How to deflate a housing bubble, from Vancouver to Toronto – The Globe and Mail

How to deflate a housing bubble, from Vancouver to Toronto - The Globe and Mail
Nearly $90B in equity wiped off Lower Mainland home values in past year (INFOGRAPHIC)
Home values across Metro Vancouver have taken quite a beating over the past 12 months, cutting much of the equity gained by homeowners during the peak market conditions just a few years ago.

A new analysis released today — commissioned by homeowner advocacy group STEPUP and created by Paul Sullivan, a senior partner at Burgess, Cawley, Sullivan & Associates Ltd., a commercial real estate and property tax appraisal firm — indicates the region saw an estimated $89.2 billion loss in homeowner equity for the period between April 2018 and April 2019.

Real estate markets are complex and no single policy change can be attributed to the loss being felt by homeowners in Metro Vancouver. However, real estate, like most investment types, is impacted by perceived risk. Recent provincial government taxes on housing as well as the new federal stress test rules on mortgages have acted to create uncertainty and perceived risk in the local market, which has stalled new development and reduced many household’s ability to access funds for discretionary spending. This will have a broader negative impact on the economy that has yet to be felt.

Losses within Vancouver, the jurisdiction with the highest number of residences, amounted to $43.6 billion — a nearly 13% drop.

The highest percentage decrease was in West Vancouver, where home values dropped by $7.64 billion or 14.68%.

And what if you haven’t been in your house for decades? Let’s think of a young family in Port Coquitlam who saved to put a 10-per-cent downpayment on a $650,000 condo in 2018. But wait! You have lost 10 per cent in equity since you bought! You are now paying interest on a loan that exceeds the home’s value, with little to no equity to access should unexpected repairs be required.

The average loss per household in Vancouver and West Vancouver is $153,873 and $451,385, respectively. Richmond saw the third highest drop per household, with an average loss value of $95,750.

Our analysis uses sales data to determine an estimated loss of homeowner equity over the past year. It uses assessed values as a base to illustrate an estimate of total residential value prior to the downward market movement indicated by the actual sales transactions reported by the real estate boards of Greater Vancouver and the Fraser Valley.

Port Coquitlams small suburban market also saw a significant decrease of 10.23%, worth over $1.5 billion.

While first-time homebuyers may benefit from the current downturn and the resulting drop in home prices, the analysis makes an argument that longtime homeowners are relying on their equity to fund home renovations, post-secondary education, senior care costs, and retirement. Their homes are usually their largest investment, and they rely on their equity in their home to get through retirement and leave something for their children.

These are not just numbers on paper, nor is it a problem for a few wealthy homeowners being targeted by specific taxes. This rapid loss has a real impact on families in all Metro Vancouver communities. Almost half of those billions in losses are outside Vancouver and West Vancouver.

They believe this loss in equity will result in a devastating impact on the economy and jobs, citing a recent BC Real Estate Analysis that estimates a 10% equity loss equals to 26,000 jobs lost, a $1.8 billion reduction in retail sales, and lost tax revenues.

A senior in Delta, for example, on a fixed monthly income facing a $67,000 loss in equity in one year faces much greater uncertainty about their future. Can they stay in their home? Can they afford the prescriptions and health care that they need?

The provincial governments interventions, in particular, to use the housing market to generate revenue to fund its programs have been deemed as the culprit for the losses.

While the governments goal may indeed be to bottom out the housing market in an attempt to somehow address the complex issue of affordability, they are simply removing billions of dollars from the BC economy, to everyones detriment, said Sullivan.

Today, at an event hosted by STEPUP, I released analysis that shows nearly $90 billion of estimated losses in homeowner equity across Metro Vancouver, largely driven by new federal and provincial government policies and taxes on homes.

This provincial government suggests you dont deserve to have that real estate wealth and should pay even more, on top of rising income taxes, the highest gas prices in North America and ballooning ICBC and utility fee increases.

Across the region, the grand total is a whopping $89.2 billion in lost equity. Percentage decreases range from a 4.76-per-cent drop in Pitt Meadows, to a 14.76-per-cent decrease in West Vancouver — the hardest hit municipality.

The school tax surcharge, one of several new housing tax measures, for homes assessed at over $3 million will result in an average 35% increase across Vancouver, even though many of those home have seen their assessments drop since the BC NDP gained power.

Most of the time, home ownership is a worthy investment. Values change from year to year but generally increase over time, providing equity and hopefully some financial security for tough times and retirement.

We have been taxed out of our home, said Point Grey resident Ric Pow, in the report. My wife and I are life-long residents of Vancouver, and have owned and lived in Point Grey for 33 years. We have been careful with our retirement funds, and own our home mortgage-free, which has been a cornerstone of our retirement plan.

Our home, along with most others in David Ebys riding, has lost 25% of its value since the NDP took power, continued Pow. We have been forced to defer the unaffordable taxes, and are now in debt to the city and province because of the fiscal policies of the NDP. This will have a serious impact on our financial well-being during retirement years.

“It’s challenging to attribute price declines in British Columbia to a single cause,” says Davidoff. “We have a foreign buyer tax that was put in a few years ago and then enhanced in 2018. We have the speculation tax, we have the empty homes tax in Vancouver, we have the tax on $3-million-plus homes. So there’s been a lot of demand measures, it’s true. On the other hand, we’re starting to see condo supply come online and we’ve got the [mortgage] stress test federally and real estate markets are generally cyclical.

Here is a full market breakdown of the equity loss across Metro Vancouver from April 2018 to April 2019:

Because real estate tends to go up and down like any other asset, Salcito doesn’t factor in changes in home value on an annual basis when doing retirement planning or reviews with her clients, preferring to look at that number every two years. She acknowledges the shock value of this report’s $89-billion figure, but suggests many people were equally or even more alarmed about the rapid escalation we saw before this dip.

New analysis commissioned by a group that has protested the school and speculation tax is painting a new picture of Metro Vancouvers weakening real estate market.

According to numbers released by a group called "STEPUP Now" — which says it is a non-partisan, not-for-profit society that opposes political parties that divide and weaken communities  — Metro Vancouver properties have lost an on-paper value of nearly $90 billion.

METRO VANCOUVER (NEWS 1130) – To read a new report from commercial real estate and property tax appraisal firm Burgess Cawley Sullivan and Associates indicating Metro Vancouver homeowners have lost a combined $89-billion in home equity over the past year, you’d come away from it with many concerns.

The data was compiled by Paul Sullivan, a senior partner at Burgess, Cawley, Sullivan and Associates Ltd., who specializes in commercial real estate and property tax appraisal.

“That $89-billion number, they just love to throw that out there and scare people,” says Salcito. “But in actual fact, I think we were all pretty scared at the rising rate of values going on — because people realized, oh my goodness, how am I going to keep up with this, right?”

West Vancouver and Vancouver saw the biggest dips of market value at 14.68 per cent and 13 per cent respectively.

“After a lot of up years, we may have been due a bad year anyway. It’s quite challenging to attribute the price declines to any one cause. I will say, the start of price declines in the middle of 2018 is consistent with a strong role for the provincial measures [in this decline].”

Vancouvers losses, according to the data, equates to losses of $43.68 billion with a home losing $153,873 in value.

There’s no doubt that if you bought at the peak of the real estate market in 2016, and were immediately looking to sell in the coming years, to fund retirement for example, you’d be in a tough spot, and there’s a good chance you’d lose money on the sale of that property.

"While the governments goal may indeed be to bottom out the housing market in an attempt to somehow address the complex issue of affordability, they are simply removing billions of dollars from the B.C. economy, to everyones detriment," said Sullivan in a release from STEPUP.

The group has organized a protest outside Attorney General David Ebys riding office Tuesday night during an open house.

Its not the first time the group has targeted Eby. It has staged similar protests before, organizing a rally outside a talk by Eby at the Vancouver Club in March to protest the speculation and school taxes.

It’s important to keep in mind the drop off over the last year has come after many years of exponential increases in real estate values, in the view of wealth advisor Sophie Salcito with Vancity credit union.

But the data highlighting the loss in value come as Metro Vancouvers one booming real estate market slows down.

The Real Estate Board of Greater Vancouver said there were 1,829 sales in April, which is a whopping 43 per cent below the 10-year sales average for April.

A real estate sign is pictured in Vancouver, B.C., Tuesday, June, 12, 2018. THE CANADIAN PRESS / Jonathan Hayward

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