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Will B.C.’s commercial real estate prices follow residential decline?

Our friends over at Hawkeye Wealth brought this one to our attention. Some interesting insights on where the money is flowing in the real estate market. -ed.

Home prices have been in a sharp retreat in Metro Vancouver, Canada’s second largest investment market, ever since the British Columbia government introduced a foreign buyer tax in mid-2016. The concern for some is that commercial property prices will be pulled down by the residential sector. Recent price history suggests that won’t necessarily be the case, however.

When I visited Vancouver earlier this year, market participants seemed to be waiting for the next shoe to drop. With single-family homes and commercial properties competing for land, the thinking is that the decline in residential prices will bring down land values, and in turn bring down commercial property prices to the same degree as residential assets.

Historically, these price series had moved together. From 2005 to 2014 each exhibited a six per cent compound annual growth rate (CAGR) with only a few bumps and differences between the series over time….CLICK for complete article

For more from Hawkeye, head to their twitter “@hawkeye_wealth”.

Canada’s Most Splendid Housing Bubbles, June Update

June is generally a strong month for house prices in Canada, according to the Teranet-National Bank House Price Index. But this June, the index rose only 0.8% from May, compared to an average June increase of 1.2%. Once those “seasonal pressures” are removed from the index via seasonal adjustments, “the composite index would have retreated 0.4% in May and 0.5% in June,” the report said. Particular weak spots were Vancouver, Calgary, and Edmonton. But there were some warm-spots too.

Vancouver:

Just based on seasonality, house prices should have risen in Greater Vancouver, which was until mid-2018 one of the most splendid housing bubbles in the world, where house prices had more than quadrupled in 16 years. But instead, they declined in June for the 11th month in a row, according to the June Teranet-National Bank House Price Index. The index is now down 5.2% from the peak in July 2018, the sharpest 11-month decline since Aug 2009….CLICK for complete article

Half Of Greater Vancouver Can’t Afford A One Bedroom Rental

Vancouver real estate is hella expensive, but it’s become ridiculous in recent years. Canadian Centre for Policy Alternatives (CCPA) crunched the numbers to find the wage needed to rent in Greater Vancouver. Breaking down the numbers further, we see how unsustainable the region has become. The average one-bedroom is now unaffordable to over half of the city. That’s if we include distant suburbs, and it’s even worse if we don’t.

Housing Affordability

Just because you can make the payments and not go into arrears, does not mean your housing is affordable. The term “affordable” is thrown around a lot, but there’s an actual definition used by the government. For housing to be affordable, shelter expenses need to represent less than 30% of gross (a.k.a. pre-tax) income. Shelter expenses include, but are not limited to, rent, mortgage payments, utilities, taxes. This is the definition used by the CCPA to determine “affordable.”…CLICK for complete article

Ontario Loses Over 5,000 Real Estate Jobs, BC Hits New All-Time High

Canada’s real estate sector is making a shift. Statistics Canada (Stat Can) data shows FIRE sector jobs made a small decline in June. The aggregate movement was small, but most of the gains are being made in smaller provinces. Larger provinces like Ontario and Quebec lost thousands of jobs in the sector last month.

The finance, insurance, and real estate (FIRE) sector is the industry of buying and selling homes. The industry booms when asset prices rise, and/or more interest payers are added – i.e. more credit is issued. It suffers when asset prices fall, or credit growth starts to slow down. The sector becomes more important as manufacturing jobs disappear. Yes, the business of warehousing people replaces the business of producing goods. Debt driven economies, such as Canada, are increasingly dependent on this sector.

Canadian FIRE sector employment is virtually flat from the month before. FIRE seasonally adjusted employment fell to 1.193 million jobs in June, down 0.02% from the month before. This was the first monthly decline for June since 2014. The decline works out to 200 jobs, so not nearly as bad as May – when 2,300 jobs were lost. June’s movement was small, but some provinces were luckier than others….CLICK for complete article

Real Estate Hits 20 Year Low

2 decade low in sales, prices are down $320,000 and testing the 10 year uptrend for the second time in 2019. Not great news but information you need to know.

Real Estate Market Update Detached Release.

During our current market cycle the first test of the uptrend occurred in Feb 2019 when the market lost $165,000 from the month previous. That was significant as it broke the middle threshold of this market cycle. The market decided $1.610 Million was not the bottom of the cycle. That decision was so forceful that the market dipped its toe below the 10 year uptrend. The drop experienced was too significant for that period of time and the market was not prepared to actually break the ten-year positive trend. As a result, the market quickly shot back up to where it felt comfortable around the middle threshold. Since that price point is no longer in question, the market is forced to head lower. In June the Average Sale Price was $1.510 Million and is the most recent test of the ten year. This could represent a positive in the short term.

What we believe will transpire over the remaining months in 2019 is a somewhat tight selling range, with properties selling above the ten-year uptrend and below the upper most downtrend line. This behavior will ultimately result in a break to the 10-year uptrend in early 2020 and retesting the $1.400 Million threshold. If that price point does not hold as a bottom, the next price point tested will be $1.225 million. Since 2009 the staunch uptrend has been tested 6 times and always proved to push the market higher. This trend will come to an abrupt end before the start of Q2 in 2020.

Sales have all but dried up. In June 2019 only 761 detached sales took place, marking the lowest point since 2000. May and June are usually the highs in regards to sales in any given year. This gives us reason to believe the market will continue to see lower price points as we go forward in time.

While inventory will continue to climb and competition amongst sellers will intensify, properly priced properties can achieve sales, as a small segment of buyers have realized enough of loss and have a great enough need to purchase in a timely fashion. However, the “proper price” on an individual property basis is decreasing. The gap has narrowed between a price drop vs a stress test decrease in mortgage qualification. Those buyers who have a need to upgrade are in a stronger position to move forward with a purchase.

Worst June for the Greater Vancouver Condo Market in Decades. Paltry Sales and prices down over 100K

Real Estate Market update Condo Release.

Prices have dropped over $100,000 since the market peak currently around the middle threshold of this Market Cycle. While the ten year uptrend bottom is far from our current price point of $643,000. The top of the ten year trend will be tested in the near future. As when the market exploded after breaking above the ten year the re-entering of the trend will be equally volatile. After the attempts to stay above the uptrend fails the market will fall hard in price point (ex. Detached market fell when it broke the middle threshold). Ultimately the condo market will test $525,000 as a potential market bottom. A total of 30% correction from the peak of $750,000.

Why do we see the prices ever lowering? The old adage of Supply demand. The demand is nowhere to be found. For the first time in decades we have experienced a June with less than 1000 condo sales in Greater Vancouver. The sales totaled 946 condo sales in June, which is usually a busy time of year for condo buyers and sellers. Not so in 2019, the paltry sales totals and the strong down trends will only be exacerbated by the ever increasing total to inventory.

The Condo inventory is continuing to grow at a rapid pace. This will continue to intensify as we see more and more pre-sale buildings coming to completion. With those pre-sale buyers already flooding the private listing market with assignments. Once they receive occupancy the market will experience a major amount of inventory supplied to the market thus beginning the cannibalization of the condo market. Ultimately we believe the average price for a condos will bottom but before then the market will experience all-time high in the available inventory for the condo markets.

Dane Eitel is the founder and lead analyst of Eitel Insights. Click here for more information.

 

Opportunity In Real Estate Chaos

Dane Eitel, of Eitel Insights analyzes and predicts the movements in Vancouver real estate housing market by determining where the market is headed and how to take advantage of the opportunities.