A new report from Royal LePage is calling for an 8.5 per cent depreciation of home prices in Greater Vancouver in 2017.
Despite a 25.6 per cent year-over-year increase in aggregate home prices in the fourth quarter of 2016, the real estate firm expects prices to drop as a result of "eroded affordability" and "bruised consumer confidence."
"It is expected that Greater Vancouver will experience a near double-digit correction in the new year, as sanity returns to the marketplace, causing the region to give back much of the appreciation witnessed in the first half of 2016," said Royal LePage general manager Randy Ryalls in a release.
Becoming a buyer's market
Royal LePage says that, despite new government policies such as the foreign buyer tax, the main factor affecting house prices in the region is a lack of affordable inventory.
"Market characteristics have melded to create a perfect storm where prospective homeowners are unable to find adequate affordable property due to an extreme lack of supply, and have thus refrained from putting their own homes on the market," the report reads.
In other words, the report says, the region is slowly shifting from a seller's market to a buyer's market.
Though the report identifies inventory as the main driver of the predicted depreciation, Royal LePage also expects foreign investment in Vancouver real estate to decrease as a result of both the foreign buyer tax and stricter currency conversion rules in China.
Markets vary wildly across the country
The report notes that conditions are very different elsewhere in Canada.
"The disparity in home price appreciation between Canadian regions has never been greater than that seen in 2016, with rates ranging from double-digit extremes in some cities to negative growth in others," said Royal LePage president and CEO Phil Soper in a release.
The report notes that prices are rising steadily in the Greater Toronto Area, as well as Quebec, Alberta and Atlantic Canada, and the report expects those trends to continue.
The report says the differing markets make it hard for policymakers to address issues with sweeping regulation changes.
In a release, Soper spoke critically about various governments' attempts to address the situation through taxes and regulations rather than addressing the low supply.
"Too many new taxes and regulations, by too many levels of government, introduced within such a short timeline and with perceivably little research and consultation, have caused confusion and triggered drops in consumer confidence," Soper said.