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. House prices have been dropping since 2016 whereas townhomes and condos started dropping around June 2018.
It’s logical that condos and townhomes started dropping together because they are poth strata properties (you don’t own the land) and since these properties are more similar to each other than they are to houses. So as townhome prices continued to drop, eventually condos had to drop.
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 has started even slower than last year, house purchases are down 77% compared to 2016, while townhome and condo purchases are not much better.
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 began in anticipation of the 15% foreign buyer tax introduced in August 2016. Looking at the month-over-month trend we can see the market tanked in mid-2016. It was just a matter of time before the lack of willing buyers resulted in lower house prices.
Regardless of the type of home you’re looking at, Richmond is a buyer’s market and that means buyers can negotiate and negotiate hard.
Someone from the industry may try to chalk up the current record high supply to slow January markets, but the chart above shows supply patterns back to 2015 and we’ve never seen this kind of market imbalance in favour of buyers (against sellers). The original scale on the chart above topped out at 14 months but we had to redesign it to accommodate the current level of house supply!
If the trend continues, as house prices drop, people will buy up the excess house supply instead of buying townhomes and condos, and that will leave unsold condos. The extra condo supply will then lead to even lower condo prices. You could call it, “trickle down supply.” Similarly, if house prices in desirable Vancouver neighbourhoods continue to drop then you should expect prices in the suburbs to drop too.
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