Vancouver’s Real Estate is off to a torrid pace this year.
Will that trend continue beyond 2021?
It was this time last year when I was sitting in my office isolating, wondering if I’d made a huge mistake. It was my career long goal and dream to purchase and open my own boutique office storefront in the neighborhood I grew up in Kerrisdale. The construction crew had just finished all of their deficiencies and I was alone in our brand new office. Real estate was the furthest thing from people’s minds as we panic bought groceries and essentials, and started watching Bonnie Henry guide us all through what is the biggest pandemic in our lifetime. Sitting quietly, without the phone buzzing and the email inbox filling up as usual, I had a chance to reflect and think about things most important to me: family, friends, and most importantly our health. Our team took the approach that if we couldn’t work, how could we help our community? We used this slow time to raise money for some families in need, dropping off gift cards to families that had yet to have any government help and were struggling to put food on the table. That experience was extremely fulfilling for us, and certainly helped our team bond with each other, as well as the community as a whole.
About a month into the initial COVID lockdown, we were faced with a major reality: life is going to change forever, but in the meantime everyone we know has large mortgage, rent and bill payments, how are we all going to put food on the table in the coming year? Well a funny thing happened in mid-May. After the initial shock and awe of the pandemic and with some degree of uncertainty, people started buying real estate again. Since then the phones haven’t stopped ringing. People realized their daily lives were going to change forever and their priorities shifted. Gone was the need to have a turnkey small condo as the priority switched to the requirement for more space. As parents fumbled over each other trying to teach their kids from home while on zoom calls, we all realized we are going to need more space. People could foresee that their homes were a place where they were going to spend more time, and this wasn’t going to change anytime soon. As a result, 2021 has been the strongest start to any year in our team’s 18 years in the business, with most properties selling with multiple offers and over the list price. It is reminiscent of 2016.
Naturally, the question comes to mind: how long is this going to last? Is this just a blip as people need extra space for home offices and a yard, or will this trend become the new normal and have legs beyond 2021 and into next year? There are 8 key factors to consider when thinking about our future real estate market and economy:
1) The main short-term risk is overheating, not price collapse: Super-strong demand is quickly depleting inventories in the Lower Mainland and across the country. Competition between buyers is extremely fierce in many markets (including smaller ones), and a ‘fear of missing out’ is taking hold. Such dynamics often lead to self-reinforcing price trends.
2) Interest rate risk could rise if the economy outperforms expectations: Exceptionally low rates provide a powerful tailwind for the market. This wind could change direction if a quick economic recovery stokes inflation fears, causing interest rates to rise.
3) The odds of policy intervention will continue to increase the hotter markets get: We only have to think back to the summer of 2016 when the BC government brought in the foreign buyer’s tax as an example that policymakers come under intense pressure to stabilize markets and contain household leverage risks when prices spiral upward.
4) A fall in immigration could put the breaks on housing demand if sustained: The impact of persistently low immigration would likely spread beyond the rental market of Canada’s largest cities. As a result condo markets could become vulnerable. On the other side of this coin, however, is once the borders open up again, will there be pent-up demand from foreign buyers who have not been able to get boots on the ground in Canada for nearly a year? As we saw in 2015 and 2016, foreign capital can have a large impact on our real estate market.
5) Prolonged labour market weakness would pose a risk: High unemployment could outlast government support programs, potentially undermining housing demand. We see this as a bigger risk in the rental market as well as in smaller cities where prices are much lower than Vancouver.
6) The pandemic still represents a threat to the housing market: New variants could emerge that could destabilize the economy, causing further uncertainty.
7) Poor affordability remains a large issue in major markets: The high cost of homeownership in Vancouver, Toronto and, to a lesser extent, Montreal, are a top vulnerability for Canada’s major markets.
8) Strong condo construction isn’t a sign of overbuilding: But elevated levels of apartment rent construction in Vancouver, Toronto and Montreal raise some potential longer-term absorption issues. Very low unsold inventories significantly limit risks near term.
You’re probably thinking ‘what does this all mean for me?’ Sage advice I learned from my mom who spent a lifetime in the real estate business and saw major corrections and rising markets: as long as you buy and sell in the same market, your risk is minimized. With this understanding you can make a fact based decision about where you want to live and how to make this happen.
The next challenge is this catch-22 that we are tasked with so often:
You probably don’t want to sell your home without having somewhere to go. With low inventories, there is a warranted fear that if you sell your home, you won’t be able to get back into the market, and you will need to settle for something that isn’t ideal or panic buy in a rising market.
You likely don’t want to buy a home without knowing what your home is worth and are concerned that the music might stop right after you’ve purchased, forcing you to sell your home in a downturn.
We have solutions to these questions and know how to navigate our clients through these challenging scenarios.
- Do your research: know what type of home you want to buy and get a sense of what is out there to buy before you consider selling your home. Track these properties from when they are listed, how many offers they are getting, and find out the final sale price. Yes, these homes will probably be gone before you are in a position to purchase a new home, but at least you will have your finger on the pulse and know what it’s going to take to buy back into the market.
- Use strategic subjects and conditions: Secure your new home while simultaneously having your home on the market ready to review offers. Don’t commit to a sale before you have a new property under contract and then you can review offers on your home and make a smart decision, based on the difference between the purchase and sale.
- For the less faint of heart, I recommend selling your property with flexible possession terms. What this means is that you can sell your home with a quick closing so that you have cash in hand and are ready to make a “subject free” offer when the perfect home is available. If the right home isn’t available right away, you have a flexible “rent back” option from your sale allowing you to extend your stay in your home until your new home is ready for you. The pre-sale market is still relatively slow as buyers are looking for move-in-ready homes and have less patience than in previous years. There is excellent inventory for pre-sale townhouses and condos coming to market next year. Buying pre-sale provides the opportunity for you to lock in on new construction and stay in your home without the risk that the market will fall. When your new home is ready, simply give your new landlord notice that you are ready to vacate.
TIMES LIKE THIS REQUIRE ADVICE. WE ARE HERE FOR YOU TO SIT DOWN AND CREATE A STRATEGIC GAME PLAN FOR YOUR MOVE. WE HAVE HELPED 144 FAMILIES MOVE SINCE THE START OF THE PANDEMIC AND ARE HERE FOR YOU EVERY STEP OF THE WAY.
Sincerely,
Patrick, Devin, Jenny, Noah, Matt and Susan