Will the average home price in Greater Vancouver double over the next decade? Dane Eitel thinks so. And if it does, this will not be the first time Dane has successfully forecasted Vancouver’s real estate market. Dane joins Adam & Matt to discuss his methodology and confidently charts not only his prediction of a short-term market collapse but also a market resurgence that will take Vancouver into the stratosphere with major urban centres like New York & Hong Kong.
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Can you tell us a little bit about yourself?
Dane has been a realtor for approximately 10 years or so. In the past 2 ½ years, Dane has been known for real estate forecasting. Eitel Insights, the Company Dane founded, had a forecast published in the October 2017 edition of Western Investor where he predicted that detached home prices in greater Vancouver would drop from an average of $1.83M in late 2017 to $1.67M in the 3rd quarter of 2018. This prediction was within 2% of the actual market results as of August 2018. Dane has identified that the market is now showing divergent trends, a 10 year upward trend that will eventually meet the more recent downward trend in pricing (as shown on the included graphs).
Dane was born in Calgary but moved to North Vancouver when he was a toddler. He has spent lots of time in the Burnaby area where he played lacrosse growing up.
How did you get into real estate forecasting?
Dane had been investing in the stock market for 6 years and performing stock market analytics and analysis. He started to use stock market analytics and applications to real estate data. Applying analytics to real estate data will lead to extra information – extra information leads to informed realtors – informed realtors leads to informed clients – informed clients will do better in real estate than your average person.
Dane is confident that the real estate market is forecastable if you analyze the data properly and his projections are quite specific. Dane is predicting in February 2020 the divergent trends will meet (10-year uptrend will meet with the current market downtrend), this will result a 26% correction top to bottom in the market. By the middle of 2021, the average housing price will be at $1.40M for a detached single-family home in greater Vancouver.
Eitel Insights can focus the analysis they use for greater Vancouver to specific areas and even specific neighborhoods.
What does this mean for the immediate future of the market for Vancouver in the next 3-5 years?
Currently, the average sale price for the detached single-family home in greater Vancouver is approximately $1.64M. What Dane expects to see is a narrowing of the selling range where prices will stay flat for the short term, but housing inventory will continue to build. This will result in an excess of inventory on the market and home prices will decrease.
A stress test for mortgages was introduced in Canada in early 2018. For example, in 2016-2017, if a buyer was looking for a detached home at a price of $1.2M, they would have been in steady competition with other buyers. If they were not successful, they may have been discouraged and taken a break from looking for a home. In 2018, when the stress test was introduced, that same buyer would now qualify for less mortgage money than they previously did. Instead of $1.2M, that same buyer would only qualify for about $960K, post stress test. In 2018, if this buyer was still looking for a home, the homes they were interested in previously would be unaffordable. But in the next 3 years, Dane is forecasting that home prices will fall approximately 26% to this $960K threshold by 2021. In 2021, this buyer would now be able to purchase a home they want for a price they can afford.
Dane feels that 2021 will be a pessimistic year, but also an opportune time for many buyers to enter the market. Soon after, the prices will start to increase. By mid to late 2023 Vancouver prices will be back up to the $1.83M price threshold. This price range has existed before in the Vancouver market and it will not take long for prices to increase past this point, which will signal explosive growth for the Vancouver market from that point on. Dane is predicting a housing price of $2.8M in 2028. This will be the end of average people being able to afford a detached single-family home in Vancouver.
Dane feels Vancouver will eventually move to a city model similar to New York, where few people own the majority of the properties and the majority of people do not own in the city. Average people who still want to own a home will need to move to other markets like Kelowna, Kamloops and other areas of British Columbia.
Can you explain to the listeners why an average price of $1.4M is the bottom of the market for detached single family homes in Vancouver?
In the real estate data going back to 1975, there are selling ranges of approx. 20%. In Q1 and Q3 of 2015, Dane indicates that there is a bubble right around the $1.4M threshold. $1.4M is a natural number where people buying at that time would be purchasing at a price greater than the preceding 3 years of sales. This usually results in a ‘question period’ or ‘psychological test’ where a purchaser’s family members and friends start to question if the price of real estate is too high to be buying. At that point, it will be up to the market at large to decide if the price can go higher. In Vancouver at that time in 2015, the market continued to increase and topped out at $1.83M, suggesting people were still comfortable to buy at the $1.4M price mark.
How the market finds the bottom goes back to the last psychological test. This will generally be the last time many people felt comfortable buying, which would be Q1 of 2015 at a price of $1.4M. The data suggest strongly that this will be the bottom of the market.
Where does the market go in post 2022?
In 2022, the mainstream media will be saying the market is not doing well. Generally, the media uses lagging indicators to predict the market and uses historical data that is 3-6 months behind actual data. Dane is forecasting that the market will begin to lift from the bottom in 2022. Downtrends will be broken and the market will begin to rise and investors will return. There will be a noticeable lift in 2023 and eventually the market will get back to the $1.83M price mark (former top). Vancouver is a desirable place to live, which will feed this growth. Once the price has broken through the $1.83M mark, prices will continue to rise to $2.8M in 2028.
In the next 3 years, as housing prices continue to decrease, there will be some unfortunate circumstances. Most people will not need to sell their home during this time and will not have a realized loss of equity. People that need to sell their home or have over-leveraged themselves will experience a loss of equity. Dane recommends that the best bet would be to hold off selling until 2024 or 2025 when the market is back to the growth phase to optimize your return.
Your analysis has a substantial psychological component?
Dane argues that the data points dictate the psychology of the overall market without people being conscious about it. The data points show where someone is willing to reach into their pocket to spend the least or spend the most and how confident they are in the market overall.
How do factors like city zoning changes, global warming, foreign buyers tax fall in the analysis?
They will become prevalent factors in the market. This will result in a slowing of the market where developers may not be willing to invest in a property because of these additional factors when they may have been willing to invest otherwise.
What feedback have you received from people regarding your predictions?
At this point, Dane has received mostly positive feedback. His analysis is data driven, using real estate board statistics. He is applying metrics and analytics, but he is not changing any of the information. He uses basic things like supply and demand graphs to predict market prices.
What is the relationship of condos and townhomes to detached single family homes?
The macro movements of the real estate market have always been detached driven. There is no more land to be had in the city. The city will be built up over time and become more densified. In 2028, there will be significantly less single-family homes than there are now due to densification. This will increase prices.
There is a lot of supply of condos coming to market soon. Dane is not positive about presales completing in 2021, suggesting there will be a saturation of supply that will hurt condo prices.
Townhomes will still lose money in the short term, but the demand for townhomes will be greater than both condos and single-family homes. Townhomes offer a larger living space than a condo but are still affordable for people who want to stay in greater Vancouver, whereas a detached single-family home may not be. Demand will be greatest in this property type for this reason. People will buy the best thing they can afford, which would generally be a townhome.
Does Vancouver outperform surrounding areas?
In growth phases, better areas do better. In decline periods, the loss in these areas is also greater.
If people in Vancouver do not sell in the decline periods, they are poised to do better than the surrounding areas.
There are other prominent economists and an entire institutional establishment that see things differently than you do. Who else is doing your type of analysis? Why do you feel that others getting it wrong?
Dane is the first in Canada to produce this specific type of data driven analysis. Columbia University was performing this type of analysis on the New York housing market in the 1990’s. The analysis is complicated and there is a lot of work behind the scenes.
Dane does not use the HPI (house price index or benchmark price), but other economists may be using this information, which would result in different results. Dane feels the HPI data lags the actual average sale prices market, sometimes as much as 6 months or even a year.
Eitel Insights strives to provide actionable intelligence that people can use in real time.
Are you looking at other markets in Canada?
Eitel Insights has a national database. Vancouver was the flagship, but they perform similar analysis on other markets in Canada.
The stress test has affected home prices across Canada because it reduced the purchasing power of average Canadians. Generally, rich people will not be affected by the stress test and it is much more of a factor for first time home buyers.
Without the stress test would the market still be on the downturn?
Dane feels the market was still headed for a downturn even without the stress test being introduced. Without the stress test or the recent election of the NDP as the provincial government, we could have seen a potentially shorter market bottom. These additional factors will result in a longer bottom to the market.
Vancouver is not an area that Dane would be looking to add to his investment portfolio at this time. There are other profitable areas to invest across Canada until Vancouver recovers. Eitel Insights can guide investors to markets that are poised for growth and profitable for investment. Purchase prices are lower in other areas of Canada, so an investment property in a cheaper market may see some rental income and price appreciation.
What do you say to people that are asking where the money will come from for future growth in Vancouver? People who argue that foreign investment is down, interprovincial migration is down, and there are other factors that suggest the market in Vancouver will not rebound where it has been.
A foreign buyer that feels an investment is strong in Vancouver will not be deterred by a 15% or 20% tax if there is still money to be made. At this time, the market is currently not an investible area to foreigners and that is why foreign investment is down. When the market rebounds, so will the foreign investment. There is always the possibility of a government change in the future that may also change the foreign buyer’s tax.
Dane argues the Provincial NDP government is attacking the real estate market and realtors in general. In the long run, Vancouverites will be upset if real estate prices drop and the economy is also doing poorly. It is no help to people if real estate prices are down and buyers looking to get into the market still can’t afford to buy a home. If development is down, the supply of homes will decrease and developers will not employ workers at the same level they have been in boom years. The possible trickle-down effect of some of the recent government policies looking to address real estate prices can really hurt the economy in the long run.
5 Wire Questions:
- What is your favourite neighborhood in Vancouver?
North Vancouver, lower Lonsdale
- Favourite bar or restaurant?
- Westside Mansion or downtown penthouse?
Westside mansion, downtown is a nice place to visit, but wouldn’t want to live there.
- First place you bring somebody from out of town?
- What is something you have purchased for under $500 that is a game changer?
Do you have a book or a website that you can recommend to listeners?
Dane’s father was a big influence on him – father was a former stock trader that shaped Dane’s interest. He also spends time on Investopedia online.
Find out more about Dane: