As is typical in all housing corrections, luxury properties are the first on the chopping block while also suffering the steepest of price discounts. This is ultimately the result of a much smaller buyer pool that, when it shrinks, creates liquidity constraints. As the housing cycle turns, and liquidity dries up the luxury market becomes extremely prone to volatility and wild price gyrations. As a result, bank credit also seizes up, further hampering liquidity when it is most needed.
It appears this phenomenon is playing out in the Greater Vancouver housing market. With global growth slowing, and Chinese capital controls becoming even more severe, luxury home sales have ground to a halt. Add in an increased foreign buyer tax which has been bumped to 20% of the purchase price, a confiscatory annual speculation tax of 2% which targets real estate holders who earn an income outside of BC, and an added annual “school tax” of 0.2% for homes assessed between $3 million and $4 million (a 0.4% tax rate on the portion above $4 million) and it becomes increasingly more evident of the deepening sorrows in the luxury housing market.
Greater Vancouver home sales of $3M and above fell 45% year-over-year in January. It was the fewest luxury home sales for the month of January since 2013, a time when there were much fewer homes in that price bracket.
Meanwhile, $3M plus inventory continues to pile up, despite home prices in this segment plunging.
As of today, there is 41 months of inventory for sale, a sharp rise from the 4 months of inventory recorded during the housing mania just three years ago.
With a log jam of inventory at the high end and increased taxation just being rolled out for 2019, the luxury housing market remains in the cross hairs of an angry mob of price sensitive buyers.
