reducing their maximum mortgage to $468,000 and the home they can afford to $585,000 – a whopping 18 per cent drop in purchasing power. “These new rules attack demand as opposed to addressing the [lack of supply] issue and will impact first-time and younger move-up buyers – buyers who’ve contributed least to the affordability crisis,” Ferreira said.

What’s Ahead?

Looking ahead, Ferreira said he believes that while prices will continue rising, they will likely rise less dramatically than the 20 to 30 per cent annual increases the region has sustained for the past few years. He wants to see projects approved more quickly, but said they need to be the right projects. And he had a specific example in mind.

“Westbank has developed some of the most iconic buildings in the city – you just have to drive across the Granville Street Bridge to see how cool Vancouver House is looking to know that. But just because you can achieve $1,200 or $1,300-per-sq.-ft. around the Joyce SkyTrain station, should you? This is where we should be building housing that targets the workforce our mayor is fond of talking about. The only winners, aside from the developer, of approving this kind of project in this location at these prices are local landowners. Anyone with a property to sell anywhere close to [the Joyce project] saw those prices and immediately raised their asking price.”

High home prices in Vancouver: The New Normal

“One last thought on pricing because I get asked this all the time. Do I see prices levelling off and maybe even dropping in some areas over the next couple of years? It’s certainly a possibility. But, do I think homes here will be worth more in five years than they are today? Absolutely. And I know this industry is resilient. It will find a way to adjust to the new normal, whatever that is, and move forward.”