During the spring market of 2022, the government has announced radical changes will be introduced into our real estate market. The most impactful is a seven-day rescission period. The pending change creates the ability for a buyer with an accepted offer to change their mind within 7 days of the offer being accepted. Not because a subject condition on the contract was not met, any rhyme or reason will suffice. The pending statute law will remove the previous common law of best efforts from every buyer in every real estate transaction moving forward. Not only will there be a whim and fancy clause, but the new rules will have an undesired effect of enabling buyers to enter into a contract to purchase on multiple properties, thus exacerbating the already abysmal supply issue.

Delving into the issue of whether the real estate markets need to be cooled. The REBGV (Real Estate Board of Greater Vancouver) detached average sales price has increased 29% since July 2020, however the market has only increased 13.6% since the January 2016 price point of $1.817M. During October the detached market was able to surpass the $2M price point for the first time, after spending 7 months inside of a $70,000 price channel. The average price flirted with breaking the upper echelon of the prolonged uptrend, however with the historically low inventory created a scenario where values had no choice but to surpass the $2M barrier, finishing October with an average sale price of $2.064M

As Eitel Insights has stated many times over the years, not all areas are created equal. This is showcased by the varying degrees of market increases and decreases compared to their previous market highs. Historically lagging markets became market leaders, and historical market leaders turned into laggers. Exemplified by areas such as Maple Ridge, Port Coquitlam, Squamish, and Sunshine Coast all increasing over 30% higher compared to the previous peaks. In contrast areas such as Vancouver West and West Vancouver are still down double digits compared to their individual previous peaks. In total 12 out of the 20 areas which comprise REBGV average sale price points have not exceeded a 10% increase compared to their individual highs from 2016 - 2018.

An area where the market has increased dramatically is the FVREB (Fraser Valley Real Estate Board) in which the average sales price has increased by 38% since the previous high in April 2018 of $1.138M to $1.577M in October 2021. All of the 38% increase has occurred since July 2020, due to the work from home movement which is not a reoccurring market factor but rather a pandemic born influence.

The areas that had the lowest price of entry have increased the most during the Covid market. The knee-jerk reaction of the government to step in and unilaterally create imposing measures on every seller will ultimately have an undesired affect. The already low level of 3,525 active listing in REBGV and 1,795 in FVREB during October 2021, is the lowest October data point on the charts. The ability of nefarious buyers to tie up properties will inevitably lead to more government interference of an otherwise free market due to the fact they will need more rules to counteract the rules they are about to put in place. With the potential for buyers to tie up multiple properties on any given weekend, and the ability to request price reductions at the 11th hour of day number 6 of rescission, it will not take long before the sellers begin to voice their displeasure of the unbalanced rules.

The Greater Vancouver Condo Market still sits -1% below the January 2018 high of $751,632. While values have increased just 10% from July 2020. The current values in 13 out of the 19 markets are still below their individual previous peak values.

Rescission period measures have been in the presale condo market for years now, but to compare a presale building with months of advertising before their multiple units are for sale in addition to the numerous interested investors and homebuyers is not comparable to a resale condo or detached property single properties.

In the presale market, it is commonplace for the purchaser to place multiple non-refundable deposits in order to hold the property until possession is ready. Another undesired affect of the upcoming rule changes will be as the seller does not have the ability to receive a subject free, firm and binding contract. Sellers will begin to only accept offers that come in with a non-refundable deposit, which does not form part of the purchase price. Governments are supposed to look at the best interest of all groups, not just one side of the market, in this instance, the buyers. This will force the sellers to begin to look after their own interests which will create an even more combative market environment.

Past government roadblocks to increasing prices, such as the Foreign buyer's tax, did have an immediate albeit short-lived impact. Case in point, from July to August 2016 values decreased by $245,000 month over month. After the initial impact, values returned to hit their previous all-time high during May 2017. The government saw foreign buyers as being the detrimental force for housing affordability. That ultimately sent foreign buyers to purchase Canadian companies which had real estate holdings, or created bare trusts with their Canadian family members. According to BCREA, the foreign buyers were only 0.56% of the overall purchasers during 2020, yet prices rose with gusto.

Fast forward to the throws of the Covid 19 pandemic and the mortgage market had many prospective buyers looking to take advantage of the lowering interest rates. That led to the Bank of Canada stepping in and creating a Mortgage bond purchasing program to alleviate the secondary mortgage market to the tune of $8.3 Billion, thus enabling the secondary market to purchase the primary mortgages from the national banks. The government continually flip flops from imposing measures to enable affordability but then flip to protecting current homeowners.

A free market will go through natural highs and natural lows derived from true market factors. The environment we find ourselves in now is, the continuation of contrived markets. Rather than meddling with market factors, one notion is to help create the missing middle asset class. If local cities and municipalities were to allow for more townhouses, duplex or Vancouver special property development, the market would cool on its own volition due to the increase of choices. With Greater Vancouver predominantly spread between detached and condo properties the desire for housing to accommodate a growing family forces buyers, into the detached market that much quicker without the ability to go from condo to townhome or duplex and ultimately into the highly desired detached market.

Greater Vancouver detached properties fails in the latest attempt to surpass the two million price barrier. Even as prices reach their highest point in history of $1.982M during June, the average sale price is barely above the aggressive uptrend. The pending break to the uptrend will result in a market reversal and the reemergence of price volatility. In addition to the pending trend reversal, the sales totals have greatly diminished from their recent all time highs experienced in March. 

Another abating factor to future price increase is the rising inventory levels as homeowners look to reap the benefits of the sudden 24% increase to the average sales price over the past 12 months. Typically as home values increase, so do the listings. 

As the current uptrend comes to a likely end, home values will begin to consolidate their recent gains. The obvious question becomes how low will values go? Eitel Insights anticipates a tepid 8% - 10% correction to occur. That implies values to peak around the $2M barrier and will backtrack to $1.830M the previous market peak. There is a possibility that values take a sharper downturn, as the market did not accrue the $363,000 year over year increase based on natural market behaviour. Instead values were artificially boosted by historically low interest rates, the BoC bailing out the secondary mortgage market which in turn supported the banks and CMHC. This allowed the banks to offer mortgages to the sudden monumental spike of demand for detached properties born out of the pandemic. Should the average sales price break back into the previous market cycle below $1.830M, values would very likely find their bottom around $1.725M (-13%). 

Even though average sale prices increased out of “unnatural” market factors, there is no mandate that says values will come back to their “rightful” values, if there is such a thing. Instead of values tumbling back to affordable prices, home sale prices are likely to take a temporary pause before the next major push higher. As evidenced by the last sudden 22% increase during June 2013 ($1.120M) to February 2014 ($1.367M). The rapid uptrend was unable to sustain itself for a prolonged period of time. After values peaked in Feb 2014, there was a correction of 13% by July 2014 ($1.184M), and home values did not surpass the 2014 price peak until the following February ($1.402M). While the 2014 break out was a false break, the following year of a market consolidation was the last opportunity to purchase before another major increase to $1.816M in January 2016. The resulting growth phase from July 2014 ($1.184M) to January 2016 was a substantial 53% increase . 

Similarly, Eitel Insights anticipates a major price injection after the pending market lull. A market driven growth phase typically ranges from 40 - 56% price increase over the past 16 years. The conservative side of the range implies values could reach as high as $2.8M (41% increase) during the next growth cycle. The next growth cycle is likely to occur as immigration returns in a big way, including international investors. Rising interest rates will spur on another phase of FOMO as interest rates increase, the buyers will be eager to purchase before further escalation occurs. 

The reopening of interprovincial travel, and the lifting of covid restrictions undoubtedly had a negative effect on total inventory during June. June’s 4,781 active listings signalled the first decline since December 2020 with only 2,762 active listings, the lowest total on the chart. Equally important the current level of active listings is similar to the August 2020 peak inventory of 4,823.

Inventory levels have historically peaked during the summer months, however over the several years the trend has been for inventory to peak during August or September. This is likely to be the case for 2021, as potential sellers list with eyes towards selling their properties at peak values.

Sales have fallen back from their near term highs of 1,973 during March 2021, June finished with 1,272 completions. Well above the preceding three year sales channel of sub 950 sales in every month (2017 - 2020). With sales returning inside of the historical sales channel, the data will likely find support thanks to the upturned in the near term, as inventory levels have evolved to peak later in the year, so has the sales yearly peaks. As the inventory rises during the last summer and early fall, sales will likely take another leg higher, before dropping below the current uptrend during winter. 

The supply demand metrics continued to narrow from the extreme demand driven market during March 2021. Demand has shrunk from a 2.296 level to 0.528 while the supply has risen from -1.357 to -0.680. Resulting in the demand driven gap to decrease 56% from 3.653 in March to 1.208 in June 2021. 

The perfect storm of historically low inventory coupled with immediate demand for larger accommodations and ultra low interest rates is beginning to fade from the current market behaviour. Consecutive months of record setting new listings data has the inventory levels on the rise. Resulting in home values which had been exponentially increasing is beginning to slow.

Active listings have risen over 46% in the past two months. From the total inventory of 3,126 in February 2021 to 4,588 during April 2021. The sudden rise of inventory has led to a break of the initial downtrend (red trendline). As the available properties continues to rise throughout the spring and into summer months prices will likely begin to move sideways. Eitel Insights looks for the inventory to challenge the next downtrend (yellow trendline) which implies inventory rising to 5,700 during the peak months of 2021. 

Home values did increase once more but the average price was only able to increase by $14,000, the lowest price increase since May of 2020. Home prices during May 2020 were averaging $1.586M, by March 2021 the average price had increased to $1.958M. That increase implies an average growth of $37,200 each month over the previous 10 months. The nominal price increase of $14,000 from March 2021 to April 2021 rose the average price for a home inside of Greater Vancouver to $1.972M, just shy of the illustrious $2 million price bracket.

Evidence of the average sales potentially reaching the near term highs is the data that comes from the advancing declining stats. When comparing the individual 20 areas which make up Greater Vancouver. Using a month over month comparison the past month of April realized 9 areas inside of Greater Vancouver where the average price increased, but had 11 areas declined. That marks the first instance, over the past year, where the declining areas outnumbered the advancing.

As home values begin to reach their apex of the growth phase, the inevitable ebb to the recent markets flow, will result from the rising inventory environment coupled with stricter lending policies and an interest rate that is no longer at historically low levels. The natural barrier of $2M for the average home in Greater Vancouver will likely hold as a new artificial ceiling.

The possibility of a 8-10% correction after the peak occurs is realistic. That would imply a retests the previous market cycle high of $1.830M. To expect prices to correct below the previous channel is an unlikely outcome. More likely is an evolution out of the growth trend which increased home values over $386,000 to a period of sideways action, as price discovery confirms the previous technical break out.

Clients and followers of Eitel Insights analytics will remember our initial published article in 2017 using technical indicators to call the top of the Greater Vancouver housing market. Subsequently the home sale prices corrected 20% during 2019. The upcoming sideways action will not likely result in a major correction as the last cycle offered. Reason being the Bank of Canada created the artificial floor to home values when they instigated the the Canadian Mortgage Bond Purchasing Program in 2020. (See past article for details regarding the CMBP)

Sales continued at a high pace during April with 1,667 completed transactions occurring. Over the past two months the sales achieved over 3,600 deals. That many transactions in a two month period has only occurred during 2015 and 2016 frenzied market conditions. Key thing to remember all good things come to an end. Homeowners looking to capitalize on the high priced environment may want to list sharply. As the inventory continues to build some of the exploitative tactics that are working for sellers may be coming to an end. 

Yet another record month for the Greater Vancouver housing market. The average cost to purchase a detached property inside of REBGV increased by $89,000. Bringing the average to $1.958M. This was aided by the continued high sales totalling 1,973. Accumulating the second largest sale total in the history of Greater Vancouver real estate. In attempts to capture the newly minted growth phase in home prices, sellers came to the market in droves. Setting the new record with 3,368 newly listed detached properties in March. The record amount of activity to kick off the spring market is likely to continue as March through May are typically the busiest months of the year.

Home sale prices continued their escalation beyond the previous market cycle. Amazingly, another $89,000 was added to the average sales price from the previous month. The new record price of $1.958M represents a 7% gain over a two month span. The 7% growth is the first increase above the previous market cycle which had held home values range bound for 5 years.

The biggest gainers this past month were Pitt Meadows up an incredible $233,000 month over month, representing an astonishing 20% increase. The average property in Pitt Meadows is selling for $1.44M. Vancouver West rose $500,000 up 14%, bringing the average price to $4.025M. The standout of the gainers over the past two months is Whistler. This past month over $600,000 was added to the average price. Couple that with the $900,000 increase from the month previous, and Whistler has increased over $1.5M in just the past two months. The recent spike in value has increased the averages price to over $4.325M for a detached property in Whistler. The massive increases to these areas have aided the REBGV average price to gain distance between the price point and the aggressive uptrend instigated during July 2020. 

Breaking beyond the 5 year price boundary has been clearly aided by the supply demand imbalance. March 2021 just recorded the second largest imbalance between the two market metrics on record. The total gap between the supply versus demand during March was 3.6. Falling just 2 basis points below the all time high which occurred during March 2016 with a 3.8 gap. Interestingly, previous to the past month the second largest discrepancy occurred during April 2016. This implies buyers are unlikely to receive any reprieve in the short term. 

As forecasted over the previous months, sellers are entering the market with full force. A record setting total of over 3,300 properties were listed in last month. March 2021 represents only the 4th instance where new listings accumulated over 3,000 in a single month. Should the high new listings count continue to rise through spring and into the summer months, home values will likely realize a near term price peak during the summer.

Even with a record amount of new listings, the total inventory continues to remain in the doldrums of the chart. A glimmer of hope would be the total inventory of 3,886 is attempting to break out of the 3 year immediate downtrend (Red trend line). Established during June 2019 when there was over 6,700 active listings. The enormity of new listings only resulted in a net of 880 total active listings compared to the previous month. However should inventory continue to grow a the 29% as was the case in March. The key figure of 5,700 active listings is well within reach by the late summer, or early fall. 

Sales fell just short in completing a trifecta of records during March. The 1,973 sales were only 177 shy from the all time high achieved during March 2016 of 2,150 sales. With the abundance of new listings coming to market, the buyers snatched up the choice properties, and continued in the bidding war mentality which pushed the average sales price to over 101% of the asking price. This is only the 9th instance in which sales price was over 100% of the asking. Of those previous 8 instances they all occurred between December 2015 - July 2016. Implying the next several months of data could result in a continuation of the sales prices being higher than the asking prices.

Importantly, all subsections of the market are now selling. Over the past year the entry level homes have been selling at a frenzied pace, that has worked all the way up to the luxury market. March realized 49 properties that sold over $5M. The 49 sales is an increase of 250% compared to the preceding 3 year average of 14 sales per month. The prices of the luxury market is still not quite back to the peak conditions of 2017. As the averages sales price was $8.6M. However the average sales price in March of $7.6M, is up over $1.6M from the low recorded in May 2020 of $6M. 

For the first time in 5 years the two heavyweights of the Canadian housing market have broken above their previous peaks. Both real estate market values are now in uncharted territory, implying a new growth cycle is in its infancy.  The new highs created in February were $1.869M in Greater Vancouver & $1.684M in Toronto. For the home values to remain in growth territory it is likely that prices will stay in close contact with their uptrends which have supported prices to their current lofty levels. 

However in Greater Vancouver the supportive uptrend is close to perpendicular. Such aggressive trends are challenged to hold in place for very long. Implying the recent $267,000 price increase over the 7 months is not a sustainable growth pattern. In the City of Toronto values have risen well above the long term uptrend which instigated during the creation of their market cycle low. In the past 3 months alone home values have shot up a dramatic $208,000 according to the average sales price, which is again a nearly impossible trend to persist for any length of time. 

What spurred on the torrid price increase, in the middle of a pandemic? The instant increased demand for a larger building footprint was very apparent. More importantly but less obvious was the banks ability to issue new mortgages to the increased applicants. This was enabled due to the Mortgage Bond purchasing Program (CMBP) introduced by the Bank of Canada (BoC) beginning in March 2020. The Bond purchasing Program enabled the BoC to purchase up to $500 Million in secondary Mortgage Bonds per week. By July there had been over $6.2 Billion of mortgage bonds bought on the secondary market. 

The Bank of Canada routinely purchases Mortgage Bonds to balance there assets. However they historically have solely bought Mortgage Bonds on the Primary market. The creation of CMBP was so the BoC could purchase on the secondary (resale) market.

Why did the Bank of Canada step in and purchase on the resale market for the first time? Simple answer is, no one else would. That would have left the secondary market dealers with their hand full of existing mortgages on their balance sheets, in turn the banks books would have remained full. That would have led to much tighter mortgage funds available, during the influx in applications. The Bank of Canada jumped to action and “supported normalized markets”. The odd thing is, the amount of funds offered to the mortgage market during the pandemic compared to the governments relief to other sectors. The amount of secondary Canadian Mortgage Bonds purchased was two times larger than the Canadian government COVID 19 support for individual sectors. For comparison sake, $8 Billion to support the mortgage market but the entire Air Transit Sector received $331Million.

The guarantee that the Bank of Canada was going to “support normalized market functions” to the tune of $500M per week, during a abnormal period of time, created a no fear environment for both the secondary mortgage market dealers and the major Canadian banks.. The banks newly found confidence, coupled with historically low interest rates created the environment for recent insane price increases of $267,000 in Vancouver and $247,000 in Toronto over the course of just several months. Even as homes values were increasing $100,000 or even $200,000 over the most recent comparable, mortgages were approved with ease. The Canadian Bond Mortgage purchasing Program came to its conclusion during October 2020 after expending over $8 Billion. 

As the potential free fall of the mortgage bonds was not allowed to take place, an artificial floor was created by the BoC. The creation of the bond market floor encouraged other investors to step to the plate since the entire Bank of Canada would essentially need to collapse in order for the mortgage bond resale market could go any lower. Akin to the 08-09 recession when the US Federal Reserve said that some banks will not fail, as they did with Bank of America, the stock was in free fall until that announcement.  Similarly when the secondary mortgage market was positioning for further losses, the Bank of Canada said real estate will not fail.

It wasn’t as if home values were down immensely already and could not withstand further losses. The Greater Vancouver housing market was around $1.6M (-12% from peak) during January - July 2020. The market cycle low already been established during early 2019 when home values had dropped to $1.486M (-20%) from the 2017 peak value of $1.830M. Without the 8 Billion influx, the market would have found it near impossible to have achieved the current values. 

Similarly in the City of Toronto, the average home is selling for the $1.684M. That is up $247,250 when compared to the initial 6 month average of 2020. As with Greater Vancouver the City of Toronto had already found its market cycle bottom of $1.145M during December 2018, implying a drop of -27% from the peak which had occurred during April 2017 at $1.578M.

The goal of the Bank of Canada with the creation of the CMBP was to offer support in order to normalize market functions across Canada. The goal was not to create frenzied environment, but since Greater Vancouver and Toronto housing market have a tendency to be frenzied with frequency, and both market had been stagnant for over 4 years. By enabling the bidding war environment to return; is, in some weird way, supporting a return to normalized markets in the two major Canadian real estate markets.

Topic: Vancouver’s real estate market remains hotter than ever.

For more insight we talk to Dane Eitel, Founder and Lead Analyst at Eitel Insights

Host: Lynda Steele, the Lynda Steele Show

Link to Interview: https://omny.fm/shows/steele-drex/the-incessantly-hot-real-estate-market-in-vancouve

Vancouver's real estate market remains hotter than ever. For more insight we talk to Dane Eitel, Founder and Lead Analyst at Eitel Insights

“Owners looking to downsize have an amazing opportunity right now,” said Dane Eitel, lead analyst at Eitel Insights, which tracks the residential market. “This is the first instance in four years where the price of an average detached house has reached over two and a half times the value of the average condo.

“For an example, a [mortgage-free] owner of a Vancouver East house could sell their property for on average for $1.82 Million. The average one-bedroom condo in the West End is selling for $533,694. That implies the sale of a single detached house would enable you to buy three one-bedroom condos in the West End,” he explained.

Eitel estimates that the average price of a West End condo is now down 21 per cent from peak price in the neighbourhood, set in June 2018.

Written by: WI Staff, Western Investor

Link to full article: https://www.westerninvestor.com/news/british-columbia/early-february-numbers-show-condo-buyers-back-1.24282890

— One-bedroom condo on Pacific Avenue, West End, recently listed at $523,000. REW.ca/Oakwyn Realty

You might be ready to buy, but good luck finding anything available on the real estate market right now.  Record low supply has resulted in prices reaching higher than anticipated, but how much longer can this continue?

Guest: Dane Eitel, Founder and Lead Analyst at Eitel Insights.

Host: Simi Sara, Mornings with Simi CKNW 980

Link to full interview: https://omny.fm/shows/the-simi-sara-show/prices-surge-as-market-supply-low

Detached properties across Greater Vancouver have risen over 14% in the past 12 months. January began 2021 with an average sales price of $1.814 Million. Just 1% below the historical high of $1.830 achieved during May 2017. 

Technically speaking the 14% increase uplifted values from the middle threshold to the peak. During 2016 - 2017 multiple attempts to increase home values beyond 1.830M had failed. Can the current market conditions hold tight to surpass the our previous highs? Possibly, but very little room for error. Inventory would have to remain at abysmal levels, interest rates remain around 1%, stimulus needs to keep flowing and the sales totals have to remain or improve. Any wavering of inventory, interests rates, stimulus, or sales and the market could reverse the current trajectory.

For comparison sake you will notice in the chart below the dramatic difference between the supply and demand metrics of 2016-2017 and todays market environment. 

Other analysts tout the how strong the demand was during 2020. The supply & demand chart does not corroborate their claims. The less than average sales totals was enough to completely overwhelm the anemic inventory.

During the initial market peak during 2016, sales which translates into demand, were through the roof and recorded a 2.805 data point while the supply was worn down to a -1.160 data point. The supply demand spread during 2016 was an impressive 3.965. During January 2021, the demand data point comes in at -0.7625 and the supply sits at -2.088. resulting in a 1.827 spread between the two market metrics. This leads to a straw which broke the camels back scenario, if the inventory returns, it is unlikely the demand will be able to continue to out pace the supply, which would have a deleterious effect on sale prices. 

As a result of the increase to the average home sales price, sellers could return with gusto during 2021. With multiple offers prevalent again, owners who put selling their property on the back burner during 2020 will likely revisit the notion of listing. Owners looking to downsize have an amazing opportunity as the average detached home now sells for over 2.5 times more than the average condo. This is the first instance in 4 years where the divergence of the average detached property has reached over two and a half times the value of the average condo.

For an example longtime owner of a Vancouver East home, can sell their property on average for $1.827 Million. The average 1 bedroom condo in West End is selling for $533,694. That implies the sale of a single detached property would enable you to buy 3.4 West End 1 bedroom condos. 

What makes this example intriguing is if one chose to downsize they would be selling their East Vancouver home at the peak of the Vancouver East market’s cycle. The purchase of the West End condo is currently selling at a 21% discount compared to West End market cycle peak prices. The 21% discount on each 1 Bedroom condo is akin to savings of $140,000 per purchase resulting in over $420,000 savings on the 3 condo properties. The $140,000 savings per purchase is nice but also the timing of the Vancouver East property would net you over $250,000 additional proceeds compared to January 2020. Add it all up and one could have netted $670,000 in gains, through selling at market peaks and purchasing during the market lows. 

Just one example of the many opportunities that exist for home owners looking to downsize. Get in touch with Eitel Insights for your individual actionable intelligence market analysis. 

Inventory through January broke above 3000, which is the lowest data point on record. 2020 finished the year down 28% below the yearly historical precedent. January 2021 begin the year with 37% less inventory compared to 16 preceding January data points. That said the aggressive downtrend (red line) which began in 2019 will likely be broken during 2021. If inventory can amass another 1000 active listings to break the 4000 level in the next few months, the market could become very interesting by the summer. 

Sales dipped back into the sales channel that held the market during 2017- 2019. The January sales were 751, the highest total since 2016 when sales totalled 1,049. Compared to the preceding January average sales began the year up 19%. 

Individual markets vary, contact Eitel Insights to gain actionable intelligence about your neighbourhood. 

2020, the year of Covid-19 resulted in some eye popping data. Historical anomalies were common place. Real estate seasonality was replaced with varying degrees of lockdowns. 

Greater Vancouver property values were on divergent tracks through 2020. Detached property values are just 3% below their historical high ($1.830 May 2017). Conversely, Condo values are just 3% above their cycle lows ($643,471 June 2019). Main proponent to the contrasting trends… Inventory. 

Price volatility was apparent in both markets. The Greater Vancouver average home sold for $1.710 million in February, values dropped to $1.586 million in May and finished the year at $1.770 million. The December sales price implies the market has gained 11% from the May 2020 low. All in all home values have reclaimed much of their losses from the preceding two years and now sit just 3% below the historical market high of $1.830 million. 

The condo market average sales price had multiple swings as well. Condo’s were selling for $699,099 during March, values dropped to $661,739 during April. Values temporarily recovered from the losses and were able to achieve a $698,996 sales price during September. Ultimately the values dove lower and created the low of the year during November with prices down to $657,030. Values finished the year with an 12% loss compared to the historical high of $751,632 during January 2018.

Much was made about sale totals during 2020, the data was greatly effected by the spring market being pushed into summer and summer into fall. If demand was a driving force behind the price changes for 2020 you would expect the condo market to be out performing the detached market. 

The condo market yearly sales totals were only down 6% from their preceding 15 years of data. Conversely the detached yearly sales were down 15% over the same time period. 

The condo asset class was able to achieve 14,003 sales in 2020 down just 3% the 2005 - 2019 average of 14,471. Being able to achieve an average monthly sales total of 1,205 was impressive considering April was only able to achieve 508 condo sales. 

As stated the detached yearly sales totals fell over 15% from the historical average. 2005 - 2019 yearly average sales total was 12,748. 2020 was only able accomplish 10,832. That breaks down to roughly 160 less properties sold each month during 2020. 

So why did detached values go higher while condo values dropped? The sales totals implied demand was closer to historical norms in the condo asset class while the detached sales were off by a wide margin. 

The answer is simply available supply levels. 

The 2020 detached housing market experienced the lowest total yearly active listings (50,225)  the lowest monthly peak of available properties (4,823 September) and the lowest monthly low (2,762 December)All historical anomalies compared to the preceding 15 years of data. 

The historical lack of supply drove home values higher across Greater Vancouver. Inventory during April of both market was a low point given historical norms, due to the initial wave of lockdowns. From April until September the detached market inventory increased by a disappointing  20%. The condo market inventory increased by a dramatic 58% over the same period of time. 

The condo data on the other hand experienced the high level total yearly active listings (58,543), monthly peak (6,279 September), and higher low (4,124 December) All data points are higher than the preceding 5 years.

The massive divergence between the two inventory levels impacted how the supply demand metrics exemplified themselves throughout 2020. The historical low amount of detached inventory during 2020 of 50,225, created the illusion that 10,832 sales were herculean as opposed to the insignificant total it truly was. 

By achieving near average inventory levels of 58,542 active inventory the condo market supply was able to engulf the sales totals which were only down 3% from their 15 year historical average.

Should the Detached inventory return to historical norms during 2021, home values will likely decrease as the supply demand metrics begin to even out. However, if the detached inventory remains at abysmally low levels, the recent price increase could be sustained. The initial 6 months of 2021 will greatly impact serval years forward.

Inventory typically increase as home values rise. Owners prefer selling at market highs rather than lower price points. Throughout 2018 - 2019 when prices declined had declined as low as 20%. The current high home sale prices and low inventory has created an excellent opportunities for owners to sell at market highs with little to zero competition.

Again in contrast with the detached market, the condo market has many ripe opportunities for purchase. Downtown Vancouver have realized substantial losses. All four areas (Downtown, Coal Harbour, West End, Yaletown) which make up the Downtown core have all been down at least 25% from historical highs during 2020. These losses have created an ideal entry point especially for those looking to downsize from their detached home.

The desire for detached properties combined with low inventory levels have pushed home values up across Canada. The city of Toronto home values in December were $1,475,758 up 18% from the lows of the year (April $1,249,730). With the recent increase, the city of Toronto detached property values are just 6.5% below the historical highs of $1,541,003 achieved in April 2017. 

The exodus from condo’s for detached properties effected the city of Toronto greatly as well. Condo values achieved their historical highs during February 2020 of $722,675. Values rapidly dropped to finish the year down 13% from those highs and just 2% market cycle lows. 

For you individual market charts and analysis please contact Eitel Insights directly.

Article Written By: Joanne Lee-Young

Link to Full Article:

https://vancouversun.com/business/vancouver-real-estate-low-supply-behind-price-increases-for-detached-homes

Comments and data quoted in article:

Analyst and real estate agent Dane Eitel said one important nuance to see is that in 2015, the inventory of detached homes in Greater Vancouver was 57,308, but there were 17,372 sales. In 2020, the inventory was 50,225 homes, but there were only 10,832 sales, which is down 15 per cent from the 15-year average of 12,748.

Between 2005 to 2019, the total yearly inventory average was 70, 082. So in 2015, the inventory number was 18 per cent lower than the 15-year average, but in 2020, it was 28 per cent lower.

It means the increase in home values in 2020 was less about sales and demand — and even interest rates, which were also low in 2015 — and more about a scarcity of inventory, said Eitel.

The difference could be important if home prices edge back up to 2016 levels even though “the economy is not recovering nearly as fast as the housing market would indicate.”

The COVID-19 vaccine might ease health concerns for sellers who are currently happy to hold their detached homes. They might be motivated to list their homes and take the gains if prices continue to rise spurred on by low inventory that is so historically low, it will take some time to ease, said Eitel.

Link to Interview with Reporter Tyler Orton of BIV:

https://biv.com/video/making-sense-real-estate-market-2021

Making sense of the real estate market in 2021

The Metro Vancouver real estate market made a giant splash throughout 2020 despite all the economic uncertainty. But is this sustainable? Dane Eitel of Eitel Insights joins BIV Today to discuss how the market kept chugging along and what’s in store for the coming year. Reporter Tyler Orton hosts.

January 8, 2021 | 3:02 pm

Article Written By: Antonia Cundy

Link to Full Financial Times Article Article:

https://www.ft.com/content/341fd1ee-d9e4-474a-8b80-46a8b39ce105

Eitel Insights recent condo market update made it across the pond. A recent article covering the Vancouver Condo market features comments by Dane Eitel. See a few of the statements quoted in the article below.

How Covid-19 caused Vancouver’s Condo Conundrum

“It’s not normally like that, the condo and detached markets normally move in lockstep, but that demand to live in a detached house with a yard has meant they’ve taken completely divergent paths this year,” says Dane Eitel, founder of real-estate analytics company Eitel Insights.

This slide in prices is likely to increase further, Eitel says, as new-builds come to market in the next year. “I actually see the condo market inventory increasing because we’re seeing the completion of these buildings that people bought as investments years ago.

“What that ultimately leads to and has already led to downtown is a cannibalisation factor,” he says. “You see those older buildings have to reduce their prices quite aggressively to get a sale and then the newer ones have to reduce their prices too.”

“We have a large rental base here and now because of Covid there’s no need to work downtown. The exodus from the condo market has been real,” says Eitel Insights. “So now owner-investors have no rent covering their mortgage, so they’re either looking to get out or they’re looking to stem losses.” This slide in prices is likely to increase further, Eitel says, as new-builds come to market in the next year. “I actually see the condo market inventory increasing because we’re seeing the completion of these buildings that people bought as investments years ago.

The Greater Vancouver real estate detached market was seriously deprived of inventory during 2020. Resulting in the lowest amount of homes for sale in the past 15 years. The total amount of available detached properties achieved just 50,225. Which is down nearly 30% from the 15 year average of 70,082. 2020 was by far and away the lowest total active listings. Recent history shows during 2016 there was 58,650 active listings, 2017: 65,974, 2018: 75,459, 2019: 69,630. Comparing 2020 to 2018, there was a drop of 33% available properties.

Some analysts believe the increased prices were due to the increased demand, we disagree. The 2020 total sales completed with over 10,800. This data point indicates an increase compared to the previous 2 years of data but well below the 15 year average of 12,748 sales.

Eitel Insights believes the increased prices resulted directly from anemic levels of inventory, along with lower interest rates, which resulted with increasing home values. The statistical anomaly of not being able to surpass 5000 active listings in any month during 2020 will not likely occur again in 2021. The increase to the number of mortgage in arrears will likely result with increased inventory, due to need based sellers. Add in the struggling economy with continually increasing personal debt, just as government stimulus wanes.

All in all, there is a possibility the market can sustain current pricing levels, if the inventory does continue to buck historical norms. The more likely outcome is inventory increases along with a diminished demand for the detached homes, due to the pulled forward sales which occurred during 2020.

This low level of inventory combined with sudden demand to own a detached properties combined for the perfect storm and forced prices the highest price of 2020 during December. Achieving a 1.770M average sales price across Greater Vancouver, the highest sales price since May 2018. During the upcoming year, if inventory remains virtually non-existent, prices can be sustained into 2021.

As the majority of detached homes are owner occupied, the thought of having buyers come through your home during the pandemic was not acceptable to most. Even though prices increased over $190,000 from the May 2020 low of $1.586M to over $1.770M in December. The inventory hit its 15 year low of just 2,762 active listings in December 2020. Typically inventory increases as the prices rise. With prices back into the upper third of the current market cycle, and a vaccine en route, the notion of selling will become acceptable again.

Those who are willing to list will reap the rewards, the December low data point not only broke below 3000 active listings for the 2nd time in 16 years but the data broke the longer term uptrend which was established during 2015. Is the historic low of December due to the recent shutdown measures imposed by the government or will the low levels persist?

The data accumulated in the initial 6 months of the 2021 market will likely set the tone for years to come. If the inventory remains at extreme lows, prices can be sustained at the current level with a possibility of achieving a new all-time high. If this occurs, the growth cycle will have been born through the lack of supply. We anticipate this to be the less likely scenario of the two. Longer term, yes, prices will eventually escape the market cycle that Vancouver has been in since 2016, but in the short term we believe the impact of a deteriorating economy will force the home prices back lower in the market cycle to test previously established price points.

Interesting point, when there is an anomalous low data point, the market historically reacts with a much higher set of data, in an effort to counter act the anomaly. This implies inventory could rebound heavily in 2021.

Prices were volatile during 2020. Home values began the year with an average sales price of 1.590M in January. During February there was a spike higher with the average sales price achieving 1.710M. After the first lock down, prices fell back to 1.586M in May. Then like a shot out of a cannon, home values rapidly increased back up to the February high and beyond. With the December price reaching 1.770M that indicates prices have re-entered the upper third of the market cycle, only down 3% form the all-time high of 1.830M experienced during April of 2017.

Home values rose due to the serious lack of options, the peak of inventory during 2020 could not rise above 5,000 active listings. In the past 16 years, 2020 was the first instance where not one single month of active listings was able to achieve above 5,000 detached properties for sale. The limited inventory forced buyers to compete with each other for the very few new listings that came out each month. Until inventory begins to dramatically improve, prices will have an artificial bottom which could propel the market higher.

The detached market finished 2020 with over 10,800 sales. A relatively high number considering there was only 393 sales during April 2020. This unusual activity given historical seasonal norms, meant the spring market was pushed into the summer, summer to fall and so on.

Taking the year as a whole, rather than using year over year monthly indicators which were heavily affected by the initial lock down, the data become much less impressive. Sales rose to 10,832 during 2020 which is down 15% from the 15 year average of 12,748. The 2020 sales were higher than the 2019 & 2018 totals, but below the 2005, 2006, 2007, 2009, 2010, 2011, 2013, 2014, 2015, 2016, and 2017.

Greater Vancouver detached achieved the 5th lowest sales total in the past 16 years. Again to the earlier point, the increase of home values during 2020 had less to do with the sales, and everything to do with the inventory.

Going forward the key to the detached market can be reduced to one factor, supply. With home prices back up to the 2016 levels coupled with an economy is not recovering nearly as fast as the housing market would indicate. The Covid vaccine is seemingly on the way, coupled with higher prices than 2019 and 2020, owners who put selling their property on the back burner, may refocus during 2021. Again the current inventory is only at 2,762 signalling the lowest level on the 15 year chart. This creates an excellent selling opportunity for home owners.

The city of Vancouver condo owners, especially investors have taken it on the chin recently. As mentioned in our last condo market update, Vancouver proper condo values were down to $861,000 in October. Then news broke, vacancy homes tax will triple to 3% for 2021. Fast forward a couple of weeks and the average sales price has dropped to $765,875. A $96,000 lost month over month. Doubtful the substantial decrease in prices resulted from the tax increase, which could be a sign of more losses to come during 2021.

From zenith to current prices the city of Vancouver condo values have lost more than $325,000 (-30%). To be fair as evidenced by the chart below the sales price of $1.1M occurred for one month only. In the name of fairness, let’s take prices that were tested multiple times, and call that the peak: $970,000 (top green line). Using that as a true market top the losses are still substantial. The resulting loss after 3 years of ownership is $205,000. Also important is now that Vancouver prices being at $765,875, implies all previous gains since 2017 have been erased. As prices during Jan 2017 were $774,227.

The established losses, has resulted in the average price entering into the low echelon Eitel Insights forecasted market cycle. As noted previously, we believe the market cycle would test as low as $725,000-$775,000. With prices dropping to $765,000, many markets inside of Vancouver proper, are ripe for purchase. Especially for those who are planning to owner occupy.

At current price levels, owner occupied purchasers who have been advised to wait by Eitel Insights can finally begin to hunt for purchases. With many areas inside of Vancouver entering into their forecasted market lows, signals excellent purchasing opportunities based on our analytical interpretation.

A 10% drop from peaks is considered a correction, a 20% is a recession, and 30% drop has no definition other than, “ouch”. From the zenith to current levels condo values have dropped 30%. The true peak of prices occurred during Feb and April 2018 at $970,000 (top green line) indicating a 21% loss. Any way you slice it the city of Vancouver’s condo market has hit recession levels.

Point of interest. After a significant trend line is broken as is the case for the city of Vancouver price chart, the market tends to become volatile for a short period. This could result in some wild swing in the price chart. These swings could result in prices temporarily returning to the middle threshold or hurl prices to the lowest edge of the market threshold. Over the longer term, the break of the uptrend will likely result in condo values selling in the lower half of the market cycle, until the market consolidates prices with a forecasted bottom between of $725K - $775K range.

Greater Vancouver overall, broke its’ uptrend as well. Condo values dropped to $657,000 indicating a 13% drop from the peak in prices. As stated after a trend is broken, volatility is likely to ensue in the short term. This volatility could result in Greater Vancouver prices possibly rising back up in an attempt to regain position inside of the uptrend, or could send prices down to test the low yellow threshold which is the near term low of $635,000.

If prices do decrease to $635,000 in the short term, that would create a very important test to the upper echelon of the prolonged uptrend (top black uptrend). Prices will likely find near term support based on the prolonged trend. Once the upper threshold of the prolonged uptrend breaks the overall condo market will experience intense volatility.

The overall condo inventory for Greater Vancouver during November was 5,669 active listings. At that level the data is challenging the yearly uptrend. It would be an odd occurrence if inventory increases during the month of December. However, during 2020, seemingly anything is possible.

During 2021 Eitel Insights anticipates inventory levels to surpass the 7,000 active listings a feat not accomplished since 2014. With the new additions from the completed presale, the notion of the total inventory surpassing 8,000 is a real possibility as well.

Sales dipped back into the established downtrend and low sales channel during November. The total sales were 1,373. There has been a clear cut difference between the detached and condo purchasing mentality that was born out of the Covid pandemic. The pulled forward demand never arrived in the condo market. The rise in data was merely the pent up demand experienced during the initial lock down. As more and more inventory is brought to the market at decreased price point, the notion of overpaying for a depreciating asset will result in buyers becoming hesitant to purchase. This will exacerbate the supply demand dynamics, which have been changing from the sellers favour to the buyer.

As the overall market indicates the Greater Vancouver condo market is in the middle of the projected market cycle and down 13%. While areas inside of Vancouver proper have dropped closer to 30%.

Individual markets inside of Greater Vancouver prices, and trends vary. To receive actionable intelligence for your personal or investment property become and Eitel Insights client.

The recent announcement that the City of Vancouver will triple the vacant homes tax for 2021 comes as more negative news for condo investment owners. Condo values have already dropped over 21% in Vancouver proper. The zenith price point occurred during January 2018 at $1.092 Million. As of October 2020 the average price has dropped to $861,000. As if prices being down $231,000 didn’t hurt enough, now the city has passed a vacant home tax increase from 1% to 3% of the tax assessed home value for the upcoming year.

The early investors are still up in terms of their investment, prices were $750,000 during 2016. Late investors who purchased during 2018 are already underwater. The average condo purchase price inside of Vancouver was $915,000 during 2018. Signaling a current loss of $54,000 over a three year investment.  

Eitel Insights forecasts prices inside of Vancouver will ultimately retest the $725,000 - $775,000 price threshold during the upcoming years. Which would again leave the 2016 investors roughly even after a 5 year investment, but indicate a loss of $140,000 - $190,000 potential loss for the 2018 purchases. Based on the 2018 average price of $915,000.

The exodus out of Vancouver proper has been a real event due to the Covid induced “work from home” movement. Condo’s for sale in Vancouver are at the highest level since 2014 with over 2,600 condo in October 2020. The inventory levels will increase over the upcoming years with the continued completions of presold properties, the vast majority of which were sold to investors.  

On average a foreign owner of an empty unit during 2021 based on the current condo values of $861,000 would incur a tax bill of $25,830 from the city of Vancouver’s raised empty home tax, and another $17,220 in the provincial empty home tax. Total of $43,050 just in the empty home applicable taxes.

Overall, Greater Vancouver condo values are down 9% from the market peak during January 2018. Current prices have dropped from September’s $699,000 average sales price to $685,000 in October.

That decrease in prices has resulted in a technical test of the uptrend which began after the market found it’s near term bottom of $643,000 in June 2019. If prices indeed break the uptrend, price volatility will likely ensue which would send prices lower in the upcoming year.

Investors in and outside of Vancouver proper are still going to be paying higher tax assessments due to the year over year increase by 3% on average across Greater Vancouver Condo market. This will result in a higher 2021 tax assessment invoice than what was paid during 2020. All home owners pay property assessment taxes.

Owners of vacant properties outside of Vancouver proper will continue to pay a provincial tax of 2% for vacant homes owned by foreign ownership & satellite families, or 0.5% for vacant properties owned by Canadian citizens or permanent residents.

Inventory across Condo market of Greater Vancouver remains at the highest level compared to the preceding 5 years. The growing level of inventory will not stop after 2020, this inventory count will likely test as high as 9,000 active listings before the market bottoms out. With just under 6,200 active listings currently on market this may seem farfetched, but when you add in all the new completions set to transpire in the near future, and notice a significant fall off of investment purchasing. The upcoming oversupply of condo units will force competition amongst sellers to significantly intensify.

Bollinger bands were designed to discover opportunities that give investors a higher probability of properly identifying when an asset is oversold or overbought. Currently both the Greater Vancouver Detached and Condo asset classes are in overbought territory, according to this historically accurate study. This signals real estate values are about to drop.

While all times highs have been common headlines recently, neither the detached or condo markets are close to testing their previous high price points let alone creating new ones.

The detached initial peak occurred in Feb 2016 with an average sales price of $1.820 M. The zenith in prices came during May 2017 with detached properties selling at $1.830 M on average.

To be fair prices have come off the near term bottom of $1.468 M which occurred in Feb 2019, however this is a very common trend in which prices create lower highs coupled with lower lows, commonly known as a downtrend.

As you can see in the Greater Vancouver detached price chart, the data is absolutely in the downtrend. Also noticeable on the price chart is the prolonged uptrend indicated by the two black lines. The near term low of February 2019 and subsequent months continued to challenge the low end of the uptrend channel.

Notable, at that date in time the data was challenging the low end of the Bollinger Bands, implying the market was oversold. Prices began going higher based on the strength of the long-term uptrend coupled with the power of the Bollinger Bands.

Currently there is another test of the technical lines and Bollinger band, except on the opposite end of spectrum.

Eitel Insights believes the technical downtrend will hold with aid from the overbought indication of the Bollinger Band. This will likely result in the market being sent lower in order to challenge the long-term uptrend and the lower band of the Bollinger. Given the current placement of the Bollinger that would indicate prices need to come down to $1.5 M. As the prices decrease the Bollinger Band will decline as well. Ultimately Eitel Insights forecasts the detached market to test the $1.4 – $148 Million pricing threshold during 2021.

Along with the Bollinger the detached prices have risen back up to the downtrend line established during the creation of a triple top in the price chart. Also the Bollinger is indicating the market is overbought. Eitel Insights believes the recent period of strength based of pulled forward demand will erode any furtherance of strength for 2021.

Point of interest, the upper band of the Bollinger can be tested for a prolonged period of time, but only when a growth cycle is occurring. A growth cycle is the creation of new higher highs.

As explained earlier, Greater Vancouver is not creating new higher highs. The trend has been lower highs with lower lows.

Similarly, the Greater Vancouver condo prices are still below the apex of pricing. The peak was experienced during January of 2018 with an average sale price of $750,000. The October 2020 average sales price came in at $685,000. The 9% drop from peak is actually the strongest the condo market has been for quite some time.

Prices have been as low as $640,000 during the summer months of 2019. At that point prices were testing the middle threshold simultaneously the data was challenging the lower band of the Bollinger indicating the market was oversold. As often is the case technical analysis coupled with the power of the Bollinger Band accurately indicated a market change.

Current prices are testing a newly forming downtrend line, coupled with the artificial ceiling. While the Bollinger Band is indicating the market is overbought. These analytics signal a market that can no longer shoulder the current prices let alone go higher.

Since the data is inside of the current market cycle, the data will not be able to sustain this challenge of the upper Bollinger Band (overbought indicator). As a result the condo prices will likely fail in the attempt re-enter the sacred ground of the upper echelon. Which would imply prices will decline back to retest the uptrend and ultimately the low end of the current market cycle.

The current placement of the lower Bollinger Band would indicate prices would have to come down to $650,000 to retest the lower band. Again as prices decrease the lower band of the Bollinger will be moving lower as well. Ultimately Eitel Insights forecasts the condo market will likely bottom during 2022 with prices finding a bottom between $525,000 - $575,000.

Individual real estate markets vary, to receive actionable intelligence for your local market, become an Eitel Insights client.

Mortgage in arrears have increased 22% since Eitel Insights indicated a rise was imminent. That is only a tenth of the anticipated increase to occur over the upcoming years. Rising mortgages in arrears does not make the market go lower in and of itself. Rising numbers or delinquent mortgages is a symptom of the BC real estate market in decline and a weakened economy.

Evidenced by the chart, this is only the third time in four decades that delinquent mortgages were this low. In every instance previous once the data broke above the low resistance level, mortgages in arrears rose dramatically. Simultaneously the home prices across greater Vancouver declined. The most recent example was 2008 – 2009. The recession was short lived, due in large part to the winter Olympics of 2010 coming to town. That made it nearly impossible for the economy to slow down for long. However a 21% recession still managed to occur even during the short time frame.

The 1990’s prices peaked in 1995 and subsequently declined for years. The ultimate bottom occurred once prices dropped over 26%. Prices did not achieve a higher price until 2004, a 9 year market cycle. That cycle was fueled partially due to the mortgage in arrears produced by a weakened market.

The mortgage in arrears data is accumulated across BC, however in the current market place most of the outlying or tertiary markets are outperforming Greater Vancouver as the exodus from city centers continues. That would imply many of these newly upcoming additions to the delinquent mortgages will be from right here in the highly volatile Greater Vancouver market.

The cold hard facts of the current market decline appear to be at odds with many bullish headlines. That is because the Real Estate Boards continue to paint a rosy picture in order to find a positive sounding headline. Recent example: “Highest October for sales in decades”. While true, a perfect example of a half-truth.

October has never been a high-water mark in any year previous… ever. Comparing strictly historical October data in order to come up with a fantastic headline is simply too big of a pill to swallow. The high data point of 2020 is October, compared to previous years high-water sales data, 2020 was no more than average. Hearing the excitement over average data points, we believe the next phase will lead to sincere weakness, as opposed to tepid strength, reported as herculean. In the sales chart below you can see the “historic high month of October 2020” is smack dab in the middle of the 15 year chart. To get a true historic high data point one would have to discount 177 other months of data leaving just the 14 previous October’s.

The question is, based on the data, what will occur next? The first six months of 2021 will be crucial, as detached home values based on a 5 year term will be underwater. The initial peak of the detached market occurred during the initial two quarters of 2016. Over that time the average price was $1.790M and 11,400 sales occurred in Greater Vancouver. The overwhelming majority will be up for the 5 year mortgage renewal in the first two quarters of 2021.

The 5 year fixed interest rates have decrease substantially from 2019 when interest rates were around 4%, according to Statscan. Current rates are 2.24%, a significant difference. However compared to the 2016 levels the change is less significant, actually barely noticeable. The first 6 months of 2016 interest rate average was 2.62% making the current interest rates decrease an insignificant factor for those about to go through the renewal process.

A true frenzied market would compare similar to that of 2016 with over 11,400 sales occurring in a six month span with an average sales price of $1.790M. The most recent six months of data, which have been touted as the record breaking, has only achieved 6,300 sales, with an average sales price of $1.645M. So, maybe the market wasn’t as strong as the headlines would have suggested.

All that said markets do ebb and flow. The past few several years of ebb and flow has resulted in the lower highs coupled with lower lows, resulting in a downtrend. Another way to say that would be a period of frenzied strength which created a market top during 2016 -2017 then a market that weakens 2018 – 2019, a period of temporary strength 2020 ultimately resulting in another wave of weakness which results in a market finding the bottom 2021.

2020 technically was supposed to be better than 2019, however the Covid-19 pandemic really emerged as a catalyst for buying up the available detached properties. Prices in January 2020 were just below $1.6M, importantly there was less than 4000 active detached properties. The demand to move from a condo to a detached property was pushed to extremes as most employees began to work from home along with school shutdowns. Parents decided they could not go through another shutdown in a small box, they would rather have a larger building footprint and a yard during the looming second lockdown. There will inevitably come a time when all who wanted and could afford a detached home have purchased. Which will lead to a period of weakened demand.

Inventory will be a major story in 2021 one way or the other. If the inventory remains in the doldrums below 5000 active listings, even with less demand there won’t be much of an impetus for sellers to decrease prices. If however, inventory can surpass 5000 or even 6000 active listings prices will fall off with gusto. Given the 11,400 upcoming mortgage renewals it wouldn’t be impossible to see 20% of those come to market in an attempt to stem the losses. That would result in an increase of 2,200 additional inventory. Which would push the data above those key indicating levels.

Can owner occupied demand continue to lift prices to the previous peak of $1.830M in the detached market. The answer is no, since it was not solely owner occupied demand that enabled the market to achieve the all-time highs. There was clearly demand from locals along with many foreign buyers purchasing along with investors continuing to bid each other higher. Now the investors have stopped purchasing, and overseas purchasing has all but stopped. Investing will begin to occur once the proverbial blood hits the streets in the form of distressed sales and foreclosures. As the mortgage in arrears and other analytical indicators suggests that time is coming.

The value of technical analysis has become a massive benefit to investors who take advantage of the actionable intelligence produced through analytical interpretation. Let’s recall where the market has been before we get into where it is going. During the uncertain and frenzied market conditions technical analysis allowed Eitel Insights to call the top, first to do so of our analytical peers. More importantly than being first the call was correct. After breaking the growth trend in 2017 (green line) prices dropped off from 1.830 average sales price in May 2017, to 1.468Million during Feb 2019. The recent rebound was technically predicable as well.

The rationale as to why prices found a temporary bottom during 2019 is the properly place technical trend lines established during the 2008 -2009 recovery (black uptrends). As prices were down 19% from peaks, Eitel Insights did say buyers are coming off the benches due to the mitigation of the stress tests, along with home values decreasing back to 2015 levels

Prices had a prolonged test of the uptrend (lower black line) during 2019, with over 5 months of pricing data testing the staunch trend. Prices can only test a trend for so long before moving on to create a new trend, or test another previously established trendline. Current prices of 1.714Million are back up testing the downtrend which was created during the market peak and subsequent lower price points. While some analysts and the real estate boards have touted the recent increase in prices as the forever win, we see it as a typical lower highs coupled with lower lows in order to fulfill the identified market cycle.

Currently, prices are obviously testing the downtrend, coupled with the lower echelon of the upper channel. September finished with an average sales price of $1.710 Million, October ended with $1.714 Million. With just a four thousand dollar increase, we believe the near term top is likely being put in place in order for prices to return lower in order to have another attempt at breaking through that staunch uptrend line.

One of these two lines will have to relent. Given how strong that market has performed and with all the bullish chatter you would think the downtrend has already been broken and new highs are being put in place. That just simply isn’t the truth. As the market weakens, the bulls will say as the market weakens is this is normal after having such a run up, but the run up was technically perfect. Given how a triple top was put in place during 2017 – 2018, we believe the power behind the three year downtrend will be enough to break the decreasing power of the uptrend with each and every impending test. This should come as relief to home buyers but possibly induce some fear sweats for the sellers.

The entry level markets have been rising since the 2nd quarter, as we had written in February for the Michael Campbell’s Money Talks, Insiders Edge. When a large group with a similar mindset descends into a small region, prices will increase. That occurred due to the pulled forward demand to buy a detached property. With Maple Ridge and Port Coquitlam detached markets rising above 1 Million dollars the entry level of the market has been lifted. The high end market has been substantially damaged, with properties selling well below previous expectations.

Pulled forward demand simply means, purchasers who had planned to buy during the upcoming 3 – 12 months became immediate buyers due to the uncertainty of the pandemic, which resulted in most employees working from home and parents becoming teachers. The exodus from the condo market to the detached market was palpable. Inventory has increased over 2,209 since April while detached properties have only increased 484 over the same time period. This imbalance has forced prices in the short term to increase and retest the downtrend. There will come a time when everyone who wanted a house and could afford one purchased.  If the period of strength is coming to an end, what is next?

The growing need to sell is percolating. Largely due to the 11,400 properties purchased during the first six months of 2016, with an average sales price of 1.784 Million. Investors should begin to gear up, as deferred mortgage payments eventually will have to pay the piper, since they didn’t pay the bank. The 11,400 2016 purchasers are praying for continued increased sales resulting in higher sales prices. If prices do not increase and actually decline further the 11,400 number will definitely rise which forces more competition amongst sellers, ultimately pushing prices lower. 2021 will see an incredible increase for the inventory market and this will be met with little enthusiasm as the pulled forward demand has been disbursed.

Eitel Insights believes the 2017 instigated downtrend (orange line) will hold, with a possibility that a minor breakout occurs, followed by a sharp decline. In that instance, the next occurrence will be the inevitable test of the lower line of the long term uptrend (black line). This again, will be immensely important, this time more so for the bulls. Important to the bulls due to what a break of the long term uptrend will likely imply for future data. After the break of the uptrend we would anticipate similar volatile market behaviour, as was the case when the top line of the uptrend broke, which resulted in a loss of 235,000 in just four months.

The immediate and overdone stimulus actually created a temporary windfall for the economy. During the 2nd quarter, Canadian households received 56 Billion from the government while they only lost 23 Billion in lost wages and salaries due to the pandemic (Source Robert Hogue RBC) a net gain of 33 Billion. The additional income when added to the pent up demand during the shutdown and the pulled forward demand resulted in a massive late summer and fall rally for the Greater Vancouver real estate market.

The completed sales came in with another high water mark for 2020, as the oddities for this year continue. Some have exclaimed the 1353 sales as historic highs. Taking a look at the chart you can see that isn’t a true sentiment of where sales are. What is true is the historic high compared to previous October data. This pent up and pulled forward demand has resulted in very unusual activity given seasonal norms.

To recount what has transpired is the easy part. Interpreting what is on the horizon is the hard part. Eitel Insights ability to accurately predict the future based on the technical analysis has been showcased in the past, the current volatile waters will eventually calm. Once the market returns to normal rhythms, the supply demand factors upcoming during 2021 in the detached market look to favour the buyers more than the sellers. 

The governmental factor for BC has changed, while remaining the same. The past three and half years were governed by the NDP coalition with the Green party. The initial reaction to the change in leadership was to break the uptrend (green line) which had propelled Greater Vancouver detached prices higher from 1.184 Million in July 2014 to 1.830 in May 2017. After breaking the growth trend, a sharp downtrend developed (red line) which continually decreased prices until the temporary bottom was discovered in 2019.

This time not only do the NDP have a majority, they seemingly have a mandate. Having the benefit of the past three and a half years as evidence which has resulted in lower prices on average. Add in a historical point of view and which continues to indicate prices decline under an NDP government. Take the 1990’s into consideration. During the last extended NDP leadership prices declined 26% from the top to bottom. Taking the Premier of BC at his words, one could assume the upcoming 4 years will be a challenge to hold prices at current levels, let alone increase from here.

The initial period of weakness began during October 2017 and remained for 21 months. The result of that weakness was prices declined a full 19% which meant a drop of $360,000 over a 21 month time frame. The recent period of strength lasted 13 months from September 2019 at 1.5Million to current levels of 1.715Million an increase of 215,000. In this see saw trending market, the next occurrence after strength is weakness.

The future weakness will likely result from the need to sell, which will heavily impact those who purchased during 2016. The first two quarters of 2016 averaged 1.784Million, and had over 11,400 sales.  Even if, prices stay at current levels these properties will be underwater during their 5 year mortgage renewal period.

Inventory had a pull back during October, again thanks to the properly placed trend line that data has come back to retest the uptrend. With just 4,454 active listings, it wouldn’t take much of the potential 11,400 high priced sales from 2016 to list 2021 in order to change market sentiment.  

As prices hold according to the downtrend, any future price below 1.6Million would produce another test of the lower line prolonged uptrend.

The significance of the two divergent trend lines entering into the apex of a four year trend cannot be overstated. If or when prices break below the lower line of the prolonged uptrend a volatile reaction will ensue.

The previous example of the type of volatility we anticipate, came when the top line of the prolonged uptrend was broken for the last time in July 2018 (upper black line). The following months produced an attempt to regain position above the uptrend which failed, and subsequently sent the average price from $1.705 Million in November 2018 to $1.468 Million by February 2019 a loss of $237,000 in just 4 months.

Rather than being surprised each and every month with a seemingly chaotic data point, allow the technical analysis offered by Eitel Insights to guide you as to why prices move the way they do, and critical trends are being tested by the data. Without accurate trend lines, investors don’t know which time is more critical than inconsequential sideways data periods. The upcoming two quarters of data are of major significance for both the bears and the bulls of the Greater Vancouver real estate market.

Eitel Insights featured on Mornings with Simi on CKNW 980

Link to interview: https://omny.fm/shows/the-simi-sara-show/real-estate-supply-boom-underpins-strong-sales-fig

We’re seeing lots of action in real estate right now, but something that’s not getting much attention is the number of new listings. September set an all-time high for the total number of properties up for sale, and not just since last year, it’s the highest ever with over 3,200 units up for sale. 

GUEST: Dane Eitel, founder of Eitel Insights

Host: Simi Sara, Mornings with Simi