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We are closing out the spring real estate market with surprising appreciation in prices throughout the Lower Mainland. But we may not have seen anything yet. MLA Canada’s President, Ryan Lalonde, and the Executive Director, Cameron McNeil, sit down once again with Adam & Matt to discuss the current state of the real estate market. And, as always, they have some bold predictions that will surprise even the most seasoned real-estate aficionados.

How is the presale market & does it play an outsized role in shaping the market overall? Which presale markets are the best buy today? And which sub-market could soon be headed to $1600 per square foot? Hint: it’s not in the City of Vancouver! All that and a box of Lee’s Donuts on today’s riveting episode!

MLA Canada’s Ryan Lalonde and Cameron McNeil break down the current state of the market for us and what’s next for presale real estate. Who is buying? Will inventory pick up? And is Vancouver real estate about to see a huge price jump?

Who are Ryan Lalonde and Cameron McNeil?

Cameron: Ryan and I are founders of MLA Canada. We’ve been doing this work for over 30 years – advising, marketing, sales and development for the real estate community. I grew up in Vancouver and love it here.

Ryan: I’ve been practicing real estate my entire career. We live in an incredible city and real estate is one of the key industries. I love shaping the communities we’re a part of. It’s very much a family business and we love what we do.

How is the real estate market? (as of May 30, 2023)

The market is surprisingly strong. I was expecting 2023 to be a slow market but we continue to defy most of the economists. We seem to be decoupled from a lot of the broader indicators.

Our market is constrained on supply and we have record low listings. Our consumers are used to the fact that mortgages won’t be low for a long time and they’re still buying real estate.

It’s a surprise how strong the market has been. Six months ago we were looking forward to Q3 of 2023 but things started to look up in February 2023. Resale numbers for last month were 2700 and this month is looking like 3200. Those are pretty big months!

Who are the buyers right now and where are they buying?

Right now it’s very geographically focused and project specific. A lot of homebuyers sat on the sidelines for the last year because of interest rates. Many of them are now thinking about what a transaction might look like. Those that didn’t jump in may already find there’s a lot of competition.

On the presale front, there’s a wide range of appetite from every kind of buyer: locals, foreign investment, down sizers, etc.

The MLA Black Book does a great job summarizing the presale market. Roughly 50% of all inventory released in Q1 was absorbed. The majority of those buyers were searching for presale because they couldn’t find the inventory in resale. It’s so competitive in resale  listings, which is creating more demand for presale.

The majority of the real estate being consumed right now is serving a need for a household. The part that is lagging is the aspirational real estate. That market is quiet. But the broader market that provides housing stock for people who need it is thriving, in both resale and presale. Investors are also active in the market providing the needed rental housing<.

Right now we are seeing that the resale market and presale market are highly correlated. Presale provides more options for people who aren’t seeing enough choices in resale.

Not enough resale stock is in the market right now, so people are turning to presale.

With the high demand, are we expecting more presale launches?

Our industry over the last 18 months has done a good job of self-regulating. You can’t bring a project to market if the math doesn’t work. Construction costs have risen, land costs have risen and projects have to wait until they make sense. But now that the market is improving, developers have more confidence that their projects will work.

We won’t see a tidal wave of presale launches come into the market. There is more confidence but the numbers haven’t moved significantly. It will be more of a return to historical norms.

1700 units were released into the marketplace in Q1. We could return to a time of 1100-1500 units being delivered each month. It’s hard to make bets in a high-cost market unless you’re sure you can meet your presale targets.

Why is inventory so low? What is it going to take for things to change?

We have had 35-37% appreciation on most home values in the last three years, which is a lot of equity. That allows people to ride out what’s happening in the market in terms of inflation, cost of living, employment, etc. If you don’t have to sell, you hold. Until we’re back to more traditional values, most people are choosing to hold.

In the next 12-18 months, I think we’ll see an unravelling of that perspective and more of those houses coming to the market.

Many Canadians are in variable rate mortgages or on fixed terms with low rates. When those rates start to renew, people might have to take advantage of the equity in their homes. It will be stressful and some people will have to sell, but I think the demand will still exceed that. We have more than enough demand to smooth out any pricing pressure.

Because of that demand, we’re confident that we’ll see more presale projectscoming to the market. Construction costs are still high though, so the development community can’t sell things any cheaper.

Consumers cannot buy presale any cheaper than what it’s being offered for today. The development community cannot afford to bring it to market.

If permit and approval times could be decreased, would that impact presale prices?

That’s a deep question and we have to ask, do we want to do that? Vancouverites are optimistic about what the real estate industry looks like over the next few years. A lot of people are choosing to jump into the market because they’re confident about it.

We do such a good job of building communities and that does take time. What happens if we get that wrong? We’re still dealing with so much immigration coming into the city which will positively impact Vancouver and other secondary cities.

Just because you can produce housing product a little bit cheaper doesn’t mean you’re going to pass that savings onto consumers. It’s about what a consumer is prepared to pay and if the development community can deliver that.

Whatexpedited approvals would create is more stability. A more stable market lets developers and consumers enter the market with confidence. It’s a healthier market and a more sustainable one.

I don’t believe we’d see prices come off if we could tackle some of the government inefficiencies, but it would provide a steady flow of housing, which would be a big step forward for our market.

Are there still good opportunities to buy in presale?

Many developers coming to market now will tell you that most of the first part of their presale launch was sold below replacement cost. They are relying on upward pricing pressure to make back that money. So yes, incentives and opportunities are still available as programs launch.

The first 25-50% of buildings typically sell below market value. After that risk threshold is reached, you’ll see rapid price acceleration. In order to reach that threshold, developers offer significant incentives and discounts.

The values in every cycle decline but they don’t sit at the bottom for long. They return quite quickly. Right now, the trough is behind us. The best values in the market were probably from Q4 of 2022 until Lunar New Year of 2023. In fall 2023, prices are going to be higher than what they are today.

Real estate is a long game. If you can handle the interest rates and affordability, today is a great time to buy for the long term.

Is market confidence at an all-time high?

No. We’re building confidence but we’re not at the top of the curve by a long stretch. We’re climbing out of the trough that was triggered by the rising interest rates.

Canada and Vancouver are not in a bubble; capital can flow all over the world. Interest rates are high here, in the US, in the UK, etc.

Do you believe Greater Vancouver real estate is going to perform well compared to all of the other places you could park your capital? If you do believe Vancouver will perform well on a global stage, you can be confident in the market.

On an international scale, Vancouver is blue chip real estate. It’s a place where people want to park money.

I remember when stuff downtown was selling at $350/square foot. Today it’s much more expensive and it’s hard to imagine how people can afford it. But people come to our market from all over the world and don’t have the relevant perspective; they haven’t been following the market for the last decade. New demand is finding Vancouver and seeing what we take for granted.

Who is buying presale right now?

We do our best to collect data but it’s hard to share correctly. Less than 10% of sales would be foreign investment; the majority of presale purchases are buyers who live in Vancouver, who are searching for a community where their friends and family live. There are a lot of upsizers, either a growing family or someone looking to go from a rental to their first purchase.

For more rural programs, like a townhouse project we have coming to Penticton, there’s more downsizers and people buying for family legacy. It’s a different portion of the marketplace.

Whenever we’re working on something we always ask: How can you maximize utility right now? So much of our effort is how we can appeal to the widest number of buyer groups. We want to have product for 5-10 buyer profiles.

We are seeingSurrey City Centre, Coquitlam, Burnaby and other similar places as primary downtowns. They’re no longer bedroom communities but places where people live, work and play. These cities are evolving in really smart ways and we’re seeing that growth.

There is international capital flowing here but the majority of the market is local buyers and people who want to live here – not empty homes. It’s a healthy market being consumed by a broad group of customers.

Where would you put a tower right now if you wanted to sell it out quickly?

I’d pick one of the commodity markets, like Coquitlam, Brentwood, Metrotown or Surrey City Centre, within a three-block radius of transit. That will get you your widest customer base. But that doesn’t mean projects off-transit are less special. There are other forms of housing besides towers and every project has its own nuances.

I like North Road. A lot of housing is being built around the new skytrain branch on the North Road corridor. Surrey City Centre is the end of the line now but it’s going to be extended into Langley, which will be fascinating to see.

We have an operating office in Langley and it’s been incredible to watch that part of the Lower Mainland come alive. Values have grown so much, there’s so much space and such a wide range of housing being built.

A tower in West Coquitlam would also be a good call. We’ve sold a lot of homes there. They have access to everything – transit, lifestyle, nature, etc. We’re in the process of launching Komo by Strand; Strand has been in that community for a long time now. The way the community has supported their project has been stellar.

Another consideration is where the affordability spectrum is these days. You have to look at secondary markets. What’s happening on the Island or in the Interior? This incoming immigration is going to be a big push to those communities.

What is happening with secondary markets in BC?

We’ve mentioned Penticton already. But anything from Pemberton and Squamish to Nanaimo to Kelowna – these are not just retirement towns but growing communities where people can work and raise families.

Immigration tends to flow to our big energy centres, which will add enough pressure for people to move onto these secondary markets.

Do you expect to see more upward pressure on pricing on the Island or in the Interior?

That’s tricky but I would say the Interior. You have to look at every municipality individually. The Okanagan Valley struggles with access to supply because everyone wants what makes those communities special – access to the lake, the mountains, etc.

On the Island, there’s more elbow room for growth in places like Nanaimo. That can moderate pricing acceleration but it’s still a very healthy market.

What happens with pricing appreciation in BC over the next few years?

Earlier in the year, we expected to see double digit gains in property values this year. At that time, no one thought that was possible. But now, it’s a different conversation.

From Q3 of 2022 to Q3 of 2024, it’s likely we’ll see 15-22% price appreciation. The big gains in the next five years will be seen in the next 18 months.

As a developer, you have to rely on upward pressure on pricing. All of the levers are going the wrong way if we’re trying to make housing more affordable.

Apartments haven’t performed as well as townhouses and single family homes this year. That’s interesting, because they’re usually the first to react. So I expect we’ll see more shifts in that market until they catch up with the single family market.

Projects take a long time. We’re planning things today that won’t be for sale for 18-24 months. You’re trying to create highly consumable product, predict when it will come to market, and stand out from the pack. It’s much more complex than just waiting a few months for higher pricing.

Why are we expecting strong pricing pressure in the next 18 months?

Our expectation is we’ll see some relief on interest rates over time. We expect to see recovery happen at the same rate as compression. We’ll rise out of it on a similar curve and timeline as we fell into it, which takes us forward 12-18 months. As interest rates lower and mortgages adjust, we’ll have a new pricing base and a more static market.

But the Vancouver real estate market is always moving in a direction – it’s never flat. We have a strong marketplace for the foreseeable future. It does feel like the market cycles are shorter so we should expect more affordability. That’s why our crystal ball only goes 12-18 months out.

If you plan to stay in homeownership, then it’s all relative. The market will go up and down. But if you can afford a mortgage payment at current rates for seven years, then buy with confidence.

We cannot deliver the housing we need in our region. We are massively behind the eight ball on housing and services for our growing Canadian population. That will only do one thing: Continue to drive values.

And until people decide they don’t want to live in Vancouver, values will continue to drive forward. I know that in 10 years from now, Vancouver will continue to be a great place to live and values will be higher.

What other real estate headlines do you foresee?

I think we’re shifting our mindsets on the “live/work” culture. What we need to watch is unemployment, which is currently very low. As long as unemployment is low, you should expect a competitive environment and office space to suffer.

Another headline I’m thinking about is around new presale wood frame apartments in the 4-6 storey range. I think we’re about to see some of the last offerings at less than $850/square foot in the Lower Mainland for that type of product.

I think we’ll see a similar thing in tall concrete with nothing less than $1000/square foot. This will be both in Metro Vancouver and the Fraser Valley. It will be tough to deliver. We need to consider what that means for affordability and the influx of immigration.

We had a good roundtable with our advisory team the other day. There’s a strong belief that Metrotown is going to $1600/squarefoot in the next 18 months, which is higher than the Cambie Corridor. We’re also wondering if Surrey will hit $1300/squarefoot. Which city will hit those thresholds faster?

I predict the federal government will be forced to reduce the immigration quotas they’ve set before the next election. I don’t think it will affect our market but it is interesting.

Over the next seven years, we will see another down cycle. We’re never flat. But the long term force in the Vancouver real estate market is an upward trajectory.

The 5 Wire: Getting to Know MLA Canada’s Ryan Lalonde & Cameron McNeil

What is one book you recommend?

Cam: The Golden Spruce by John Vaillant. It’s about the history of Haida Gwaii and it’s absolutely fascinating. My daughter is on a university program in Haida Gwaii and I’m actually going to visit her this weekend. A lot of people don’t know that history in our province.

Ryan: I’m deep into storytelling with my six year old so it’s a lot of dragons and wizards. But one book that comes to mind is The Big Leap by Gay Hendricks. It’s about what fills your cup in the day.

What is one new habit, behaviour or belief that has most improved your life?

Ryan: I’m going to stick with cold plunging. It hits hard! I wake up and do that every morning. The science behind it is there but I like it because it’s really hard to do. You get out and know the hardest thing you’ll do today was 15 seconds ago.

Cam: I tore my achilles four months ago so my habits have been around my daily exercises and mindset. I was playing tennis with my ski buddies and we’re all lousy tennis players. I lunged for a shot and heard it go pop. I’m doing everything the doctor told me to.

What have you been binge watching lately?

Cam: We liked Ted Lasso. We thought that was pretty awesome. My son started watching Silo and made us watch the first one. So now we’re hooked!

Ryan: Similar for me, Ted Lasso. I’m all caught up. And F1; I can’t get enough of that.

Favourite band or musician?

Ryan: My favourite thing to listen to is Backstreet Boys because my daughters are all over it right now. I’m really digging it! They’re performing it every night. But for me personally I like anything old school rock.

Cam: It’s funny how our kids influence us! My kids, 22 and 20, are in a heavy metal band. All I hear is my son wailing on his guitar. So now it’s all AC/DC and Iron Maiden. They’ve taught me to appreciate that kind of music.

What is something you’ve purchased recently for under $1500 that has had a positive impact on your life?

Cam: It was probably my knee scooter for my torn achilles. That changed my life for a bit!

Ryan: I’m at a loss. I can’t think of something for this one.

• MLA Black Book
• Newswire
• Pre-Sale Pulse