Cut out the noise and listen up ’cause Andrew Ramlo and Ryan Berlin from Rennie Intelligence are finally here! And there’s a lot riding on the data compiled and interpreted by two of the industry’s guiding voices. In fact, this data drives the decisions of some of our region’s biggest players including home-builders, realtors, project marketers, and the housing sector at large. So what better time than the beginning of 2020 to recap the turbulence of 2019 and forecast Vancouver’s real estate market for the year ahead. Was the rebound in Q4 (2019) predictable? Have we hit bottom? Which areas are set to pop? And should you buy or sell in 2020? This episode is the straight dope.
Vancouver Real Estate News, Market Updates, Insider Tips, Stats, & Analysis
Tell us about yourselves.
Ryan: I’m an economist by education and trade. Andrew and I go back over 15 years, first running a consulting practice in Vancouver. Our meat and potatoes has been demographic and economic analysis and forecasting.
Andrew: We ran the consulting business for a long time and cemented a working relationship with Bob Rennie. Rennie asked Ryan and I to come over and provide our services internally to Rennie on the presale side and the brokerage as well. We come at it from different perspectives – Ryan is an economist and I’m in urban planning.
What is Rennie Intelligence?
Ryan: We work with our brokers and advisers to help them better understand the market, get out in front of the issues and to be able to communicate with their clients what is actually happening. On the developer side, we support them in the timing of making major decisions. We also project out into the marketplace and provide our take. We serve stakeholders both within and outside of the organization.
Andrew: We also provide consulting services on economic and demographic change. What we do is quite wide and diverse, in both pure real estate and the land use side of things.
Does Vancouver real estate make sense? What’s your take on our unique market?
Ryan: Prices are high and it’s something we should all accept on some level. We’ll never be priced like Regina or Calgary. The services provided here are broader when you rent or buy. Being in our natural environment and enjoying our climate contributes to the value. A few years ago, prices were increasing at an unsustainable level. It wasn’t going to be maintained. But our prices are higher and there are a lot of factors at play – migration (including immigration), job creation, foreign capital (though not to the same extent as some say), etc. Equity within the marketplace plays a major role in influencing prices.
Andrew: If it didn’t make sense, it would stop working. There have been ups and downs but it hasn’t stopped working.
Ryan: The duration of the recent downturn was protracted and wasn’t as deep. The factors that created it were different from previous downturns which affects how we come out of it.
Andrew: We’re talking about policy changes. The recent downturns have largely been economically driven. We saw prices come down when jobs and population growth were booming, which is a paradox. If anything surprised me, it’s that 2019 re-sales surpassed the volume of 2018, despite people reporting challenges. But that all happened in the second half of the year.
Ryan: What gave us confidence that the turnaround would happen by the end of 2019 was that behinds the scenes, we continued to see job growth. We lead the country in job growth despite inventory rising and sales dropping. There are a lot of changes that create a need for housing in Vancouver. The demand is here. The people are here but they’ve stepped back – they’re on the sidelines.
Andrew: And at some point, they will be released on the market. Fall to winter is usually a slower market but from Oct to Dec in 2019 sales were up, not down. That’s not what we usually see.
The downturn was policy driven which led to a lack of confidence for about a year (about summer 2018-summer 2019).
Ryan: I’d say it started earlier than that. We don’t hear it talked about often but prices were coming down before the policy interventions were introduced. Prices were increasing in the spring of 2016 but at a smaller rate until they became decreases – and that curve was uninterrupted by the foreign buyer’s tax. Price fatigue was also a part of it.
Andrew: Some of the policies took people out of the market completely. The stress test took some people out completely and pushed everyone else down – which lead to price compression in the market. So that pulls your average price down. It looks like a decline in the market but it’s just more activity in the lower bands. There’s local policies but also international policies, like the flow of international cash, affecting the market.
Did you foresee the condo market taking off back in 2017?
Ryan: Part of it was inventory driven. When there’s uncertainty in the market, buyers are willing to participate at a lower price threshold and condos are generally less expensive than townhomes or single-family homes. When there’s a downturn and more price compression, we see more demand for less expensive product.
Thoughts on the luxury market.
Andrew: There’s been a lot of talk about the trickle-down side of things with luxury product – but there’s no correlation with that. The luxury market works independently and doesn’t have a lot of trickle down. But it does depend on your perspective. The number of sales in West Van is consistent with what it’s been historically. What has changed is the number of listings. For buyers, there’s lots of variety. For sellers, it’s very competitive. The luxury market will still be relatively flat in the short term, especially as we were relying on incomes outside the Lower Mainland to drive that. It will be a while until that market comes back.
Ryan: It’s a plateauing of prices. We’re not in a situation where economic changes are happening quickly and everyone has to sell. So we have people who are choosing not to list. The activity is moving down market and people aren’t listing in the higher price bands. So when we see average prices falling, it’s a little bit misleading.
A lot of people assumed there would be a flood of inventory. But at the end of 2019, it seemed like people were not listing and inventory went down. Are we going to have better inventory in the spring?
Andrew: I hope so. I dislike situations with multiple offers and no subjects, making it a challenging purchase. I would hope as the market sees an uptick, there will be more people adding their listings to the market.
Ryan: I think we’ll see more homes available in the spring compared to the depths of winter. The year over year change in inventory from Sep 2019 saw inventory contracting. The available units in Dec 2019 was way down compared to Dec 2018. I think it depends how long this resurgence of demand lasts. There’s nothing that says sales will slow down anytime soon, so it’s a matter of people jumping in off the sidelines and listing their property.
Andrew: It’s hard for us to answer because we look at things quantitatively which doesn’t always explain sellers’ motivations.
It feels like a tale of two markets with resales and presales. What’s happening in presales?
Andrew: Right now, we don’t really know because there haven’t been any launches. We have projects coming up in the next few weeks so we’re interested to see how those kick off 2020. In 2019, we ended the year at a low point of units launched – probably 50% below historical averages. We are talking about 7000 units sold and an inventory of 9000 unsold. Relative to history, 2010-2018 saw about 14,000 sales and 6600 unsold units per year. We’re way down on the sales side and up on the unsold inventory. It’s not necessarily a bad thing – especially not if you’re buying.
Ryan: The presale and resale markets are their own beasts but there is some interplay. A lot of it is consumer sentiment. We’re interested in following what happens in the resale market because it shows us how the presale market will evolve. If we have more activity in the resale market with prices going up and inventory going down, it closes the gap between resale and presale prices. It also helps people feel more positive about presales and knowing they’ll be purchasing something of value. The data may tell us one thing but if people don’t believe it, that’s what matters. A lot of developers are waiting to launch projects. It’s a matter of timing. We’ll see more activity in the next 2-3 years.
What does it take to get the resale market re-established amongst buyers?
Ryan: We haven’t seen prices move very much. We’re seeing more transactions but we’re not seeing the bidding up of prices, broadly speaking. We need to see values start going up – they have stopped declining but haven’t increased yet.
Andrew: We don’t need year after year price increases for the market to be healthy. Historically, we haven’t had price increases but have still had an active and healthy market. We need confidence from the consumers to list their houses and people who can move into the market and believe they’ll still get value. We need more activity and I’m hoping that happens in the spring market.
On assessments and the inflection point.
Ryan: The market took two steps forward and then we all got our assessments and everyone wondered what was happening. Those assessments are dated July 1, 2019 – so six months old. But July is when our market really turned; that was the inflection point of sales.
Andrew: We’ve now had six months of flat prices and one month of increasing prices. The assessments are challenging at best as not many people understand when they’re calculated, how they’re calculated and what they’re for.
Ryan: Assessors don’t walk through your house and say, “I love what you’ve done with the place!” That information gets lost and it gets lost on the general consumer too.
Where do you see the biggest risk to the market in the next couple of years?
Ryan: I’m always looking at the economic factors. Since 2009, we’ve seen unprecedented growth. As The Economist says, “Economic expansions don’t die of old age.” If we’re not in a recession, we’re talking about when the next one is coming. But in this region, we’re doing well.
We’re always looking for signs of the economy turning down. We’ve been fairly confident about our economy and many fears have receded. But we’re always watching.
Andrew: I look at it from the supply side of things. One of the risks in the coming years is supply and policy. There’s been a lot of focus on the demand side but not much on the supply side. We’re seeing development proposals getting turned down and if that continues, it will pinch the supply side. The reality is that this region will accommodate a million more people in the next 20 years. And all of those people need a place to live.
Ryan: The reason Canada has increased its immigration targets is to address our aging population and the impact that has on our workforce. We are welcoming in immigrants with certain skills and education who can contribute to our economic base. Our population would be declining without migration; migration is how we sustain our economy. But we have to think of the impacts, and one of the impacts is on our housing market. We need to figure out how to increase supply of all types of homes.
Do you have a region you’re excited about?
Andrew: The emerging energy centres are exciting – Surrey Centre, Metrotown, Brentwood. We classify those as areas where they’re adding not just housing but other uses from education to offices. The notion of interconnectivity drives these centres and that’s due to the transit built around them. It’s not just about growing housing stock but about the other services around it. There are other small energy centres emerging too that we’re excited about.
Are there any exciting spots in Vancouver?
Andrew: It’s about knowing your clients. Some will prefer something like the River District with great walking but not necessarily great transit connections. Looking at Kingsway, I think that’s the next rapid transit corridor with the buses. You can get out to Burnaby, down to Science World and all around. You need to define who you are and your objectives and you’ll be able to find a gem anywhere within the city.
No one wants to predict pricing but what is 2020 and beyond looking like in terms of pricing?
Ryan: I look at our economy – how many jobs we’re adding and how our population is growing. It all points to a sustained need for housing. Per capita demand also shows we’re below historical averages. That pent up demand needs to be pushed through. I see that factoring in heavily in 2020. I don’t see prices going down at all in 2020; I see them going up. But no one can forecast one-off unexpected events. If the provincial government doesn’t like how the market is trending, they might try to do something about it.
Favourite neighbourhood: Andrew: Fraserhood; Ryan: Inland Valley
Favourite restaurant: Andrew: Savio Volpe; Ryan: Blackbear Pub
Piece of advice you would give your 18 year old self: Andrew: Respect your elders and find good mentors; Ryan: Enjoy being young, it’s a great time of your life
Book you would recommend: Andrew: Talking to Strangers by Malcolm Gladwell; Ryan: The Golden Spruce by John Vaillant
Something you have purchased for under $1,000 that has changed your life: Andrew: Skis for his young daughter; Andrew: Glerups slippers
Find out more about Rennie Intelligence.