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episode # 236

Vancouver Real Estate Market Predictions 2020 & 2021 with Prof. Andrey Pavlov

Where is the Vancouver real estate market heading for the balance of 2020 and beyond? The answer might surprise you!  Professor of Finance & Vancouver real estate thought-leader, Andrey Pavlov, is back and just in time for the last quarter of 2020. In contrast to dire CMHC predictions, Andrey outlines a very different vision of the next few years in our marketplace. Where are prices going? What are the biggest risks to Vancouver real estate? And should you buy now or wait? We tackle all of these questions and more. Don’t make any buying or selling decisions without listening to this first!

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Episode Summary


 

Who is Andrey Pavlov?

I’m a Professor of Finance at the Beedie School of Business at SFU. I spend most of my time in real estate research, including financing, real estate markets, profitability, investments, etc. That’s my passion. I stumbled upon it by accident in my PhD years and it hasn’t let me go.

 

We last talked in January 2020 about predictions for the year. Has 2020 surprised you?

Hopefully you didn’t keep a copy of what I said because whatever I said certainly didn’t pan out! No one expected to see what we’ve seen. I must have said the market will keep chugging along with nothing too exciting, which is actually what we’re seeing now.

 

You said buying a detached house as far west as you can afford would be the best investment. And in the last year, East Van detached has done about 10% and the westside has done 4%. They were the most active segments during the beginning of COVID with no slowdown.

I’m surprised I said as far west as you can; I think I meant being in the centre of Vancouver, rather than specific neighbourhoods of Vancouver. I believe I said buying a property with as much land as possible is a good idea – a detached is great, if not then a townhouse or low-rise. I think that was good advice.

 

Did you think this summer would be as busy as it has been, considering we were totally shut down in the spring? Are you surprised?

One thing that was clear during the lockdown was that the sales to listing ratio was still good. Fewer homes were selling but fewer homes were on the market. So, if you were a seller, you were still doing okay. I was surprised about that. There was still some activity. It was still a healthy market, which translates to where we are today. We now have a 30-50% sales to listings ratio. It’s not the hottest market we’ve had but it is a strong market. I’m pleasantly surprised with that.

 

What is driving low inventory right now?

It’s difficult for people to decide to sell. If a person typically sells when they decide to move, moving is hard now with the difficult job market. Moving to a new city is more challenging now. So, if people aren’t moving, homes won’t be going up for sale at the same rate.

 

Do you think COVID-19 might mean fewer Baby Boomers will leave the detached market for vertical living?

Yes, the fastest market is single family homes. If you’re restricted to your property, having even the smallest backyard makes a big difference. Regardless of if you have kids or not, everyone wants to be able to get outdoors.

Eventually, we will get over the virus and all be able to go outside freely. But the way we live has changed. Remote working and connecting virtually have been trends for a while but have increased rapidly during the lockdown. I think these trends will persist.

 

It seems the wants of buyers are shifting to more space, not caring about the commute to work, and not wanting dense living.

Yes, that seems to be the current trend. Not just in Vancouver but we’ll see it across North America. We like density in Vancouver, but we’ll still see the trend here.

 

CMHC talked to parliament about 9-18% declines in the Canadian housing market in the next two years, and a similar decline in Vancouver starting this fall. What are your takes?

If you look at the decline in income and employment, you can easily arrive at a decline in the market. If people aren’t making money, they can’t spend much on housing and the demand will suffer. But in real estate it’s not just income but also the carrying cost of the home – mortgage payment, utilities, property taxes, etc. When you put all of that together, the decline might not be as big as they’re predicting. If income falls with mortgage rates, they may even out. There’s also inflation to consider. High inflation covers the cost of ownership. So, with all of that together, we may not see price decline but possibly price increase.

 

Is the worst over for the Vancouver real estate market?

Possibly. We may see another lockdown or more restrictions. We’re not out of the woods for fighting the virus but buying a home is a long-term decision. The low mortgage rate and rapid inflation we have right now may tempt many people to get into the market, which will keep prices stable, if not increase them.

 

You previously said government intervention is the biggest risk to our market. Do you still feel that way?

Yes, by far it’s the biggest risk to the market. Both the provincial and municipal governments have in the past come up with policies that are, in my view, counterproductive. Interestingly, that risk has been diminished now because the economy is in such a poor shape. I don’t think any government would want to cause further economic damage. Any measures would be postponed.

 

What are the long-term impacts of COVID on the Vancouver economy and the city?

Decline in tourism is an obvious one. Eventually, we will get over the virus, like we have beaten every other virus. When that happens, Vancouver’s advantages will return. It’s a nice place and relatively stable in a great location. The demand for being in Vancouver will return.

The question is: Are we going to be able to capitalize on that and bring business here? And that’s all a matter of government policy. If we switch gears and create a business-friendly environment, we could attract businesses from other places around the world. Everyone is restructuring and thinking of new opportunities right now. So, we have a unique opportunity which could improve our economic environment.

 

What does the rest of 2020 look like in the Vancouver real estate market?

I don’t see a decline like the CMHC is predicting. I think the demand for housing will continue to grow, thanks to the low interest rates and expectation for rising inflation. I think the supply will increase but not overwhelmingly so. And that’s because it’s not easy for people to move. People will be staying put to think about what they want to do and where they want to be when the pandemic is over. I see the current trend of a stabilizing and growing market continuing.

 

That prediction fits what we’re seeing on the ground. As CERB and other government programs run out, do you see that being a problem for the market? Is Vancouver a vulnerable market?

The problems will end when the economy has recovered. The federal government is putting in place infrastructure to help restart the economy. With those projects coming and the belief that problems won’t end abruptly, there’s no date where we will fall off the cliff. The issue will be in the long term when we have to repay debts. And that’s where inflation comes in. It’s not fun to live in high inflation times but it does help governments and individuals repay debt.

 

How’s the fall looking at SFU?

We’re fully online and I’m teaching two classes. It’s challenging. I enjoyed the online teaching I did in the spring, but it was easier because I knew the students in person before we went online. Now I’m still trying to wrap my head around how we’ll do it in the fall. It will be harder to get to know each other. I am looking forward to it, but it will be a challenge.

Find out more about Andrey Pavlov.

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