Undeserved Optimism in the Greater Vancouver Condo Market

Posted by Dane Eitel

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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.

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