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episode # 322

The 2022 Vancouver Real Estate Market Slow Down with Steve Saretsky & Michael Uy

Homes sales across the Lower Mainland have dropped steeply in April and the trend continues in the first weeks of May, but what does this mean for the balance of 2022? Steve Saretsky, author of The Saretsky Report and Co-Host of The Loonie Hour, and Michael Uy, Partner at Vancouver’s leading brokerage Oakwyn Realty, join Matt & Adam for a real estate round table with market talk, predictions, and a lot of laughs. Is Steve bearish or bullish? Is now the time to get a deal? And does Michael really collect expensive handbags? All this and a couple pints on today’s gripping market rundown!

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Episode Summary


 

Who is Michael Uy?

I’m one of the partners at Oakwyn Realty and have been in real estate for the last 16 years. 

Who is Steve Saretsky?

Before getting into real estate, I played junior hockey with the BCHL. I’ve been at Oakwyn Realty for the last eight years, working on the content production side. 

How’s the Vancouver real estate market?

Michael: The Vancouver real estate market has slowed down but that was after two years of feeling like we were on a rocket with no end in sight. With interest rates rising, things are naturally slowing down. It’s a transitory time and no one really knows what is going to happen.

Steve: There are opportunities coming up in the Vancouver real estate market. Activity is slowing with these higher interest rates and we are now in a period of transition. But it’s going to be an interesting change. 

Michael: I’m big on creating processes and systems. There are a lot of lessons from history that we can look to. How will the market react to rising interest rates? We can look at incidents of that happening in the 80’s and 90’s.

Steve: It’s about the cost of money. When you raise interest rates, it’s not surprising that prices start to come off. 

Where are you seeing the market dropping off? 

I’m seeing drop offs across the BC real estate market. There are some property types and locations that are still hot and in demand, but across the board there has been a shift in activity. There hasn’t been an enormous price shift, but activity has definitely changed. 

When will real estate opportunities start presenting themselves?

Steve: I think real estate opportunities will start popping up in 6-12 months. It takes time for prices to change after a shift in activity. After our last big market shift in 2017, it took a while for prices to change. But it’s hard to predict. We could be talking about lowering interest rates later this year if things get too high. 

It takes time and no one knows exactly when things will happen. No seller is going to slash their price after just a few days on the market with less activity than usual. Housing doesn’t move 20% in a month – it’s a long sales cycle with emotions involved. If you’re planning to wait until December 2022 in order to get a 30% discount, that’s not how this works. You might get 5-8% off because housing prices are quite sticky. 

How high will interest rates go? What do high interest rates mean for carrying costs? Will higher interest rates cause fire sales? 

In the grand scheme of things, the prime interest rate is still quite low compared to the last 30 years. People are starting to get nervous with the recent increases but I don’t think interest rates are going to go through the roof. I don’t foresee the Bank of Canada going anywhere near 6, 7 or 8%. There’s a healthy balance.

Our market was probably ready for a change. A lot of people couldn’t get into the housing market the way prices were going, so you have to embrace these changes. Every market still has an opportunity. 

This isn’t like the 1980’s. We won’t be going to 18% mortgage rates. Canada has one of the worst debt metrics and debt is a problem across the globe. I didn’t think mortgage rates would even get to 4.2% but I was wrong. They could get to 5% this year but I don’t think the market would sustain them at that rate. 

The people who are buying today have their rate held at 3% and want to buy before their rate expires. That tailwind could be keeping the market going, which is why we talk about opportunities coming in the next 6-12 months. 

Thoughts on the relationship between interest rates and inflation:

You have to look at the relationship between inflation and your ability to service debt. How could you not be bullish on real estate in the last couple of years when you could borrow money at 1.4%? 

What happens to the housing market in the next 12 months?

I think real estate market activity will continue to fall in the next 12 months, especially as the gap widens between sellers’ expectations and buyers’ ceiling prices. I would tell sellers to be prepared to hold their property. It’s all about holding power for the seller. If you’re not rushed to sell, you can hold until a better time in the market. 

I would tell buyers that there are always opportunities in every market. I still believe owning is better than renting, especially as rental rates go up. If you’re prepared to hold your property for the long term, you can take advantage of opportunities. 

If you can afford to get in the market, get in. And if you can hold onto your property through the ups and downs, hold on. 

Where do you see the pain points in the housing market?

For someone buying a $5 million house, a 4% mortgage is not a big deal. But for someone looking at an entry-level house, and then their mortgage moves from 1.8% to 3.8%, that’s a big deal. For young families and people buying in the suburbs, where prices have doubled in the last few years, that’s where we’ll see a lot of pain. 

We can’t control what interest rates are going to do. But we can control our spending habits and our lifestyles. You don’t want to overdo it and drown in consumer debt. 

Is every city in Canada going through a real estate market slowdown? Are Toronto and Vancouver real estate markets behaving differently? 

I think Toronto and Vancouver markets are so highly leveraged. It’s common in Vancouver for a young family to have a $1 million mortgage. So when you go to markets in Alberta where mortgages are $300,000 and incomes are high, there’s not as much leverage. So those less leveraged markets are not as vulnerable because they’re more affordable. 

Thoughts on the Calgary real estate market: 

Steve: I believe if you’re going to buy an investment property not where you live, you have to enjoy the place. So I enjoy Calgary and have property there. Calgary has the highest household income in Canada and their house prices are much more reasonable. 

You can get a single family home in Calgary for $600,000 and cap rates are around 5%. It’s the third or fourth largest metro city in Canada. So Calgary has a lot going for it. I’m not worried about that market. Prices might go flat but I don’t see a correction happening.

I think there’s more to worry about in the suburbs of Vancouver and Toronto. Brampton and Guelph are places where we might see a more severe correction. I think there’s a lot of speculation in Ontario. 

The downtown Calgary condo market feels almost opposite to Vancouver. For not too much more money, people can move into nearby neighbourhoods and buy single-family homes, instead of downtown condos. There’s not really a Yaletown in Calgary. 

What is your philosophy for investing in real estate?

Michael: A great real estate investor once told me that if everything hits the fan with your investment property, the worst case scenario is you have to live there. I always keep that in mind with my properties. I buy in every market and look to hold for the long term. If I don’t need to sell, I try not to. I only sell when I want to upgrade to a better opportunity. 

It really has a lot to do with lifestyle. You can organize and put yourself into great assets. You have to be disciplined, which a lot of people miss out on. 

I don’t time the market. But you do want to be prepared for the right opportunities. So maybe now is a time when you want to have a bit more cash ready to take advantage of those upcoming opportunities. You need to know your numbers and know what you need to make it through a dark and stormy time.

When interest rates spiked in the 1980’s, my family got caught and had to sell everything. And that might happen to me too. There is an element of luck but you also have to be very disciplined. You want your revenue spread across different risk levels and you want to take a broad view of your investments. 

You want to diversify and vary your portfolio. Don’t fix on just one type of property. And it’s not just real estate. You want to diversify across different types of investments too. 

How long is the real estate trough going to last? Should we wait until the end of the year for opportunities or should we buy now?

Michael: For me, if it’s a good opportunity, you should take it. If you see the long term potential in a property, go ahead and purchase. 

I’s all about perspective. I don’t think it’s actually that slow in the market right now. We have very low unemployment, an undersupply of properties and we’re landlocked. So I think BC real estate still has a great opportunity in the long term. 

There’s a lot of instability globally, so Vancouver looks very stable by comparison. There is always going to be demand here. I’m optimistic for the long term. 

Steve: The Vancouver real estate market has always fascinated me with its ups and downs. That’s why everyone in Vancouver is so obsessed with timing the market. For me, if the numbers work, buy it. Any appreciation you get is a bonus. 

I think volume is going to get crunched this year. A lot of people are going to wait. The overnight rate is at 1%, inflation is at 6% and already people are saying, “I’m not so sure about real estate.” But we haven’t even moved the needle. 

I think the Bank of Canada will keep raising rates but I think they have it wrong. I think housing activity will slow and we’ll enter a recession, which will cause the Bank of Canada to say oops and start cutting rates. That’s when I think the housing market will start to rebound. 

Learn more: 

https://blog.oakwyn.com/podcast/

https://podcasts.apple.com/ca/podcast/the-loonie-hour/id1591470469 

https://www.instagram.com/oakwyn/

info@oakwynrealty.com

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