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episode # 317

How Far Will Vancouver Real Estate Prices Fall in 2022? With Vince Taylor

With over 20+ years experience, almost 20,000 homes sold, and over 100 presale projects launched, few people understand real estate markets like our guest today! Vince Taylor, President of Pilothouse & Author of Beyond the Blindfold, sits down with Matt & Adam and offers up some bold predictions about the future of the Vancouver real estate market. Will prices go down in 2022? Are we currently sitting at the peak? When will be the best opportunities for buyers? And where will prices go in the next decade? All these questions answered (and a dose of tough love Vancouverites) in this jam-packed episode. Let’s go!

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Episode Summary


 

Who is Vince Taylor?

I go way back in the real estate industry; I did the first presale project in British Columbia. People a lot smarter than me had the idea of selling something that hadn’t been built: presales. The banking industry drove presale because they prove projects are a good idea before bankers have to give you the money. This improved the product and removed the risk for bankers. It’s a more sophisticated process these days, but that’s how presales started.

My background is in development and brokerage. I moved into brokerage in 2004, where I have been running Pilothouse and specializing in presales. 

Can you tell us about your first presale project? 

Vancouver has become the centre of the universe for how to do presales, but presales had existed in Toronto for a while. The first presale I did was a townhome project on Telegraph Trail in Walnut Grove. I don’t think we made any money on that one because we didn’t understand price escalation. From there, the industry became much more sophisticated and presales are now found all over the world following this same structure. 

How is the Vancouver real estate market right now?

I’ve been around a long time and generally speaking, these fluctuations we see in real estate markets are very natural and very cyclical. The truth is: prices get too high and people get tired. 

Micro and macro trends in the real estate world are very different. This run up in Vancouver has been quite incredible. Interest rates are low, we have low inventory and unemployment is low. So why do I say things will slow down? Despair. People are tired. That doesn’t mean they’re right or that the market will collapse. But eventually commodities outpace the ability people have to pay for them. 

People are frustrated and are choosing to step away from real estate. When that happens, segments of the market flatten and come off. I expect the market will come off slightly into the fall. That doesn’t mean the market will collapse – it simply went too far past the ceiling and needs to come back down a bit. The only segment where you may need to be more careful is raw land, because it’s the hardest real estate to finance. 

What is the Vancouver real estate market looking like in the long term? 

Vancouver is a world class city. Just because you were born here, doesn’t mean you deserve to own a house here. Those of us in the development industry need to do a better job at not making people feel bad if they never own a single family home, or own a home at all, in Vancouver. People in London or Paris rent their whole lives and that’s okay. We need to make it okay to rent here too. 

Condos are not a stepping stone anymore. Condos are now filled with all kinds of amenities; the design and the attitude around condos has changed for the better. In the US, they’ve moved on from condos for sale to primarily rental condos. And that’s due to affordability. 

If you don’t understand world markets, you don’t understand real estate. If you don’t understand Shanghai, you don’t understand Coquitlam. If Shanghai is at $5000/foot for condos, Vancouver will be too. Prices are only going to get higher and higher. 

How do you see buyer exhaustion in the real estate market?

The media tells us what the people on the street are feeling. When mortgage rates are falling, people move onto the sidelines assuming it will just get cheaper. They want to wait and catch the bottom. When rates go up a quarter and then another quarter, people panic. 

100,000 buyers no longer qualify to buy a home with every quarter point increase in the interest rates. Once the Bank of Canada decided to raise interest rates, the markers for the real estate market were clear. 

How much will prices drop in Vancouver real estate in 2022? How long will low prices in Vancouver last?

Across the asset classes, we’re looking at about a 10% decrease in Vancouver real estate prices. And that doesn’t vary too much across asset classes. But the big question is how long will this price drop last? My guess is it will be very shallow because we don’t have any structural problems in our market. We have high employment and low supply. This will be a shallow recession due to fatigue and needing to find new ways to finance a home. 

I think the Vancouver real estate market will come off about 10 points in homes, 20 points in land, but that will only last six to eight months. The people who try to time the market will have a hard time finding the perfect window. 

Does high inflation and rising interest rates add risk to our market?

The relationship between rising interest rates and cooling inflation is largely an old-fashioned economics idea. It doesn’t work like that anymore. 

Interest rates need to be around 5% for a country to be stable and to fund our pensions. There are strict guidelines about how pension funds can invest. Currently, pension funds are dramatically underfunded so we need that 5% interest to support our aging population. 

So interest rates have to go up and it’s a good thing. The inflation we’re seeing, in my amateur view, is largely due to supply chain issues. Don’t base your real estate assumptions on this noise. The only caveat is that people tend to get laid off when prices go too high. But we’re structurally at 100% employment, so that is noise to me too. 

Why should people buy presale?

Presale gives you a lot of flexibility, but it’s not for everyone. With a presale, you have one way in and three ways out. A year ago, we couldn’t give presale away, but that changed overnight. People were tired of losing out on multiple offers on resales, so they switched to presale for the certainty. And then the presale market took off. 

For those who bought presale at the beginning of the run, they can sell their assignment and do really well. Or they can close on it, rent it out and then sell. Or they can hold it as a long term play and do the “rent and hold” strategy. Unlike with a single family home, presale can be a smart strategy in the coming months that gives you exit options. 

Should home buyers in Vancouver wait to buy?

The only people who should wait to buy are those who want to buy a smaller lot of land, like a corner lot for a duplex. For those buyers, I would wait until the fall. This isn’t applicable for the big sites that won’t be ready for three years. 

Availability has become more important than affordability in the last few years in Vancouver because supply has been so low. As supply comes up, we get into a balanced market with less frenzy, better prices and better product.

If you find a home you want to buy, don’t worry about the price. What does 10% matter if you found your perfect home and you’ll be up 10-15% in a year anyway? Buy what is right for you if you’re wanting to move in. If you’re an investor, that’s a different strategy. 

What strategy should real estate investors implement in 2022?

The strategy for real estate investors will depend on the completion date of the product they’re looking at. If you’re buying a high-rise unit today at a good price that won’t be ready for three years, go for it. If it’s completing in six months and you’re hoping to assign the contract, that’s a different story. We might be in a slowdown by then, so you won’t be able to flip the contract. 

But it all depends on what you’re buying and in what asset class. We don’t see a lot of flipping in townhomes but condos give investors more options. It all comes down to the completion date. Timing is a critical issue. 

What is the rental market like in Vancouver? What’s your take on Vancouver rental prices? 

You ain’t seen nothing yet! The 100,000 people who no longer qualify to buy when the interest rate goes up are now flooding the rental market. Supply is low because we can’t build fast enough. We’re at full employment so people can afford higher rent. Landlords can charge more, so why wouldn’t they? So that means prices that were $2500 are now $2700.

As potential-buyers with good paying jobs exit the buying market due to rising interest rates, rental prices will skyrocket. That’s where we’re at now. If you think rental prices are high now, they’re going to go crazy. 

What will the Vancouver real estate market look like in the next few years? What advice do you have for people in this market? 

On the micro level, I think people should stop complaining and get into the market however they can or admit that they will never get into the market, and that’s okay. You have to be okay with being a renter because it is okay. 

But if you want to get into the market, you have to find a way and do it now. It doesn’t matter if things will be up or down 10-15% in six to eight months. If you want long term growth, you have to get in now. 

On pricing and affordability in Vancouver: 

We’re all hypocrites when it comes to pricing. We only want the price of real estate to go down when we’re buying, but then we want it to go straight back up. If you live in a global city like Vancouver, your pension is your real estate holding. We’re all self-interested and we only want the value of real estate to go up. So let’s not pretend like affordability is something we care about in Vancouver, because we don’t. 

So you have to get in. The small dip we might see towards the end of the year doesn’t change the macro factors of this market. We are nowhere near the price of world class cities yet, but we’re going there. There will be blips along the way but we’re going there for sure. If you want to live in Vancouver, that’s a fact. 

What will real estate prices in Vancouver be in 2024? 

If prices are $2000/foot for downtown real estate today, you can add 15% to that for 2024. So even if you don’t buy the dip, it doesn’t really matter. 

It’s hard to believe your property doubles in value every 10 years, but it’s true. In 2024, we’re going to crush the numbers we are seeing today. Real estate tends to appreciate at 7-10% per year in a regular market. But this year we saw 25-30% growth. You might think it’s not possible for us to beat those numbers, but it is. 

When I bought my first house in New Westminster, it was $64,000. We flipped it for $120,000 and we thought we won the lottery. But now that house is worth $1.5 million. That house doubled every 10 years and continues to do so. 

What is the sentiment amongst the building and development community in Vancouver in 2022?

In 2019, the development community had experienced two years of nothing; we were dying. So finally being able to sell in February 2020 was amazing. But then we got frozen in time due to covid. We had no clue what was going to happen. When it became clear our market wasn’t going to tank, we scrambled to start building. But now it’s harder to get product to market because people are working from home, there are labour shortages, we have supply chain issues, etc. 

There are 75,000 new people waiting to come to Vancouver but we only have 10,000 new homes; the rest are held back by red tape. So where are we going to put everyone? 

That’s why the dip I’m predicting isn’t going to be long term. It’s not based on structural issues, it’s based on despair. People are tired. Especially at the beginning and end of a presale project, people are tired and want to get out. That’s where opportunities can be had but the window is tiny. 

What real estate markets in the Lower Mainland and the province of BC are you excited about?
My favourite municipality is the City of Mission. Growing up, nobody ever aspired to move to Mission. But it has completely changed! A lot of credit goes to the council up there. It’s the cheapest price for real estate in the GVRD.

Mission and Abbotsford are great markets. They’re family-friendly and affordable. With a lot of people not going into the office anymore or only going in a day or two a week, you can have a beautiful house in Mission without the commute.

I love Port Moody. Port Coquitlam is a great market too. It feels like Squamish; young families are walking around in a lively community.

What advice do you have for someone trying to get into the Vancouver real estate market?

If you find something you like, buy it. Availability is more important than affordability in this city. For the doom and gloomers who are waiting for a market crash, you’re wrong. If you’re waiting, you’re just going to keep waiting.

Find out more: https://pilothouseprojects.com/, https://beyondtheblindfold.com/ and The Twisted Lens on YouTube  

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