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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

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The Good, the Bad, and the Ugly Truth about Greater Vancouver’s Detached Market

There was Good News economically speaking during the tumultuous month of March 2020. Of course this will be remembered for the major breakout of the Corona Virus. However, for those who sold their detached homes, it will be remembered for achieving the highest sales price since June 2018. Basically receiving similar price points as during the end of the frenzied Real Estate Market.

Notice on the chart, the detached average sales price in March came in at $1,709,750 testing the upper echelon of the current Market Cycle.

The Bad News, this will not be a long lived reality. Prices will be coming off with gusto in the upcoming months. Again notice on the chart in the text box, Eitel Insights anticipates the market to test the 1.4 million pricing threshold during 2020. At that price point the market would have corrected a total of 23% from the peak and down 16% from the latest data point.

For the 1.4 Million average sale price to become a reality the uptrend which began in July 2019 at 1.494 Million would need to be broken (Green uptrend). Additionally a breaking of the prolonged uptrend established in 2008 at $750,686 Black Prolonged Uptrend). The 1.4 Million price point would bring the data to the lowest orange line in the current Market Cycle.

The ugly truth, a 1.4 Million average sales price is our base case (23% correction from peak), the possibility of the market going even lower is tangible. In that case Eitel Insights would look at 1.225 Million (33% correction from peak) as the next major resistance level.

Good News, the buyers who have looked but not touched, will be rewarded with ever lowering price points. Along with increased inventory to choose from.

Bad News, the sellers who chose the two birds in the bush rather than the one in the hand will inevitably chase the market lower, continually searching for those darn birds.

The sales numbers for March 2020 will be shocking until I explain. There were 862 sales in the detached market across Greater Vancouver. Which puts the market technically near the high mark of the current Market Cycle.

The explanation, technically there were not 862 sales in March, there were however 862 completions. The way the REBGV counts the sales data is not on accepted offers in the month but rather on deals that have completed at land titles. Meaning the 862 sales occurred in different months but the key exchange took place in Mach.

Point of interest the price points are taken from the accepted offers in that particular month, while the sales totals are from previous months accepted offers. An odd fact but worth point out from time to time. This also means the upcoming months of sales numbers could continue to be higher than the actual activity transpiring.

The inventory onslaught is assuredly on the way. As Eitel Insights has been advising for the past quarter or more, is to beat the crowd. Sellers who listened had achieved the highest sales price in the previous 21 months. While prices will not continue the uptrend, the prices now have to be better than what will be offered in the upcoming months and year(s).

We advise home owners to be observant of their current situations, play out our base case of a 18% (correction stops at 1.4 Million) decline to your home’s current value. Add in a possibility of the market correcting an additional an 28% (correction continues to 1.225 Million) from here. If either of those realities put you into foreclosure, sell now get out with your skin, and put the money in the bank. If you see the train coming at you, merely get off the tracks.

Another thought, if the idea in the upcoming years is to downsize. Sell now, achieve the highest price you can, rent for a couple years. Then purchase the Condo when the market is at the lowest price point in 2022. This is the best situation to be in as the market sits right now. Nothing wrong with selling high and buying low.

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. www.eitelinsights.com

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How Will Covid-19 Lockdowns Hit the Housing Market? It Gets a Little Clearer

The “combined COVID-19 and oil shock” are going to do a number on the U.S. housing market, Fannie Mae warned in its monthly report on Wednesday. Actual data for homes sold after the lockdowns began will not be available for a while, and everyone is grappling with preliminary indications of just how ugly this is going to get.

The Home Purchase Sentiment Index (HPSI) plunged 11.7 points in March to 80.8, the largest single-month drop in the data, Fannie Mae said, “reflecting quickly diminishing homebuyer sentiment.”

A survey conducted by the National Association of Realtors in the first week of April, cited by Fannie Mae, showed that 90% of the responding Realtors reported declining buyer interest, with half of them reporting declines of over 50%….CLICK for complete article

Eitel Insights Analysis Proven Correct Again in Vancouver’s Condo Market

The average condo price in Greater Vancouver shot up 5% month over month, bringing an end to the divergent trend. Also sending prices to the highest price point since October 2018. March realized a sales price of $699,015 just below the upper echelon of the current market cycle.

Eitel Insights has suggested selling into this pocket of strength rather than purchasing. Unlike so many other analysts who proclaimed 2019 as the bottom. Sellers who heeded our advice should be overjoyed at achieving the highest sales price over the previous 20 months. While purchasers who took the advice of other analysts might not feel so enthused.

There is a notion that Greater Vancouver would be immune to any significant correction to our Real Estate market. That is a complete fallacy, a little history reminder. April 1981 Greater Vancouver (detached) prices were $181,200. Prices immediately took a nose dive and by August 1982 prices had declined 39% to 110,300. Equally as important the prices remained at correction levels until December 1984 when prices were still hovering at $113,000 -37% from the peak. Of course this occurred during the interest rate hike and that was an extraordinary time. But I would argue we are living in an extraordinary time now as well.

Another live example would be how the equity markets have performed over the recent months. The Dow Jones peak was 29,500 the near term bottom was 18,275 (technically important level) which represented a 38% correction. The TSX has had a similar sell off, at the peak

the TSX was around 18,000 and the near term bottom arrived around 12,000 a 33% correction.

Sales in March were nominal and came in just below 1200 completed sales. One point of interest, the sales numbers recorded by the Real Estate Board are completed sales, meaning the deal has completed at land titles. While the average price that is reported by the board is on accepted offers, which are legally binding contracts but not completed…. Enter the lawyers.

The level of sales Eitel Insights is interested in is 1425. That level of sales has not been eclipsed in the past two years and what we have our eye on during this upcoming quarter. The market will not likely surpass this level in 2020.

The economic landscape is clearly in a negative forecast, with no quick solution obvious. While the National and Provincial Governments attempt to mitigate the Covid-19 impact, inevitably there will be a real life impact for the condo market in Greater Vancouver. Purchasers who have waited this long, might as well continue to wait as the chaos is just about to ensue.

The inventory in March surpassed the 4000 active level. Eitel Insights anticipates the actives to rapidly rise over the upcoming 2 quarters. With job losses transpiring and likely to continue, the only option to accrue money, for most, might be to sell their highest valued asset, the property.

In the past we have mention a cannibalization of the condo market would be coming. That will begin to become more and more prevalent. By cannibalization, we mean the new buildings will trump older buildings. The insurance issues will only perpetuate this situation. Owners of older buildings will have to offer their units at low prices to merely compete with the newer buildings who have warrantees.

The desperation levels amongst sellers will continue to build as a majority of sellers will attempt to achieve the highest dollar amount and ultimately chase the market lower. Our advice bite the bullet. Offers coming in now will look amazing in a years’ time.

For Eitel Insights clients who have already taken advantage of this pocket of strength just achieved the highest sales price in the past 20 months and sold in the lowest amount of days since September 2018. The active days on market for sold listing in March came in at 29.

Stick with Eitel Insights for Actionable Intelligence through Analytical Interpretation.

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CLICK HERE to read this comprehensive and valuable report. A must read for everyone with a mortgage or line of credit. ~ Ed.