BC developers not prepared for extended housing downturn
Josh Sherman
other
Some BC developers aren’t prepared for an extended Vancouver housing downturn, and that’s creating increased risk for the market, a local realtor and industry commentator warns.
“I think the 2008 financial crisis in Canada created a false safety net,” realtor Steve Saretsky, also the creator of the popular Vancity Condo Guide website, tells Livabl.
Over eight months in 2008, Saretsky estimates home prices dropped 12–15 percent. While that was a sharp and sudden decline, it pales in comparison to what unfolded stateside, where American homebuilders, and the national market at large, struggled to regain their footing throughout the following decade.
“If that’s the worst-case scenario,” says Saretsky of the Great Recession, “what could possibly derail Vancouver?”
Roughly 20 years of home price growth might have some developers missing red flags. Perhaps they’ve forgotten about the late-’80s bubble and subsequent ’90s stagnation or simply were not active in the industry at the time.
Troubling signs include high levels of construction — a record number of condos were under construction in 2018 — at a time when sales activity and prices are depressed.
In March, condo sales plunged 35.3 percent from the same month last year, while prices were down 5.9 percent over the same period.
Of course, unlike in 2008, uninsured mortgage borrowers face tougher lending rules today. In January 2018, stress testing was extended to the uninsured-mortgage segment, meaning borrowers with downpayments of 20 percent or more now need to qualify at a rate that is 200 basis points higher than what is on their contract.
The British Columbia Real Estate Association has blamed the stress tests for weakened sales activity across the province.
To drum up sales in a more challenging environment, Lower Mainland developers are offering incentives. Discounts at projects currently selling include a 10-percent discount on units and $10,000 in upgrades, according to MLA Advisory, the research branch of MLA Canada, a condo-marketing firm.
And there are signs that developers are stalling on launching approved projects because they haven’t been able to sell existing inventory. In the first quarter this year, Lower Mainland developers brought 2,950 pre-sale units to market, representing a 40-percent decline observed during the same three months last year, according to MLA.
“I think there’s going to be a lot more [condo project] cancellations,” Saretsky predicts.
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