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Canada’s Largest Real Estate Markets Are Still Far From Seeing Employment Recover

Canada’s largest real estate markets aren’t even close to seeing employment recover. Statistics Canada (Stat Can) data shows the number of employed people in the country slipped in December. The largest real estate markets moved in various directions last month. However, all have significantly fewer jobs than they did last year.

Canadian Employment Slipped Lower In December

Canadian employment slid lower last month, causing a minor setback in the recovery. Stat Can estimates there were 18.59 million people employed in December, down 20,500 jobs (-0.11%) from the previous month. This represents a drop of 560,500 jobs (-2.93%), when compared to the same month last year. The decline is the first rollback since employment bottomed last June…CLICK for complete article

Anemic Detached Inventory Pushed Home Values Higher in 2020, Will This Continue in 2021?

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 signaling the lowest level on the 15 year chart. This creates an excellent selling opportunity for home owners.

Dane Eitel, Eitel Insights

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Greater Vancouver Detached Real Estate And Condos Are Both Flat From 3 Years Ago

Greater Vancouver real estate is seeing big price growth, but it hasn’t made up for lost ground yet. Real Estate Board of Greater Vancouver (REBGV) data shows prices generally increased in December. Some segments even printed very large year over year gains. However, the board’s data also shows prices are still around where they were three years ago.

Greater Vancouver Real Estate Price Rise Over 5%, But Still Flat From 3 Years Ago

Greater Vancouver real estate prices climbed last month, bringing annual gains closer to where they were a few years ago. The composite benchmark price reached $1,047,400 in December, up 0.3% from the previous month. Prices are now 5.4% higher than the same month last year, and about 0.2% from 3 years ago. Fairly substantial gains for the composite, but still just regaining ground from a few years ago. CLICK for complete article

City of Vancouver Condo Values Drop to Recession Levels

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.

Dane Eitel, Eitel Insights
Founder & Lead Analyst
604 813-1418

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Vancouver To Triple Empty Home Tax To 3% In 2021

Vancouver is doubling down on the success of its vacant home tax…well, tripling down, technically. The Vancouver Empty Homes Tax (EHT) will be tripled from its original rate for the 2021 assessment year. The tax, which places a penalty on underused homes, was put in place to help encourage more efficient use.

Vancouver Empty Homes Tax (EHT)

Vancouver real estate’s notoriously low property tax rate made it ideal for carrying vacant property for a long period of time. In order to discourage this kind of behaviour, the City joined other places like Paris, in taxing vacant homes. The tax reduces the cost effectiveness of vacant speculation, forcing owners to decide if they really want to carry the empty home. There’s some notable exceptions, like if the home is a principal residence or rented for 6 months. However, generally it helps to close the inefficiency created by the low rates that attract yield chasing…CLICK for complete article

What is a construction mortgage?

The gang over at Green Mortgage Team sent us their latest blog which contains useful advice for anyone looking to do a something other than a conventional mortgage. ~Ed.
A construction mortgage is set up very different than a conventional mortgage. Lenders finance construction on a “Cost to Complete” basis. In this type of financing, the mortgage lender withholds enough funds from the approved mortgage loan amount to complete the construction in the event there is a foreclosure or default on the loan. As the borrower progresses throughout the different stages of construction, the mortgage lender releases more money in “draws” to the borrower. Click for full article.