VP Andrew Ramlo on understanding real estate numbers
May 12, 2018
When it comes to numbers about real estate, Andrew Ramlo’s got them – lots and lots of them. So it came as no surprise that the house was packed for the second year in a row when Rennie Group’s vice-president of intelligence addressed the industry at the Urban Development Institute’s (UDI) April luncheon.
Supply Shortage
After what he described as a “whomping” year in 2016, Ramlo was hardly surprised that 2017 sales were down – a trend consistent throughout 80 per cent of major metro regions across the country. He noted that rising interest rates and uncertainty about government housing policies have contributed to more sellers sitting on the sidelines and will likely mean a continued slowish spring market.
Slowish spring 2018 market
Slowish translates to 12,542 active listings throughout the Lower Mainland in March of this year – only 0.2 per cent below March 2017 but 37 per cent behind the 10-year average of more than 20,000. January saw a 36 per cent decline in listings relative to 2017. Demand, however, continues to climb, leaving many people ready to hand over their money but unable to find a product.
Pre-sales
Don’t look to pre-sales for help either – despite the numerous cranes dotting the landscape. Of the 41,700 units coming via 398 developments that are scheduled for completion between 2018 and 2022, Ramlo noted that 91 per cent have already been sold.
What’s Driving Up Prices
Foreign ownership?
Ramlo was unimpressed with the concept that foreign ownership is propelling the unaffordability factor. His research reveals that only 5.4 per cent of February sales throughout the Lower Mainland went to foreign buyers. He added that last year, 91 per cent of Rennie Marketing sales contracts went to a Lower Mainland address, seven per cent to other Canadian locations, and only two per cent were international.
Vacant homes?
Ramlo had no hesitation chiding media for creating a storm of inaccuracy around the controversial issue of vacant homes. He cited a recent study by the City of Vancouver showing that only 8,481 of the city’s 186,043 homes were vacant – the vast majority of them apartment/condominiums – which is approximately 4.6 per cent. “Somehow that number got blown up to 25,000. But could it be that the owners had simply turned off their lights while they were out enjoying city life?”
Speculators?
He also took aim at the misconception that speculators are running rampant and driving up prices. “The City of Vancouver did a study that identified that out of 58,900 sales in 2017, only 2,829 resold within 12 month – that’s 4.8 per cent. Pre-sales, which do not show up as MLS listings, had only 301 out of 7,059 sales flipped – 4.3 per cent. This is not a big market driver.”
#donthave1million
And Ramlo repeated his message of last year that the #donthave1million hype is exactly that – just hype. He crunched the numbers and found that in the Lower Mainland, the average price for a home is $845,565 – still below the million-dollar mark. Using the more realistic median benchmark, that number drops to $625,000. And by eliminating the super-rich, top quintile (20 per cent) where average prices run $2.1 million, the remaining 80 per cent of everyday people can expect average prices of $573,853.
Condo buyers
For condo buyers, the news is even better with an average price of $533,339 and a median price of $455,500. Take out the top quintile – which included a $21.5 million penthouse that was the single most expensive sale – and that number falls to $350,072.
Reasons for price increases
Referring to a recent 259-page report from the Canada Mortgage and Housing Corp., Ramlo said price increases are driven 34 per cent by increases in disposable household income, 23 per cent by young buyers getting into the market, and 18 per cent by favourable mortgage rates. And the remaining 25 per cent? “Unexplained – they just don’t know,” he says. “And in Greater Toronto, almost 60 per cent was unexplained.”
Interest Rates on the Rise
Mortgages
Ramlo cautioned that the seven-year low interest rate party is over with yet another hike in prime anticipated this summer. Add in the new stress test that even buyers with a 20 per cent down payment must now take, and the impact on purchase power is significant.
A hypothetical household with an annual income of $100,000, $100,000 for their down payment, and 35 per cent gross debt service ratio (GDS) would, not so long ago when mortgages were available at 2.7 per cent, have qualified to buy a home for $730,000. Even a half point increase to 3.2 per cent reduces buying power to $696,000 – about a five per cent decrease. Today, that same household would need to qualify at 5.69 per cent and couldn’t look at homes worth more than $565,000 – all this in a market struggling with escalating prices.
Medium household income
A bright spot, however, is Vancouver’s medium household income, which rose 11 per cent between 2005 and 2015 to $72,662 – the same rise in Victoria incomes and just above the national average. But the big surprise was Squamish, where incomes shot up 17 per cent to $88,366.
Things to Follow
Looking ahead, Ramlo noted he’ll be keeping a watchful eye on the fall election – especially now that he’s hearing rumours that there might be also be a provincial election. Housing policy shifts, interprovincial migration, construction labour costs that are said to be rising at a rate of one to two points a month, and, of course, rising interest rates will also be on his radar.
After all, as UDI pointed out, the truth is out there – or at the very least, it should be.
RELATED READING
Stress test survival guide: What can you afford now?