In Metro Vancouver, 40% of principal residence homeowners are mortgage-free. It should be noted that this means no mortgage whatsoever, so this does not include those with 1% of their mortgage balance remaining, only clear-title. This adds up to about $400 billion in mortgage-free equity in our region, of which 53% is held by those aged 55-75, 25% by those 75+, and the remaining 23% by those 25-54. Among other things, this is an indication of why changes to interest rates don’t affect everyone equally and also of a deep pool of capital from which many are able to draw on when they need it.
And while the amount of mortgage-free equity within our market has been consistently growing over time, there is also a portion of that equity which is released each year, either through the sale of a home or the addition of a mortgage. We can measure that release by examining the 75+ age group and tracking mortgage-free equity households that drop out of the census over time. In the period from the 2011 census to the 2021 census, $48 billion in mortgage-free equity was released amongst homeowners aged 75+ in Metro Vancouver. That’s an average of almost $5 billion per year or $400 million per month of capital being freed up from homes. To put that into context, total MLS sales volume in 2022 in the Vancouver Region was roughly $53 billion, or $4.4 billion per month.
We can’t track exactly where all the equity went, and it’s likely it wasn’t all redeployed back into the local real estate market, but it’s also likely that a significant amount of it was invested back into real estate and a good portion of that through the transfer of wealth to the next generation.
New construction of purpose-built rental homes has been on the rise in Metro Vancouver, it’s true; supply, however, is not keeping up with population growth.
The past decade has brought an increase in the construction of purpose-built rental homes not seen since the 1970’s. Each of Canada’s five largest markets have grown their rental stock since 2010, ranging from a 7% increase in Toronto to a 35% increase in Calgary, while here in Metro Vancouver the stock is 12% higher. While this is undoubtedly a positive for the supply of rental homes in these markets, it belies the longer-term trends which saw declines in the rental stock in the decades prior. To wit, from 1990 until 2010, Metro Vancouver’s rental stock declined 7%, while Toronto was the only market which saw an increase over that period by a modest 2%.
What’s more, of course, is the massive population growth experienced by each of these markets over the past decades. Since 1990 the population growth of Canada’s five largest markets has ranged from 24% in Montréal to 79% in Calgary, while we’ve grown by 43% here in Metro Vancouver. The recent trend of purpose-built rental growth has not made up for the losses experienced over the past decades, or for the robust population growth. As such, when we look at rental homes per 10,000 people across each census metropolitan area, only Montréal has been growing its share since data was first collected there in 1998, up by 9%. The other major markets have all seen significant declines since 1990, with Metro Vancouver’s purpose-built rental stock per capita declining by 42%.
The silver lining going forward is that purpose-built rental starts are up dramatically here in Metro Vancouver, with a record-setting 9,867 in 2022, 44% more than the previous high. That’s a step in the right direction, but we have a long way to go to catch up.
Pre-Sale Buyers Look For More value
The pre-sale market is one where developers share some of the risk and reward associated with development with their respective purchasers. And because buyers pay today, for a home to be delivered tomorrow, they want to see that values are increasing when they buy. So it makes sense then, that there is a strong correlation, and probably causation, between rising resale prices and pre-sale counts. This trend held true in 2015 and 2016 as rapidly rising resale prices lead to increased pre-sale counts, and again from later 2020 to early 2022. The opposite is also true, when resale prices decline, pre-sale counts slow as well, as was most recently observed in the second half of 2022.
In 2023, with interest rates elevated and a market struggling to stabilize, keeping an eye on resale prices is a reliable way to gauge when pre-sale activity will pick back up.
Surprise! [said sarcastically] The share of foreign home buyers in Metro Vancouver rose in the last 6 months of 2022 in anticipation of the impending foreign buyer ban.
The federal government passed the Prohibition on the Purchase of Residential Property by Non-Canadians Act AKA the foreign buyer ban on June 23, 2022. And while much has been noted about how few residential property transactions involve foreign buyers, along with the many noted exceptions to the ban, there are still some would-be buyers who are banned from purchasing in 2023. And with six months of lag time between the passage of the bill and its implementation, there was a window of opportunity for those subject to the ban to act.
Sure enough, we can see a sharp increase in the share of foreign buyer residential transactions in the second half of 2022, from 0.9% in June to 2.8% in December. We should note here that these are buyers subject to BC’s foreign buyer tax, and may include some buyers exempted from the ban, such as international students. Overall, the share of foreign buyers participating in Metro Vancouver’s residential real estate market was still quite low in the second half of 2022, but the increase that preceded the implementation of the ban is evident.
May Market Report
With listing activity remaining below historical norms, home sales in Metro Vancouver have mounted a surprising comeback, rising near levels seen last spring, before eight consecutive interest rate hikes eroded borrowing power and brought home sales activity down along with it.
The Real Estate Board of Greater Vancouver reports that residential home sales in the region totalled 2,7412 in April 2023, a 16.5 per cent decrease from the 3,281 sales recorded in April 2022, and 15.6 per cent below the 10-year seasonal average (3,249).
The fact we are seeing prices rising and sales rebounding this spring tells us home buyers are returning with confidence after a challenging year for our market, with mortgage rates roughly doubling. The latest MLS HPI data show home prices have increased about five per cent year-to-date, which already outpaces the REBGV forecast of one to two per cent by year-end. The year is far from over, however, and it remains to be seen if these price increases will be sustained into 2024.
There were 4,307 detached, attached and apartment properties newly listed for sale on the MLS in Metro Vancouver in April 2023. This represents a 29.7 per cent decrease compared to the 6,128 homes listed in April 2022, and was 22 per cent below the 10-year seasonal average (5,525).
The total number of homes currently listed for sale on the MLS system in Metro Vancouver is 8,790, a 4.2 per cent decrease compared to April 2022 (9,176), and 20.9 per cent below the 10-year seasonal average (11,117).
Analysis of the historical data suggests downward pressure on home prices occurs when the ratio dips below 12 per cent for a sustained period, while home prices often experience upward pressure when it surpasses 20 per cent over several months.
When the REBGV market forecast was released in January, they were one of the only organizations taking the contrarian view that prices were likely to appreciate in 2023, and what we’re seeing unfold so far this year is consistent with the prediction that near record-low inventory levels would create competitive conditions where almost any resurgence in demand would translate to price escalation, despite the elevated borrowing cost environment. At the crux of it, the issue remains a matter of far too little resale supply available relative to the pool of active buyers in our market.
The MLS Home Price Index composite benchmark price for all residential properties in Metro Vancouver is currently $1,170,700. This represents a 7.4 per cent decrease over April 2022 and a 2.3 per cent increase compared to March 2023.
Sales of detached homes in April 2023 reached 808, a 16.3 per cent decrease from the 965 detached sales recorded in April 2022. The benchmark price for detached properties is $1,915,800. This represents an 8.8 per cent decrease from April 2022 and a 2.9 per cent increase compared to March 2023.
Attached home sales in April 2023 totalled 500, a 13.5 per cent decrease compared to the 578 sales in April 2022. The benchmark price of an attached unit is $1,078,400. This represents a 6.1 per cent decrease from April 2022 and a 2.1 per cent increase compared to March 2023.
Sales of apartment homes reached 1,413 in April 2023, a 16.5 per cent decrease compared to the 1,693 sales in April 2022. The benchmark price of an apartment property is $752,300. This represents a 3.1 per cent decrease from April 2022 and a two per cent increase compared to March 2023.
