Real Estate

Condo Prices are expected to drop until 2022

The condo market just gave back the 5% gain in the previous month. After months sitting inside of a 1% range the condo market made its move in March. Only problem, it was the wrong way. Prices had shot up to just $699K, one month later the Condo market has recognized its mistake has come back to the $661K pricing threshold.

No so coincidentally, at the price point where the market spent 6 months deciding whether to rise or fall. The resulting short lived retest to the upper echelon got optimists excited. The challenge, the move was a head fake.

The technical feature of the divergent trend is over, next we forecast a prolonged downtrend of lower highs for the reaming months in 2020 and a further decline in 2021. Ultimately the Condo Market will test the $525,000 threshold, which hasn’t been seen since 2016. Signalling that 5 years of investment will have netted an investor zero increase of equity.

The 2015 investor with a zero equity increase will be the envy of all those who invested during the market frenzy of 2017-2018. The average purchaser in January 2017 paid $584K (upper orange line) and by January 2018 prices had increased to $751,000(upper green line). Every Condo purchased during these times will technically be under water in the upcoming years as prices test the 2015 threshold of $525,000. Meaning the 2017 investor who purchased at an average price of $584K will be down $59,000 and the $751K Investors purchases during the peak, will be down $225,000 in 2021 on average.

Investing in real estate is not for the feint of heart. I vividly recall in 2017 the line ups for presales and the amount of complaining that occurred from those who didn’t get a chance to purchase because some investor bought multiple units. Thank your lucky stars for those investors. Now it is them on the hook instead of you. In the upcoming months as those pre sold buildings are completed you can purchase that same unit at a discount. Crazy how life works out.

That being said we do not advise any investment purchases or even owner occupied purchases in the current market. We would prefer buyers wait until prices are much lower than $661K. Prices will continue lower as the inventory increases. Supply demand factors cannot be ignored.

As for the investor owners who are about to be caught in this chaotic market, our advice, sell in May and go away… for years. Wait until prices reach the lower echelon of the market cycle before re-entering the Greater Vancouver condo market.

The inventory remained similar from the previous month. April finished with just under 4000 active condos for sale across the lower mainland. Over the next quarter we anticipate an additional 1000 active listings to join and remain on the market.

Age isn’t just a number, by that we mean elder buildings will have a tremendously hard time in the upcoming years. As the presale properties work their way onto market which will cause added competition, add the insurance concerns, and common sentiment to like a new shiny object. The resale market will be living the hard knock life.

The April totals for condo sales across Greater Vancouver was 508. Marking the lowest April data on the record. April’s sales historically fall around 1100. The forecasts gets even worse, as we have stated in the past, sales numbers come from land titles meaning the recorded sales for April actually came from the previous months accepted offers.

The 508 April completions could have possibly come out of the accepted offers earlier in the year. January had over 900 accepted offers, February had over 1100 while March saw just under 1000. The gloom and doom of April 2020 only realized 257 accepted offers across all of Greater Vancouver. Buckle up condo owners it’s about to become a bumpy ride.

Not all markets in Greater Vancouver are created equal, some areas are closer to the bottom. While others still have significant percentage losses upcoming. Become an Eitel Insights client to find out which are which.

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

Watch Eitel Insight’s Latest Video

Student Housing, One of the Most Hyped Asset Classes, Runs Out of Students

Here’s the story of two student housing REITs in the UK that crashed.

Wolf here: In recent years, student housing, a subcategory of Commercial Real Estate, became one of the hottest asset classes in the US, in the UK, and elsewhere. Big money piled in. Wall Street raked in the fees by securitizing the mortgages into commercial mortgage-backed securities (CMBS). Large firms spun off their portfolios of student housing buildings into publicly traded REITs. The article below is about two of those REITs in the UK, but the issues are the same in the US. This asset class is risky even in good times because students are not stable renters. Last fall, long before Covid-19 showed up, delinquencies and special servicing rates on US student housing CMBS already spiked. The pandemic has now been heaped on top of it….CLICK for complete article

Evolving Today, Strategizing for Tomorrow – A Webinar Invitation

Looking to gain clarity on the current environment and its implications for the real estate market? Join Justin Smith of Hawkeye Wealth on Wednesday May 27th @ 11am. They have spent many hours analyzing data, perspectives, and strategies from some of the best minds in real estate to help us all make better investment decisions.

Registration is limited. Reserve your access today – CLICK HERE

Specifically, this webinar covers:

1. The State of the Nation
What’s the damage to the economy? How are various assets in commercial real estate performing? We will focus on Multifamily and Industrial. What’s the data for rent-collection rates?

2. How is industry adapting?
What are some best practices we’ve seen out there? How much of a difference is superior management making in terms of property performance?

3. What might the future look like?
What trends might emerge or accelerate due to Covid-19? How might they uniquely impact various property types?

4. Based on that future, what are Hawkeye’s plans for their investors?
Where do they potentially see the greatest opportunity for investors? What do they need to see before recommending a deal in today’s environment?

Multi-unit housing starts up in some parts of Canada in April despite COVID-19

OTTAWA – Canada Mortgage and Housing Corp. says construction of multi-unit housing projects remained strong in some provinces last month despite the fight against the COVID-19 pandemic.

CMHC estimates a 10.8 per cent month-over-month increase in its national seasonally adjusted annual rate last month compared with March, excluding…click for full article.

Pop-up retail could help save firms hit by pandemic effects

An Alberta/B.C. greenhouse nursery was facing what its owner called a “catastrophic” situation three weeks ago after learning it would be sitting on millions of dollars of inventory due to COVID-19 pandemic retail shutdowns.

However, Lawrence Jansen, owner of Darvonda Nurseries with facilities in Langley, B.C., Redcliff, Alta., and Mundare, Alta., received a lifeline recently with the help of commercial real estate experts at Avison Young. They’ve helped him arrange for pop-up garden shops…Click for full article.

Don’t Try to Catch This Falling Knife

Greater Vancouver’s Detached Market Drops Over 100 Thousand dollars in April.

Sell in May and go away, an adage used primarily in the stock market, applies to Vancouver’s Real Estate in 2020. In all actuality one should have sold much sooner than May, but better late than never. Home values dropped over 100 Thousand dollars from March to April across Greater Vancouver. With more significant losses forecasted.

Many analysts and even the Greater Vancouver Real Estate Board had touted a significant price increase for the detached market in 2020. Reality has hit them all hard, along with their ardent followers. Prices are still up from the beginning of the year albeit only a measly 7 thousand dollars. From $1.590Mil in January to 1.597Mil in April. Signalling the peak of the 2020 detached prices has already come and gone.

Eitel insights had strongly suggested selling into that perceived strength, and advised to hold off on any potential purchases. The chart above demonstrates why. Prices for a majority of 2019 were near the 1.50Million threshold (Higher Orange) which held as a temporary bottom, and in turn stabilized the market enabling a rally up to 1.709Million to occur in March. We have seen this movie before of pricing threshold temporarily holding only to be broken on subsequent tests.

During 2017 – 2018 prices tested the 1.60Million threshold which temporarily held. However a pricing threshold is akin to a camel, one added straw will break this markets back too. 1.60Million broke early in 2019 much like 1.50Million will break in 2020. Leaving 1.40Million as the next threshold inevitably tested.

Now, we advise, Don’t try to catch this falling knife. Prices are down over $230,000 from the peak which is good. It will become even more attractive with time. As prices decline to 1.40Million that will exemplify a discount of $430,000 to the market from the peak.

There is no rush to enter this market, we suggest patience.

Inventory for the month of April waned as expected due to covid – 19, and the social distancing. The active listings are still above the staunch uptrend, finishing the month with just under 4000 properties for sale.

Once the social distancing relinquishes, the inventory will rapidly rise. A need for money has become a harsh circumstance for a majority of households. The stock markets have lost the equity gained over the previous two years. There isn’t even a possibility to work extra hours, as most work places have been closed, some never to reopen.

With few options remaining, selling real estate will become an unfortunate necessity. Which will inevitably lead to foreclosures coming to the market as well. None of which puts pressure on the buyers. If selling, take the hit early before the knockout punch is landed.

The housing market just experienced the lowest sales in April on record. For some perspective during the 08 -09 recent recession the sales for April were at 1298 and 1188 respectively. Sales numbers plummeted to only 393 home sales in April. Sub 400 sales have only occasionally occurred during the winter months, never in the spring markets. Sounds bad but there is an additional kicker.

As we have been pointing out for the past few articles, sales data is from land titles, meaning, the upcoming months will see likely even lower numbers reported.

The number of accepted offers so far this year, beginning with January, was over 500. February saw nearly 800, and March realized just under 700. Meaning the sales data from land titles of 393 sales came from completions on those previously accepted offers.

The kicker, April’s accepted offers were just over 200… the worst is yet to come.

One of my favourite quotes is as follows which will lead into my final thoughts. “While the individual man is an insoluble puzzle, in the aggregate he becomes a mathematical certainty. You can, for example, never foretell what one many will do, but you can say with precision what an average number will be up to. Individuals vary, but percentages remain constant. So says the statistician.”  – William Winwood Reade

Eitel Insights’ forecast of 1.40 Million was offered by back in 2016 and published in 2017 (Western Investor). Not only were we the first to forecast the peak of 1.830 million, we forecasted the bottom at the same time. The housing markets are no longer guess work. Fundamental factors continually show up late to the game. By utilizing our actionable intelligence buying low and selling high is no longer based on a gut feel, it is technically predictable.

Not all markets in Greater Vancouver are created equal, some areas are closer to the bottom. While others still have significant percentage losses upcoming. Become an Eitel Insights client to find out which are which.

Dane Eitel, Eitel Insights

Watch Eitel Insights latest video: