Vancouver detached real estate market made improvements, but it isn’t back to normal. Real Estate Board of Greater Vancouver (REBGV) numbers show sales made a huge climb in July. However, the double digit rise in sales still fell short of typical volumes for the month. As a result, the price of a typical detached home continued to fall, and is now the lowest it’s been in over 3 years.
Greater Vancouver Detached Real Estate Prices Fall Over 10%
Greater Vancouver detached prices are still falling, according to the benchmark price. REBGV reported the detached benchmark fell to $1,417,000 in July, down 10.5% from the year before. In the City of Vancouver, Vancouver East’s benchmark fell to $1,352,800, down 11.3% from last year. Vancouver West is seeing the biggest drop with a benchmark of $2,894,400, down 13.6% from last year. The typical Greater Vancouver detached home is down $168,100 from last year.
Greater Vancouver Detached Benchmark Price
The price of a typical detached home across the Greater Vancouver Real Estate Board, in Canadian dollars.
Source: REBGV, Better Dwelling.
Prices declined on a monthly basis, but the annual decline did get smaller. The REBGV detached benchmark dropped $6,500 in July, when compared to the month before. However, the annual decline at 10.5% from last year, was a little smaller than we observed in June. The benchmark price is down 12.33% from the peak, and has rolled to the lowest it has been since March 2016. These are substantial discounts, but the biggest gains were made in 2015. Those haven’t been touched as of yet.
Greater Vancouver Detached Benchmark Percent Change
The 12 month percent change of a typical detached home across the Greater Vancouver Real Estate Board.
Source: REBGV, Better Dwelling.
Detached Real Estate Sales Rise Over 30%, Fall Short of Typical
Detached real estate sales made a big leap higher from last year, but is not yet at typical volumes. REBGV reported 841 sales in July, down 10.5% from the month before. This represents an increase of 32% when compared to the same month last year. For context, last year was one of the slowest Julys in decades. This past July saw the third fewest sales for the month, over the past 10 years. Also worth a mention, last month was a rare July that came in bigger than June.
Greater Vancouver Detached July Sales
The number of detached homes sold in the month of July, across Greater Vancouver.
Source: REBGV, Better Dwelling.
Greater Vancouver’s Detached Inventory Is Falling
The number of new listings for detached homes across Greater Vancouver made a sharp drop. REBGV reported 1,583 new listings in July, down 8.8% from the month before. Compared to the same month last year, this represents a decline of 8.1%. The monthly decline is seasonal, but the annual decline is not. The drop helped to push total inventory down even further.
Greater Vancouver Detached Sales Vs. New Listings
The total number of detached sales, compared to the number of new detached listings per month.
Source: REBGV, Better Dwelling.
The total number of active listings for detached homes fell across the board. REBGV reported 6,218 active listings for detached homes in July, down 4.6% from the month before. This represents a decline of 3.22% compared to the same month last year. For context, detached inventory for last month is 10.5% higher than the median value over the past 5 months. Inventory is lower, but still higher than Vancouver is used to seeing these past few years.
Higher sales and lower inventory helped to improve the sales to active listings ratio (SALR). The SALR for detached homes fell to 13.5% in July, compared to 9.9% during the same month last year. When the ratio is above 20, the market is a seller’s market – where prices are expected to move higher. Below 12, and the market is a buyer’s market – where prices are expected to drop. Between 12 and 20 and the market is balanced. The ratio does have to stay in place for a bit, for it to mean anything.
Vancouver’s detached market improved, but it’s a stretch to say things are back to normal. Sales made a big jump compared to last year, but still fell short of typical volumes. Even with the improved demand, prices continued to fall. Things are looking a little more balanced these days, but these are still large price drops.
Home Sales Climbed Higher In July
Canadian home sale rose in July in broad gains as markets start to recover from the stress test tightening last year, though economists say global concerns raise some uncertainties for the future.
The Canadian Real Estate Association reported last week that home sales rose 12.6 per cent in July from a year earlier, and were up 3.5 per cent seasonally adjusted from June.
“Sales are starting to rebound in places where they dropped when the mortgage stress test took effect at the beginning of 2018, but activity there remains well below levels recorded prior to its introduction,” said CREA president Jason Stephen in the report.
“Sales activity is strong in New Brunswick where I do business, but it’s a very different story in B.C., Alberta and Saskatchewan. All real estate is local. Nobody knows that better than a professional [realtor], who is your best source for information and guidance when negotiating the sale or purchase of a home,” said Stephen.
The increase came as sales were up in markets like Moncton, B.C.’s Lower Mainland, Calgary, Edmonton, Greater Toronto Area, Hamilton−Burlington, Ottawa and Montreal. Sales were down in Regina, Saskatoon, and Windsor−Essex.
The broad rise in sales put them at their best level since the stress tests kicked on at the start of last year, said BMO chief economist Douglas Porter in a note.
“After a challenging 18 months, the Canadian housing market is showing widespread signs of, not just stabilizing, but firming again.”
The federal government updated mortgage qualification rules at the start of last year to require more would−be borrowers to prove they could manage if interest rates rose.
The national sales−to−new listings ratio tightened to 59.8 per cent last month from 57.6 per cent recorded in June to the upper end of what’s considered a balanced market, he said.
The rise in sales, which came as the number of newly listed homes edged back by 0.4 per cent in July, put some pressure on prices, said Porter.
“With sales regaining some momentum broadly, and the market tightening in many regions, it’s little surprise that prices are starting to turn the corner again.”
The national average price of a home sold in July was just under $499,000, up 3.9 per cent from the same month last year and a seasonally adjusted 2.6 per cent from June.
Double−digit price gains in several Ontario communities including Ottawa and Kitchener−Waterloo helped drive up the overall average, while cities in Western Canada generally saw prices drop.
Porter said global uncertainties are already driving borrowing costs lower, which could further boost the Canadian market, but if economic declines prove serious then interest rates will be secondary.
“The downside is that if “global uncertainties” morph into something much more serious for the domestic economy, interest rates will be playing a second fiddle.”
TD senior economist James Marple said the housing market looked robust for the month, supported by strong population growth, solid job growth and lower mortgage rates.
“This can only be described as a solid month for the Canadian housing market…with most markets in balanced territory or better, the immediate downside risk to home prices have diminished considerably.”
He said there is some uncertainty as to where rates will go, since domestically the economy looks strong while there are considerable international challenges as global economic growth looks even softer than previously thought.
Why you need to be on top of real estate Tax rules
Advisors have been urged to brush up on their real estate tax knowledge, with the CRA throwing more auditors at the issue.
Mariska Loeppky, director, tax and estate planning for IG Wealth Management, believes investors are often making innocent errors because of the relatively new adminstrative change to reporting your principal residence exemption disposition.
From the 2016 tax year, residents are required to report basic information, like date of acquisition, proceeds of disposition and description of the property, on income tax and benefit returns, when they sell their principal residence residence.
An example, explained Loeppky, could be when someone owns land and a few years later builds a house on it. She added: “You can’t claim a principal residence exemption for that property while it’s just land until you live in that home.
“So, when you go and report that disposition, you probably think, ‘that’s always been my house or I have always lived in that house’. But really, you owned that property for a few years before you could claim it as your principal residence.
“People don’t understand how that calculation works, and how that exemption works. Another example is that people are flipping properties and they’ve taken the position that they can claim their principal residence exemption.
“But the CRA says, ‘hey, you’ve actually sold quite a few homes in the last little while so you are in the business of flipping homes’. They would treat that as business income, not a capital gain.”
Some advisors, she added, have been caught out by clients gifting properties at less than the fair market value. You are, in fact, deemed to disposition the property at fair market value rather than gift it to avoid tax or probate fees upon death. Renting is another example and represents a change of use for the property, which should be reported to the CRA.
Loeppky said: “Advisors must make sure they know what the reporting obligations are. If you are in doubt, hire a professional accountant to help you with your tax return. Most of the tax preparers that I see packages from, they’re asking the questions: did you sell your home? Did you start renting it out?
“These could have tax implications. Just knowing that, while the principal residence exemption is there to protect you, you have to report it and there are significant penalties for not doing so. If you forget to disclose that you sold your home on your tax return, it’s a penalty of $100 a month, up to a maximum of $8,000.
“Even though you’ve got a tax free transaction, or what you think is a tax free transaction, not reporting it in theory could land you with an $8,000 penalty, which is pretty steep.”
There is also the issue of foreign property, with Canadians required to report their worldwide income, which includes gains on these sales. The CRA will likely find out where the proceeds are – and they need to be disclosed – whether they are sitting in a foreign bank account or a Canadian one.
She said: “There’s lots of ways for the CRA to find out that you sold something, so it’s a case of knowing that a transaction has to be reported. Renting out a foreign property also has to be reported on your Canadian return – and then knowing that you can claim a foreign tax credit to offset the double tax that you paid to the other country. These are things you need to navigate.”
Buying property from a non-resident raises the requirement of holding 25% of the proceeds unless there is documentation from the seller that this has been waived. If it’s not, it’s up to the non-resident to file a tax return to get some of that back.
Loeppky added: “Advisors should be aware of the rules when it comes to real estate transactions and knowing the principal residence exemption, how it works, and when you can claim it. It’s also about helping the client realize that you need to take advantage of that principal residence exemption to the best of their ability.
“Normally, they’d want to shelter that gain so helping clients make that determination is really important when they have a choice between two different properties that they could claim as a principal residence exemption.”
Appeal court withdraws real estate decision
Justice Richard Lococo’s decision in the Superior Court case, Hilson v. 1336365 Alberta Ltd., 2018 ONSC 1836, was appealed. But, a May 27 judgment on the appeal was released “in error,” the court now says.
After considering written submissions, Associate Chief Justice Alexandra Hoy and Justices Kathryn Feldman and Grant Huscroft wrote on Aug. 13 that a previously released May 27 decision” is not a judgment of the court” and “is of no force or effect.”
“One of the members of the panel that heard the appeal, Justice [Grant] Huscroft, was not provided with either the draft judgment for review or the final judgment for signature. The judgment was signed, in error, by another justice who was not a member of the panel that heard the appeal,” the judges wrote in Hilson v. 1336365 Alberta Ltd., 2019 ONCA 653, released Aug. 13.
Hoy, Feldman and Huscroft rejected a proposal that Huscroft review the May 27 judgment “and either assent to or dissent from a judgment that he had no role in making.”
“The panel of judges that rendered judgment was not the same panel that heard the appeal…. This cannot now be corrected,” they wrote. “The decision-making process has been compromised and this panel cannot render a judgment.”
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