Millennials and the Vancouver Housing MarketPosted on October 18, 2016
It was a tweet heard around the world. The Economist, a magazine renowned for it’s coverage of international market trends asked why Millennials weren’t buying diamonds.
The top response went viral: “I work at a grocery store.” The pithy tweet was retweeted almost 7,000 times, and spawned stories in Forbes, The Huffington Post, CNBC, and print publications across the US, UK, and Canada. It even spawned a brilliant piece of mock investigative journalism from Comedy Central.
The tweet was merely the first snowflake in an avalanche of disdain directed towards the article that was widely criticized as being tone-deaf, condescending, and out of touch. Millennials are consistently remarking how they feel left behind in today’s economy, and diamonds aren’t the only major purchase mentioned in the long list of things they are concerned they will never be able to afford. “Buying a home is the No. 1 financial concern of Millennials,” according to an online questionnaire done by the Globe and Mail.
Vancouver has been the well-documented epicentre of the upward trending Canadian housing market. First time buyers are constantly weighing their options; should they get into the market now, or wait and run the risk of being priced out? For years experts have been predicting the inevitable levelling off or dip in Vancouver home prices; yet the Canadian housing market remained strong through the global financial crisis, thanks in part to low borrowing rates, a weak Canadian dollar, and already strong investor interest from Asia. Still today, BC’s housing market continues to grow. In 2015 22.1% of the province’s GDP is tied to residential construction or the real estate industry; and in 2016 housing starts are up 46%.
Due to public input, especially from the under-40 demographic as it looks to get into the market, all levels of government have started to take action to stabilize Vancouver’s upward trending market, which has resulted in a 24% increase in benchmark pricing since 2014, and a near-zero rental vacancy rate within city limits. Vancouver city council recently set the framework for a Vacancy Home Tax of between 0.5% and 2.0%, to be enacted in 2017. In August, the provincial government, though wary of the message it may send to Asia-Pacific business investors, pulled the trigger on a 15% foreign buyer tax on all homes not purchased by a Canadian resident. Premier Christy Clark defended the tax announcing, “We are taking measures to ensure home ownership remains within reach of the middle class.”
Federal Finance Minister Bill Morneau recently closed a tax loophole that allowed foreign investors to avoid capital gains taxes after the sale of a home. The federal government has also introduced stress testing for insured homebuyers on their mortgage. This testing against higher interest rates was done to ensure that, should rates go up, the market would stay stable and people will still be able to afford their mortgage payments.
The immediate effects of these measures were felt. The 15% foreign homeowner tax did work to stabilize the market over the summer; data published by the provincial government September 22 showed the percentage of Vancouver home sales that involved foreign buyers fell from just over 13% between June 10 and August 1 to 0.9% between August 2 and August 31. Just how long this impact will be felt is unknown, and when it comes to predicting their long-term results, experts are less than certain. They say that the real effects of new regulations such as these can take six months to be felt.
RBC Senior Economist Robert Hogue released a report October 12, 2016 saying, “Owning a home at market prices is effectively out of reach for the majority of local households. This is especially the case for a single-detached home, which required an astounding 127% of pretax income most recently. A condo apartment is significantly less onerous at 44%.”
Before making a move into the housing market, we always suggest you reach out to a Realtor for expert advice. But here are a few tips for first time buyers that will help them when they are ready to take the plunge:
1. In today’s market are my “where” and “what” realistic? The first obstacle that most people encounter when entering the market, is expecting to find a large home on a large lot with all the amenities and in their price range. Before walking into an open house, it’s best to think, “What are my expectations?” and ask “Is this realistic in today’s market?”
“It’s very interesting when you see how people in other cities view real estate, compared with here in Vancouver,” says Todd Talbot, a Vancouver Celebrity Realtor. “Here it feels like everyone wants a 33-by-122-foot lot and a back yard, five to ten minutes from downtown. The reality of being able to get that has changed, but many people in the community haven’t fully come to terms with that yet.”
As a local expert, Todd also suggests that location is more important than amenities: “I’d advise first-time buyers to stay as close as possible to the core – wherever that may be – and adjust the space and creature comforts of what they want to buy. That’s my preference over recommending people look further out of town. You don’t need in-suite laundry and granite countertops. I mean, I’m 43 and I only had my first ensuite six months ago – and I’m in the industry and do well for myself!”
2. Set your homeownership goals and think long range. Know how long you plan to live in your home. One of the benefits of living in a central location is that you your property values are likely to go up faster. So do you need a house that will be able to accommodate an expanding family? Do you need a guest room for relatives? Or will a condo be both affordable and the best way to break into the market? Do you plan to pay off your mortgage as aggressively as possible, or do you want to take advantage of a longer payment schedule? If the former, an income generating rental unit may be something to look for.
3. Figure out your down payment strategy. Based on the trajectory of your local housing market, it may make sense to enter the market now with a 10% down payment. Traditional wisdom suggests that one should have 20% down in order to avoid classification as a “high-ratio” mortgage, which requires the purchase of mortgage insurance; but waiting two or three more years to enter the market could adversely affect your mortgage rates and monthly payments. Rob Carrick has a great piece over at the Globe and Mail that goes into greater detail, but for personalized information feel free to use us as a resource. Call our office, or email email@example.com for expert advice on entering the housing market.
4. Track where your money is going. This is the first step towards setting a successful budget that will maximize what you save for your down payment and minimize the time it takes you to get into the market. The best way to start saving is to track your expenses, see where you have room for cost reductions, and estimate how much money you can put away each month for your down payment. Track your expenses by putting everything on credit. It’s much easier monitor monthly expenses by looking at a statement online. If you don’t trust your impulse control, look into a debit account or prepaid card that charges very little in fees. There are also plenty of budgeting apps that are either free or close to that you can download.
5. Automate your savings, and SAVE FIRST! Too often we get tempted and justify small expenses at the start of the month, and find out we don’t have much left over. To counteract behavioural finance, automate your savings with your bank, and get money out of your checking at the beginning of the month. We are less likely to spend money that is in our savings account. So save first and spend the rest!
6. RRSPs or TFSA? If you are looking to enter the market in the next two years, and worry about the volatility of the stock market, you may be deciding between bonds or savings accounts. With one third of government bonds having a negative return, most people are turning to RRSP’s or TFSAs in order to save. If you’re wondering which one to invest in, it’s simple: both! Most people make use of their maximum RRSP contribution, and put their year-end tax deduction straight into a Tax Free Savings Account. Maximize your savings with both of these great savings tools.
With these tools, you’ll be setting yourself up for home ownership. In today’s housing market, a good strategy crafted with expert advice makes all the difference. Anyone who has already bought a home will tell you how important choosing the right Realtor is. If you are looking for more information, or think you are ready to jump into the market, visit garyserra.com, email firstname.lastname@example.org, or call 604-779-3160. We’re always here to help.