Think the foreign buyer tax had an impact on BC real estate? We reviewed the latest numbers from the BC Real Estate Association (BCREA) to see what how the new tax is changing the numbers, and guess what? It didn’t have much impact at all. According to the report the absorption rate reached peak in March 2016 – moving lower since. The foreign buyer tax was abruptly implemented in August 2016 likely so the current administration could claim they cooled the market. In actuality, BC real estate prices have become so high that the market can’t support the increases we’re seeing anymore.
What Is Absorption Rate
Absorption rate is also called the “sales to active listing” ratio. It’s how real estate analysts determine if we’re in a “buyer” or “seller” market. While it sounds complicated, it really isn’t. You look at the number of homes that are available for sale in a month, the percentage that are sold is the absorption rate. If it’s above 21% according to BC CREA, you’re in a seller’s market. If it’s below 14%, you’re in a buyer’s market. Anything in between, and you have a balanced market.
In March 2016 the absorption rate reached a peak of 65%, before dropping a whopping 44% to 36.5% in July. While that’s still a very high, it’s coming down at a very rapid rate to “normal” levels. This begun a full five months before the tax was announced, and 3 months before BC began studying the problem.
Why Did It Peak?
A shortage of inventory has been occurring month over month in Vancouver. While foreign buyers have been scooping up a number of those properties, the largest issue at hand is that people in Vancouver just stopped selling their homes. This is partially due to buyer gridlock, where homes are now so expensive existing homeowners can’t support moving into a new one with local wages. The lack of vibrancy in the economy also has a lot to do with people concentrating to a small area.
The Tax Did Nothing?
The foreign buyer tax was abruptly implemented 2 months into the 6 months of anticipated data collection. While it’s being lauded as a very effective measure, it was really just haphazardly added to an already downtrending market in order to take credit for it. It’s kind of like saying Mike de Jong said tomorrow will be Thursday, and it became Thursday because he said so.
It’s a common move in politics to hitch yourself to movements larger than you can impact, and take credit for them. It just gets harder to do that as data becomes more widely available. Let’s all just hope they do something constructive with that extra tax money.