Real Estate

Undeserved Optimism in the Greater Vancouver Condo Market

The Greater Vancouver Condo sales prices for October came in a $661,204 slightly down from the previous month. More importantly is the technical test that the Condo Market is going through. As Eitel Insights clients and followers know we analyze markets using Technical Analysis. Technically this market is attempting to regain position above the higher of the two yellow lines in the chart below (line indicates $675). The technical price point of $675,000 is hugely important. The market during 2017 spent over 7 months deciding whether prices should go above that psychological value, and at the time the market answered a resounding yes. As we all know the Greater Vancouver Condo Market peaked in Jan 2018 with sales prices fetching over $750,000.

 

This most recent test to try and stabilize the market will fail just as the attempt to regain position above $675,000 will fail ultimately. As Eitel Insights prescribed in our last monthly update the condo market does lag the Detached Market. As such the Detached Market will be experiencing “need based selling” in 2020. The condo market is in a slightly better position currently, however with prices reaching an average sales price of $525,000 in 2021. The need based selling will eventually rear its ugly head in the condo market as well. That means a further drop of 18% ($135,000) on top of the 12% already realized. We have stated money saved is money earned. When you understand the Condo Market lags the Detached Market it is very difficult to understand how folks could believe the Condo Market has hit its bottom.

Keep in mind the Inventory levels will be through the roof over the next two years as those pre-sold condo’s come to completion and the market will experience an additional factor that will force prices lower as the old supply demand factors show up.

The sales numbers continue to impress and actually has established a very aggressive uptrend as you can see in the chart. This is a natural reaction after seeing such a catastrophic fall off in sales. This is known as a dead cat bounce. The downtrend is still very much in play as the top line has not been tested yet. There is always a demand for primary ownership in the Greater Vancouver Condo Market, however the investors are on vacation and will remain so for years. The purchasers who have been buying, have had their patience tested and were forced to wait until prices came down. When prices decreased to $643,000 in June 2019 that represented a %15 loss, which caused the buyers to take advantage. We would recommend waiting to purchase a condo property until we are closer to the technical bottom in terms of pricing.

Eitel Insights does believe in paying off your own mortgage rather than someone else’s through renting. However with prices going down a further $135,000, there is a more opportune moment to purchase. Always ideal to begin your property ownership seeing prices rise rather than fall. That is the type of actionable intelligence we take pride in.

The inventory has broken out of its aggressive growth trend for the first time since its inception in December 2017. As we say this was an aggressive trend and with realization the market is headed lower we sympathize with sellers resisting to sell at these prices, possibly by listening to the optimistic analysts. Unfortunately if the sellers wait for the spring they will be punished with more competition and ever lowering prices. Again our advice to owners of the Greater Vancouver condo market, start planning for years of chaos, or better yet get in touch with Eitel Insights and we can discuss your personal properties forecast.

Why is the Greater Vancouver Townhouse Market Only Down 7%?

The last bastion of hope in the Greater Vancouver Real Estate market is the Townhouse asset class. With prices only down 7% from the peak (September 2018 $917,399). Why is this market seemingly the strong hold? Simply answer is the townhouse market is a catch all. From the downsizing elderly that do not want to live in a 40 storey building with 2 elevators; and the couple needing more space for the growing family and the detached prices are out of reach.

The natural step out of a Condo is into a townhouse especially over the past decade as the price spread between the Condo and Detached prices has increased. Prices have dropped as low as $775,000 representing a 15% decline however with the stress test introduced in 2018 the forced acceptance of a lower purchasing power has forced potential entry level Detached buyers into the Townhouse market. This is best exemplified as the technical top in the Townhouse did not occur until September 2018 long after the Detached market had topped and an additonal 8 months after the Condo market peaked.

Technically the Townhouse market has more uptrends that will show support for the prices going forward and causing this asset class to be the “cleanest shirt in the dirty laundry”. Eitel Insights is forecasting a market cycle of 21% – 26%. In our Chart you can see two orange lines that represent psychological pricing levels that the market will inevitably return to. Currently the market has tested the middle ground and is responding to the conservative uptrend established in August 2016. Going forward this conservative trend will be broken and prices will indeed dip to $723,000 signalling a loss of 21% from the peak. If that price point does not hold the next level tested will be $676,000 (26% loss) and that will definitely be the buoy that bottoms out this market likely in mid 2021.

Sales for the Townhouse market were near all-time highs for 3 consecutive years from 2015 – 2017. Interestingly the peak in sales prices occurred when the sales where at the low of the projected market cycle for sales. Again signaling to us that there was forced purchasing in the majority of 2018 due to the stress test. The falling knife trend in sales has been broken and the range will begin to be filled out in the upcoming years. Likely finding peak selling months hovering round 480 sales and low months seeing 250 sales.

Due to the high sales during 2015 – 2017 it is an obvious correspondence that the Townhouse market experienced a serious lack of inventory during 2015 – 2018. 15 year historic low levels to be exact, in December 2015 the market had its lowest level coming in at 626 active listings. Current numbers are in the middle of the chart and testing the staunch uptrend that has propelled the market inventory to see over 2100 active listings in June 2019. We anticipate seeing levels grow in the spring, summer of 2020 and prices will indeed find a new downtrend to follow until we see a market base. Unlike the Detached market where some areas are nearing their technical bottoms and owners are advised to hold, the Townhouse market will experience a drop of definite 14% from current levels representing over $120,000 of equity. With a realistic chance of seeing the market go down 19%, over $240,000.

For more info please visit www.eitelinsights.com

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The Canadian Real Estate Industry Just Downplayed The Biggest October In 10 Years

Canadian real estate markets are on fire. Canadian Real Estate Association (CREA) data shows sales across the country jumped in October. The rise was actually so large, last month was the biggest for the industry in over a decade. This is the opposite of what the government wants to see ahead of rolling out new demand stimulus.

Canadian Real Estate Sales Rise Over 12%

The headline number used by the industry is seasonally adjusted, which downplayed growth. There was 42,970 seasonally adjusted sales in October, flat from a month before. Unadjusted however, sales reached 44,499 in October, up 12.9% from the same month last year. FYI seasonally adjusted numbers are compared using consecutive periods. Unadjusted numbers are compared on a year-over-year basis…CLICK for complete article

The Inconvenient Truth about Greater Vancouver Real Estate

The October data has come in and has been touted as a signal of strength from the Real Estate Board and optimistic analysts. The truth in the matter is prices are down almost 100 Thousand from October 2018. Over 300 Thousand from the peak. In addition the detached market produced an average sales price of $1,533,135, signaling no pricing momentum over the past quarter. Simultaneously falling behind the 10 year uptrend. What this means to us is the market is holding on for dear life. Eitel Insights anticipates seeing another drop in prices for the first quarter of 2020, likely testing the 1.4 million prices point on an average sales basis.

If you go back and look at the Real Estate Board of Greater Vancouver outlooks over the past few years while the market has been falling. Each outlook is anticipated for the upcoming year to be in recovery mode. Not to mention they never caught any market top. Eventually this forecast will be correct just not in 2020. The board has never once anticipated anywhere near a 20% correction, Eitel Insights on the other hand absolutely predicted this outcome.

As we have always advised not all markets are created equal, some markets inside of Greater Vancouver have dropped 30%+ and are close to their technical bottom. While other markets still have much further to go and will bottom in 2021. The markets that are nearing their bottoms will hover at the low end of the market cycle. The lagging markets will continue their evolution lower. With no increase to the leading markets, the Greater Vancouver Average sales price will be forced lower as well.

The sales numbers have rebounded from paltry levels however no where near recovery territory. The market is experiencing is need based buying. What the analysts are missing out on is the purchasing activity is largely tied to the mortgage stress test mitigation that is occurring in many markets across Greater Vancouver.  Prices have hovered around 16% – 18% correction over the past quarter.

Unfortunately there hasn’t been too much newly listed inventory over the past quarter causing purchaser to battle over the newly listed properties that are in line with the actual market trajectory, lower. In 2020 listings will pile back onto the market, unfortunately the buyers that had a need, will have already purchased. The purchasers who have held back will be rewarded. Investable markets are still rare but there are a few gems out there that Eitel Insights can guide you to.

Noticeable is the lack of growth in the inventory market, expect that to change again in the early part of 2020. When prices decrease back to the 1.4 million price threshold that will have eroded any equity gains over the previous 5 years. Signalling a tough time during mortgage renewal conversations. Not only this factor will start to become prevalent but the market has been holding off with the optimistic hope that 2020 will be better. Now that there has been a blip of buyer activity, you will see a rush of new listings come to the market in 2020.

Sellers are advised to take advantage of the fall market before the spring market is yet another disappointment. It is very difficult for any market to go up or even base when there is a market upcoming with need based sellers. Just wait you’ll see what we mean.

Money saved is money earned. Since our initial forecast that the Greater Vancouver Market had indeed topped out and prices would begin to trend lower. The market has realized a $360,000 price loss. For an individual report please visit www.eitelinsights.com

Canadian Mortgage Growth Improves, But It Was Still A Very Weak September

Canadian mortgage credit is growing, but isn’t quite where it should be. Bank of Canada (BoC) numbers show the balance of mortgage debt hit a new high in September. Mortgage credit growth has improved substantially from last year. However, the improvements to growth, still don’t bring it into typical range.

Canadians Owe Over $1.6 Trillion In Mortgage Debt

The balance of outstanding mortgage credit at institutional lenders is chugging higher. The balance hit $1.6 trillion in September, up 0.5% from a month before. This represents an increase of 4.2% from the same month last year. The new balance is a new record high for the segment, and improvement from last year’s rate of growth….CLICK for complete article

Canadian Variable Mortgage Rates Are Rising Very, Very Fast

Despite rock bottom borrowing rates, some Canadian real estate buyers are paying more. Bank of Canada (BoC) numbers show variable rates on residential mortgages made a big jump. Even with borrowing rates generally falling, variable interest mortgages are at a six year high.

Variable Rate Mortgages

Variable rate mortgages are when the borrower sees the interest rate fluctuate. Payments usually stay the same, but the amount that goes towards interest fluctuates. If rates rise during the term, the borrower pays more interest, and less principal. If rates fall during the term, borrowers pay less interest, and more principal. At the end of the term, depending on rates, you may have a bigger or smaller mortgage balance than expected.

Uninsured Variable Rates Are Up Over 26%

Uninsured rates made a very large increase over the past year. The rate paid on new uninsured residential mortgages hit 3.74% in July, up 1.63% from a month before. The rate is now 26.35% higher than it was during the same month last year. Rates are the highest they’ve been in at least 6 years, and likely beats that record for some time….CLICK for complete article

Greater Vancouver Home Prices Headed Lower for Longer

September came and went without so much as a hello or good bye in Vancouver Real Estate. The Greater Vancouver data shows not much movement in September with prices moving slightly down from 1.560 million in august to 1.507 million for yet another re test of the 1.5 million price point. This is the highlight of the September data, as this shows we are back to the prices experienced in June and July. However this re test of the horizontal orange line is a break of the ten year trend. With this break we know by around the first quarter of 2020 the prices will dip below the 1.5 million threshold and re test the 1.4 million price point indicated by the lower orange horizontal line in Greater Vancouver’s current Market Cycle. This movement down could occur before the aforementioned Q1 of 2020, but due to the stress test we think that the market has some pent up demand that still needs to purchase. Once that blip is over prices do indeed test 1.4 million.

The result of this movement means those that will be up for the 5 year mortgage renewal in 2020 will have lost all equity gained over the past years. In Feb 2015 prices first surpassed 1.4 million. This is where the market will return in the near future. Even more troubling we forecast the market to continue in to be tumultuous until 2021 when the market sees a base. This means those who purchase properties during the peak in detached prices of 2016 will be in for over $400,000 loss of equity when they go for their mortgage renewals in 2021. We do not mean to instigate fear, however this is the reality many owners will face in the upcoming years. We believe it is better to know what you are facing rather than being an ostrich with your head in the sand.

Greater Vancouver sales seemed to have hit their heads three times around 930 sales indicated by the horizontal green line in the chart above. This has seemingly caused the sales to be range bound between 930 and 620 in a given month. We anticipate this trend to continue until the conservative downtrend in sales has been broken likely in 2021.

Again not much movement with the data in September for the Inventory. With just under 6000 active detached properties available, just below the middle of the uptrend. With the downward pressure of the market prices we have noticed that stagnant listings do not stand much of a chance in this current market. You need to separate your listing from the competition and really the only way to do that is by being sharp on your list price.

Money saved is money earned. Since our initial forecast that the Greater Vancouver Market had indeed topped out and prices would begin to trend lower. The market has realized a $360,000 price loss. For an individual report please visit Eitel Insights online.

Greater Vancouver Condo Prices Realize the First Bump in Over a Year

 

Greater Vancouver prices rose over 20 thousand to $673,000, now that doesn’t sound like much and it isn’t only a 3% bump. What is interesting though, is this broke the initial downtrend that has been established since the peak occurred in April 2018 at a price point of $747,000. Also the first slightly significant increase to the average sales price over the past year. This is not cause for celebration however, the market has not bottomed nor close to it. What has transpired due to the break in this initial downtrend is the market will establish another likely more conservative downtrend.

As is common sentiment the condo market lags the detached market in most instances. Vancouver is no different, during the initial downtrend of the detached market when prices hit the middle of the market cycle then bounced higher as psychologically the market does not want to go lower than this point. Until reality sets in and forces to test lower previously established prices before the market reaches the bottom.

This is what is going on here and now in the condo market. Prices will attempt to stay above the lower of the two yellow lines ($635K) in the market cycle. Once this attempt fails, prices will again turn lower during 2020 and 2021. As prices continue to decrease the market will re-enter the ten year uptrend indicated by the black uptrend line. And ultimately will indeed drop to the anticipated bottom of $525,000 by 2022.

Sales over the past quarter for the Condo Greater Vancouver Market have been somewhat stable, staying above 1100 sales. Which is smack dab in the middle of the conservative downtrend. With the most recent sales prices coming in at $673,000 only representing a loss of 10% from the peak. The challenge in qualifying for a mortgage is difficult and will remain so as the major banks are planning on further losses to this asset class. As a result they are being very tight with their borrowing metrics. Not to mention the Greater Vancouver Condo market still needs to see an additional 10% losses from here before realizing the stress test mitigation that is currently going on in the detached market.

Inventory is right up against this aggressive uptrend that has been established since the beginning of 2018. Similar to what we forecasted with the price point when the data is up against the trends we will see an obvious reaction one way or the other. Indicating either there will be a break to the current uptrend and a creation of the next or we will see a snap upwards in October’s active listings numbers. Regardless of the short term trend the overall trend for the inventory indicates that during 2021 and 2022 inventory will be a record high levels.

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