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

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.

VANCOUVER (NEWS 1130) — The same week B.C.’s finance minister said housing sales dropped a whopping 45 per cent because of the pandemic, some real estate watchers say the situation isn’t so bad, but others are convinced it will take several months for the Metro Vancouver market to rebound.

Carole James says prices fell four per cent between February and May, but Michael Ferreira who is the managing principal of Urban Analytics (which tracks data for developers) says prices are already coming back up.

“We may have weathered the storm pretty well and may not see much change in terms of pricing and given what’s happening in the new home market, a lack of new supply over the last two years could be seeing a different story in two years as far as upward pressure on pricing again.”

He says there’s no doubt the real estate sector has suffered during the pandemic, but it could have been worse.

“You would have expected with COVID that prices would have dropped, but we saw supply drop right off, demand get sustained –especially in May and June. Without that supply there, create situations where you have multiple offers again and puts that upward pressure on pricing.”

However, Dane Eitel with Eitel Insights predicts prices will continue to drop until at least next year.

“The truth is the inventory is rising. The condo market had 2800 brand new, active listings in the month of June. That was the highest month since 2012. There’s not a pent up need to buy, but there is a pent up need to sell.”

He adds sales in May were the worst they’ve been in 15 years with only 325 more detached homes and 450 extra condos sold in June.

“The inventory in the detached market grew more than 700 and the condo market grew over a thousand from the previous month, so you tell me where is the pent up demand?”

Eitel tells NEWS 1130 his research shows there’s more inventory now than there was eight years ago, so it could take several more months for prices to start climbing again.

“Most markets in detached properties will be in 2021, the condo market will likely be in 2022, so we will eventually be positive about this market, but as it currently sits, it’s very difficult to be an optimist, unless you’re a real estate activist. You’re not really acting as an analyst.”

Ferreira insists the situation has significantly improved since the last week of May when the lockdown was lifted.

“We certainly saw an uptick in sales. Even though it’s lower than the ten year average, we were still significantly higher than we were last year, as far as sales go.”

Ferreira also tells NEWS 1130 some owners of short-term rental properties may not be able to wait for the borders to open up, so they can book guests from other countries.

“A lot could pivot and switch that over to a long-term rental, so that’s an option that they have and I know, some probably already have because we are seeing a bit of a dip in rental rents. That could be a combination of –a function of more supply coming into the market as the result of some of those AirBnB units getting converted to longer term rentals, as well as a drop in the immigration, so you don’t have all the international students that would typically come and be renting product at this time –getting prepared for the school year in September, so the combination of those two probably softens the rental rate market a little bit. Certainly, there are some that might decide it’s not worth the hassle, so I’m going to put it on the market, but to date, I don’t think we’ve seen huge evidence of that so far.”

Even so, he admits what keeps him awake at night is what happens if there’s a second wave of the pandemic and the economy shuts down again.

Eitel insists some buyers are already taking their time because they’re worried about paying too much for something they can get for a better price next year.

“That is a fear of overpaying for a depreciating asset, so into 2021 when prices are attractive, buyers will be fearful that prices will continue to go lower and that will be a tragedy for those that miss out on this historic opportunity upcoming. Some sellers are seeing that they will need to sell, but praying and holding on for dear life that won’t come to fruition, but eventually it will. In 2021, you will see the roll out of foreclosures and that’s where the investor mindset starts to change and starts to purchase properties at a discount. And, that will force the average sale price lower because no longer are they looking at mansions that were selling for $17-million and actually selling at $12-million. They’ll be looking at properties listed for a million and maybe selling for $800-thousand.”

Despite warnings from Eitel, the president of Pilothouse Real Estate Inc says Metro Vancouver is so “desirable,” most people born and raised there can’t afford to buy a home in that market.

Vince Taylor, who specializes in pre-sale condos, insists demand is still stronger than supply.

“Just like you can’t live in Manhattan. You got to go live in Brooklyn. What we’ve done is created such a magnificent corner of the world, it is really hard to live here. This is one of the greatest cities in the whole world and real estate will be priced here accordingly.”

He’s also suggesting prices will go up when thousands of immigrants rush here once non-essential travel is allowed again.

“And in fact, there’s an enormous influx of people waiting to come to Canada –Vancouver in particular, but they can’t come because the airport is closed. This is the time when the professional real estate buyers are buying. When the airports open, prices are going to go crazy.”

Taylor agrees some owners –hoping to capitalize on short-term rentals for companies like AirBnB– are selling off those properties or turning them into long-term rentals which helps explain why vacancy rates are climbing in parts of Metro Vancouver.

However, he says he doesn’t believe many people will be forced to sell their homes because they can’t afford to cover their mortgage or they’ve lost their jobs during the pandemic.

“Add that to what’s going on in Hong Kong, you’re going to see about 80-thousand people arrive in Vancouver –one of the safest, most beautiful, world-class cities with no supply. If you don’t have many apples and you’ve got lots of people that want apples, the price of apples goes up.”

On Tuesday, the provincial government predicted a $12.5 billion deficit linked to the pandemic with Finance Minister Carole James saying, “This could be the worst downturn experienced in our province in recent history.”

Written By Marcella Bernardo News 1130 CKNW City News