The traditional surge in Richmond home buying activity seen around Chinese New Year (Feb 5) did not materialize in Richmond this year. Whether it’s condos, houses, or townhomes, Richmond prices have been trending downward in recent months. Richmond house prices have been weakening since 2016 whereas townhomes and condos started dropping around June 2018.
It’s logical that condos and townhomes started dropping together because they, from a price standpoint, they are close substitutes. A benchmark Richmond townhouse only costs $150,000 more than a condo whereas a house costs $900,000 more than a condo. Richmond houses are a distinctly different class of asset.
Simply put, compared to 2015 almost nobody is buying homes in Richmond and there is plenty of new construction in the pipeline. Almost 2,500 houses were bought in 2015, but last year only 750 houses were bought. That’s a drop of almost 70%!!! 2019 is turning out even slower than last year.
In 2018 1,600 condos were bought in Richmond (down 35% from 2017) and 2,100 condos were under construction at the beginning of 2019. If the market is struggling to absorb existing stock then additional projects will put more downward pressure on prices. Those new homes will help alleviate the extreme supply shortage in Richmond but rental vacancy needs to reach 3% before Richmond can be considered to have enough supply, and vacancies are currently below 1%.
If someone tries to tell you that it’s because of the increase in the foreign buyer tax to 20% in 2017 or new mortgage rules in that came in 2018 their theory is not supported by the data. The slump actually began in in mid—2016 before the 15% foreign buyer tax introduced in August 2016.
Regardless of the type of home you’re looking at, Richmond is a buyer’s market or a balanced market, and that means buyers can negotiate for price reductions.
If the trend toward buyer’s markets continues, house prices will drop and this will be a downward influence on the prices of townhomes and condos.
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