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.

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.

Eitel Insights featured on Mornings with Simi on CKNW 980

Link to interview: https://omny.fm/shows/the-simi-sara-show/has-the-pent-up-housing-demand-been-spent

A strong return to activity in the real estate market might be about to cool off according to real estate analyst Dane Eitel.  His latest market update predicts the pent up demand from early in the pandemic has been mostly spent, and things will mellow out with the school year now underway. 

Guest: Dane Eitel, founder of Eitel Insights

Host: Simi Sara, Mornings with Simi

Article Written by Mark Ting CBC NEWS

Link to Full Article: https://www.cbc.ca/news/canada/british-columbia/bc-condo-market-pandemic-1.5740269

Greater Vancouver condo prices peaked in January 2018 at an average price of $751,632 which is approximately eight per cent higher than today's average.  

There are now more than 6,000 active listings, thousands more than we saw in March or April of this year. Granted, would-be sellers were reluctant to list at that time as they didn't want strangers walking through their homes during a pandemic.

As COVID-19 restrictions relaxed, the number of listings increased.  Both July and August had approximately 2,900 new listings each, compared to only 1,400 sales.   

COVID-19 exposed us to the limitations of condo living and also changed how condos are used.

Pre-pandemic, homeowners used their condos maybe 12 hours a day, eight of which were spent sleeping. Much of their work and entertaining took place outside their homes, particularly if they live downtown. That changed with the onset of the pandemic. And as people spent more time at home they missed "space" — green space or a dedicated area to work.

Some people also became uncomfortable sharing common areas such as elevators and hallways.

And much of what makes downtown condo living desirable such as the energy of living in a busy area, nearby culture and entertainment, has been put on hold.  For these reasons and more, those who could afford it have been listing their condos and buying detached homes in the suburbs.   

Pre-pandemic, the expectation was that a wave of boomers would sell their detached homes and downsize to a condo to help fund their retirement. COVID-19 has delayed this move.

For example, my parents were considering downsizing, but the lockdown made them realize just how lucky they are to have a backyard. It allowed them to safely spend time with their friends and family in person — not over Zoom.

Recently, many would-be sellers of detached homes have taken their homes off the market which has limited the supply and driven up prices.  

Add to this an expected surge in condo inventory created by owners forced to sell because of job loss and the end of the mortgage deferral program, and lower prices should be the result. Speculators who have overextended themselves and hundreds of pre-sale units expected to be completed in 2021 could also push prices down.  

Today's condo buyers are very different from the people purchasing during the peak of 2018. Back then prices were rising and there was a lot of greed and speculation in the market. Today there is a lot less speculation and most buyers are local who are purchasing for personal use.

Several forecasters including Moody's Analytics, Canadian Mortgage and Housing Corporation and Eitel Insights, are expecting further weakness in the real estate market (detached and condo) until 2021 and possibly 2022. If these forecasts come to fruition, it is good news for buyers. However, a forecaster's prediction, while often useful and insightful, should never be the sole reason to buy or sell a property. Forecasts are constantly being "revised" as new information comes to light.

Over the next few months, or year, I'm expecting to see further cracks in the condo market. Many investors who bought multiple units near the peak of the market that no longer provide cash flow will be forced to sell at a loss.

If you are in the market for a condo, their crisis could be your opportunity. If the condo inventory continues to trend higher and prices drop, it should result in a strong buyers' market.  If that's the case and you find a home that works for you, negotiate hard and write an offer.