Home Sales Decline “Consolidates Existing Trends” Pre-Foreign Buyer Tax: CMHC

October 6, 2016

Sales and average sale prices of Vancouver homes peaked in early 2016, and were already declining before the August 2 introduction of the foreign buyer tax, according to the latest Housing Market Insights report issued October 6 by the Canada Mortgage and Housing Corporation (CMHC).

The federal housing agency said that the more marked declines in activity in August and September “consolidated existing trends in the resale market.”

“MLS® sales have declined in the two months following the start of the tax, continuing an already established trend, particularly at the higher end of the price spectrum,” said the report.

CMHC FBT analysis sales 2016
Source: Source: REBGV, FVREB, calculations CMHC

The CMHC continued, “While MLS® HPI Benchmark prices remained stable in September and August, the average price dropped 17 per cent compared to July, partly due to a change in the mix of homes sold.”

CMHC FBT analysis prices 2006-2016
Source: Source: REBGV, FVREB, seasonally adjusted by CMHC

The CMHC pointed out that real estate values do not have to fall for the average home price to go down. The report said that a key reason for the recent fall in average prices is that, on average, detached home sales have made up around 44 per cent of annual sales in the past decade, but as the share of single-detached sales increased in the recent sales spike, along with a jump in sales of the most expensive detached homes, this contributed to the spike in the average price in early 2016.

The CMHC said, “Since the spring of this year, these trends have started to reverse, with multi-family home sales accounting for a larger share of total sales and contributing to declining average prices.”

It added, “MLS® HPI Benchmark prices are not affected by this compositional impact. In September 2016, the HPI Benchmark Price for all home types combined remained 30 per cent higher than a year earlier in Metro Vancouver.”

In terms of the BC government's announcement on the reduction of home sales to foreign buyers since the new tax was introduced, the report said, "One factor contributing to the dramatic decline relates to the timing. The tax was announced on July 25 and came into effect August 2, likely contributing to a spike in foreign purchases during that brief time period as buyers rushed to avoid the tax, in effect pulling sales forward from August to July. Indeed, the BC Government points out that on the final business day before the tax implementation (July 29), $850M worth of sales to foreign residents took place, representing 40% of all foreign investment in real estate during the prior two months."

The report concluded, “Foreign buyers and/or foreign capital are among many forces driving home sales and prices in Metro Vancouver. Economic and demographic fundamentals, combined with housing and land supply constraints, drive housing activity and home prices.”