| April 2021 Newsletter – Vancouver Real Estate Market Will Canadian Housing markets get cooled by policy response? Things are beyond heated throughout Canada’s housing markets. It’s not just the Vancouver and Toronto markets that are seeing rising prices. Canadian small towns are booming as well. Some of the fastest rising markets are places like Mission and Penticton. This could have been predicted as we entered a long term quarantine and lockdown last year. Many businesses moved out of their brick and mortar locations and transitions to work from home models. Some people still need to commute, but that’s infrequent and workers are willing to do a long drive if it’s just a couple days a week. These small town markets are seeing the biggest gains in detached home sales. With foreign buyers no longer driving the Vancouver markets, we now know the key factors driving this upward trend: – All time low interest rates – Demand for larger detached homes – First time buyers willing to take on large mortgages – Transfer of wealth from baby boomers to their children – Capital gains exemption on principal residences Fear of missing out. If I were to have to pick two major trends that I feel would be most responsible for the torrid pace of our real estate market the past 10 months, they would be the shift in homeowner and buyer needs (remote-working needs and the desire for outdoor space) and affluent millennials with the backing of their baby boomer parents taking advantage of low interest rates. Naturally the question comes to mind: how long is this going to last and what is the government going to do to slow this down? Here are some of the key risks to the housing market and what is likely to happen if prolonged: 1) The main short term risk is an overheated market, and we are already seeing this. Buyers are getting fatigued from multiple offer scenarios that require “cash offers” only to be outbid by 5%. Demand has stripped inventory throughout the country causing compression in entry level price points throughout the market. As prices rise and buyers see themselves as “priced out of the market”, demand will decrease and prices will soften. This is often triggered by any sort of rise in interest rates which we are expecting early next year. 2) Interest rate rising could cause inflation which would quickly reduce this tailwind in the market. 3) Likelihood of policy intervention increases for any prolonged rising market. The 2016 institution of a foreign buyer tax is a perfect example of that. That said, when we look at the statistics from 2016, the market was already starting to slow down in the Spring of 2016 (buyer fatigue and increased inventory), and the mid-Summer foreign buyer’s tax, while effective to some degree, was late to the party and possibly ill-timed depending on your point of view. 4) The wild card is immigration. If immigration remains low there will be few new buyers in the market place to buy up pre-sale properties and will create a supply of new homes. If post-vaccine immigration picks up this could offset local buyer fatigue and create another surge in the market in late 2021 and into 2022. 5) Prolonged labour market weakness could affect small towns and rental markets. This is the biggest risk for affordable homes outside of Vancouver proper. Affordability remains a large issue in major markets, particularly in the detached segment. 6) New construction is a sign of a healthy market but could cause long term over supply of inventory. If this happens there could be a ripple effect lowering prices in the resale market that are competing with new homes. Governments and banks may consider policy changes to increase supply and affordability, and some of those potential changes could be: 1) Tightening of mortgage qualification rules for higher-risk borrowers in an attempt to curb credit in an economy trying to emerge from the pandemic. This may include raising minimum down payments on mortgages and increasing the stress test for debt services ratios. 2) Relaxing zoning allows for more multi-family properties within the city cores. This may address needs of families through townhouses and duplexes. This type of housing is often referred to as the “missing middle”. 3) Removing exemption on capital gains for principal residences. This is the sacred cow of Canadian markets and would be political suicide, but it seems to be gaining momentum with our current governments. This has been talked about for decades and at some point may be instituted. In my opinion it’s a matter of when, not if. So far in 2021 our team is working on a record year. Through the first quarter we have already sold a similar volume of homes than in all of 2019. In markets like this it takes expert negotiation to acquire properties. Having been through rising markets before, we use our experience and the leveraging of relationships with other top producing realtors to secure homes for our clients. 15% of our clients’ purchases this year have been done “off market” and this is one of the creative ways we have come up with to avoid competition and secure homes for our clients without the stress of multiple offers. On the listing side, our strategic process and marketing platform have helped our clients sell many of their homes for 5-15% over asking price. If you’d like to discuss a game plan for your next purchase or sale, don’t hesitate to reach out. Our full service team of 6 allows our clients to be well looked after even in the busiest of markets. We look forward to connecting with you soon. Your ongoing support and referrals are very much appreciated. |
| Kind Regards, Patrick Weeks Real Estate Patrick, Devin, Jenny, Noah, Matt and Susan |