Bollinger Band Study Implies Vancouver Real Estate Values in Vancouver are Overbought.

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.

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