My prediction for 2018 is that we will continue seeing upward pressure on condos and townhomes as a result of the financial stress test being implemented for all buyers seeking a mortgage. Specialists have suggested that the change would affect buying power by 20%, which will affect roughly about 25% of buyers in the market. If people can borrow 20% less in 2018 than they could this year, a lot of them will no longer be looking at detached houses because of prices and look at more affordable options e.g. condos. This could continue creating downward pressure on the detached home market.
However, I do not anticipate a real estate market collapse in the near future, as there are so many that are anxious to get into the market.
What to expect next spring
Many people may take a wait-and-see approach. Owners who were entertaining the idea of selling because prices were so high might reconsider.In the past few years, I had many clients move up their plans for selling because prices were so attractive. One couple, who was planning on moving in 5 years from now, decided to do it this year, cash out, and move to the Sunshine Coast.If prices pull back a couple of hundred thousand dollars, it might not be so attractive.When I say a couple of hundred thousand, it might seem like a lot of money, but it isn’t when you consider what has happened in the past two years. In 2016, the hot part of the market was detached houses listed around the $1.3 million mark would sell at $ 1.5 million because of multiple offers.
If there is no longer a multiple offer scenario, people are going to pay the list price or less. For the seller, there will not be the bonus brought by multiple offers.Currently, we do not see competition as frequently, and therefore buyers are able to negotiate on the price. The majority of the houses on the market in North and West Vancouver are selling under the list price, which was unheard of a year ago. The question remains about those couple of hundred thousand dollars: Was it real value or was just the climate of the market? It is interesting how the value of a house can change literally by a $200,000 if there is more than one offer.
Pricing for detached homes is going to be more sensitive. A couple of years ago, you didn’t have to give it much thought because the market was going to figure it out on its own. You listed a detached home at $1.3 million and got $1.47 million. The market is not there right now and if the downward pressure on pricing continues, if a seller overprices by $30,000, they could be sitting for some time.
People have to be more realistic when it comes to pricing because the detached market has already changed. Now it just depends on where it goes from here and it could be further downward pressure.
Keep an eye on government strategies to cool off the market
The big question that I have moving forward in the New Year is: What other strategies do the local and provincial governments have in mind if the market does not cool as a result of what is already being implemented? It seems to be a mandate of the government to cool the market by whatever means necessary, but that is dangerous territory because every decision that they make has ramifications throughout the rest of the economy.
Presale: an orange light
Another segment of the market that I am closely watching are presales, especially in the Moodyville area (where prices are between $1.3- $1.5 million and higher for a townhouse) and condos in Lower Lonsdale on the waterfront that around the $5 million range. I am concerned about the timeline between the contract and completion of the project.
People should be cautious because a lot can happen in the next 18 to 24 months, which is an average timeframe for presales. If we do see a pullback or cool down in the market, buyers should have a clear plan A, B, and C.
The weather always has an impact on the real estate market. As we enter 2018, if it is relatively mild, typically homes come on the market right away. But if we have a harsher weather, the market might slow for a few more weeks.
The fact is 2018 will be an interesting year for our local real estate market. What are your real estate plans for next year? Contact me to talk about the exciting opportunities that 2018 will bring.