Prices in Richmond are following an uneven downward path but are still far beyond what most families would consider affordable. At this point, price declines appear to be part of a long-term trend in Richmond and across Metro Vancouver.
Some people blame higher interest rates and tighter mortgage rules for the weaker market, but these arguments don’t hold much weight. Mortgage rates are still at rock-bottom lows and the market weakness began in 2016 when foreign buyer taxes came into effect rather than in 2018 with the introduction of the stress test. Richmond and Metro Vancouver house prices have primarily weakened because foreign direct investment has shifted to Toronto and Ottawa.
This article covers:
Where are Richmond prices headed?
What are Purchase and Listing Trends?
Should investors sell?
Is this a good time to buy?
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.
Although Richmond home prices have dropped significantly they are still not very affordable. To put this into perspective, a first-time home buyer household earning $75,000 (the median Metro Vancouver household before tax income) can only get a $320,000 mortgage. This makes it painfully obvious that to buy an entry level $600,000 condo, a first-time home buyer needs to save a $280,000 cash down payment or receive a very generous gift from mom and dad. For most people, that’s just not possible with rents as expensive as they are these days.
In 2018, the most optimistic forecast called for 6% price growth while the most conservative expects no price appreciation at all. No one predicted prices would drop but in Burnaby they dropped by 7-11%.
Looking forward to 2019, we see most forecasters expect prices to drop.
The brunt of 2019 price drops will likely be felt by higher priced properties (i.e., more expensive neighbourhoods and detached single family homes).
Given the forecasts, the current market weakness, and the increased downward price pressure, prices will likely remain flat or drop for the next few months. As well, homebuyers and homeowners shouldn’t expect much price appreciation between now and the end of 2020.
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 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.
What does a shift towards a buyers advantage mean exactly? Well, the market for all homes (detached, townhome, condo) are all trending toward a position where buyers have more power than sellers. This means buyers can leverage the weaker market to negotiate discounts and incentives. The positive outcomes for buyers are lower prices, more selection, fewer bidding wars, and ultimately a little less stress.
2019 has been a slow year for purchases of all types of properties, which is certainly not something we’re used to seeing. The City of Vancouver and more central suburbs have seen the most dramatic falls in purchase and sales. Our research suggests that foreign buyers are moving on to other cities and countries. Scanning news outlets across Canada and reviewing realtor marketing materials, it becomes clear that any foreign money still coming to Canada seems to be directed toward Toronto, Ottawa and Montreal.
The number of Richmond houses sold is trending consistently below past years while the number houses listed for sale has been trending much higher than past years. These trends of lower demand and higher supply explain a reduction in price.
Pre-sales, which are purchases of brand-new homes from developers, have trended down substantially. Since developers need to sell at least 70% of a project to secure financing and begin construction, they are trying to entice buyers with price discounts, move-in allowances, and cool amenities. Some developers have offered up to a $100,000 bonus to the buyer realtor who can convince their client to buy!
According to MLA advisory, the current pre-sale activity levels “reflect a more normalized pace of sales for the Lower Mainland.”
At Mortgage Sandbox, we break down our market analysis to five key factors: affordability, capital flows, government policy, supply and popular sentiment. Read the full report to understand how these factors are affecting prices in Metro Vancouver.
From a seller’s perspective, now is a better time to sell than in two years as CMHC, a Government of Canada Agency predicts that house prices will be flat or drop for the next two years.
To benefit from the best-case scenario, a home buyer should talk to their mortgage broker about prioritizing flexible loan conditions and mitigating risk. Find out more about the benefits of a mortgage broker.
There’s potential for an overwhelming surge in supply and this would bring more downward pressure on prices.
41,000 homes were under construction in Metro Vancouver (2100 in Richmond) in February 2019. These are due to complete in 2019 and 2020. If a significant number of those homes were pre-purchased with the intention to flip them, they could bring a ton of supply to the Burnaby market.
With buyer negotiating power and dropping prices, 2019 will be a good time to buy a Richmond home. However, 2020 may be even better.
If you are thinking of buying just be sure to drive a hard bargain, and cover your bases with smart and educated decisions. Don’t bite off more than you can chew.
Buying a home is a big decision, so check out Mortgage Sandbox’s Canadian Home Buyer Guide so we can walk you through the end-to-end process and get you ready to buy your new home!
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