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episode # 231

Will Vancouver Real Estate Prices Drop in 2020? with CMHC’s Eric Bond

CMHC made headlines this Spring predicting big drops for Canadian Real Estate and now we have the Vancouver edition. CMHC Economist & Market Analyst, Eric Bond, sits down with Adam & Matt to interpret the data, discuss methodology and provide some startling predictions. What will be the long-term effects of Covid-19? Will Vancouver real estate prices drop? What does the Vancouver Real Estate Market look like in 2021 and beyond? And which segments of the market will outperform? The answer might surprise you! This is an action-packed episode and choice listening for anyone considering buying or selling. Get your notepad!

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Episode Summary


 

Who is Eric Bond?

I’m a guy who likes skiing. I live in Kits and ride my bike around town. I’m an Economist with CMHC and Market Analyst for Vancouver, BC. I’ve been with CMHC for just over six years, originally covering the Victoria market. Now I’m in the Vancouver portfolio.

 

How does the Vancouver real estate market compare to Victoria?

The source of growth is a key difference. Victoria has some young people and students migrating to the area but it’s mainly a retirement demographic. Vancouver is much broader but concentrated in the younger population. Both are interesting markets. There’s more wealth involved in the Vancouver market and affordability is a bigger issue, both for renters and buyers.

 

Is the Vancouver real estate market healthy?

That’s an interesting question! I would say no in terms of the market meeting the housing needs of the population. Prices are very high relative to local income. That’s relevant in the ownership market but also for land prices, development and affordability for the end product. We have some challenges.

 

How will COVID-19 impact the Vancouver real estate market?

As everyone knows, these are uncertain times. We have an obligation to inform people about what we’re seeing in the market, which is why we released our summer report and forecast. That forecast is based on the notion that employment, income and migration will all be impacted by COVID-19.

If people lose their jobs or have lower incomes, they have a lower ability to pay for housing. Some people will have to sell. And those who are buying will have a lower ability to buy. That will limit price growth. Meanwhile, you have less migration to Vancouver and other cities in Canada, which results in fewer people needing housing.

In Vancouver, you have to consider our starting point. We were at a record high for housing starts and were heading downward before COVID-19 hit. As mentioned, we also have higher prices and indebtedness.

We do see house prices moving lower overall. We forecast prices will be 8-16% lower at the end of the two-year period. That will start with 0.5-3% this year and take more hold in 2021/2022 before recovering towards the end of that year. Housing starts will also decrease this year and increase again next year. MLS sales have been dramatically lower over the last few months but have started to recover. Overall, we still think sales will trail off as economic challenges begin to take hold.

 

What are we expecting in terms of price decline in the Vancouver market?

We are looking at an 8-16% overall decline on prices over the next two-year period. It will begin with 0.5-3% this year. We see condominiums making up a greater portion of sales. This started before the pandemic and will continue as people have lower purchasing power.

 

How will different property types be affected by the price declines?

In general, the detached market in Vancouver is “detached” from the local economy. It’s driven by wealth. In the last few months, we have seen people continue to transact in that sector and hold it steady. Going forward, I think the very high end will continue to see the challenges it has seen in the last few years, particularly with our borders closed. In the lower end of the detached market, it may be relatively stable.

The condo market is where there is quite a bit of uncertainty. We’ll see greater differentiation of quality. This is the segment of the market where people who now have lower income may no longer be able to transact. But later on, they will only be able to transact in this market, increasing activity in this segment.

Going back to 2015/2016, we’ve said Vancouver is a two-speed market: single/detached and condo/attached. That blurred a bit in 2018/2019 but the two-speed market will come back. Unless you have existing equity, you can’t transact in the higher market on local income.

 

What are key indicators we should be watching?

We’re watching these main variables at the core of our forecast:

  • Migration: looking at policies on opening borders, immigration targets by the government, and data from Statistics Canada
  • Employment: which sectors will face job loss and will it spread outside of tourism/hospitality? Looking at the Labour Force survey data.
  • Resale market: comparing the pace of listings to the pace of sales.
  • New home market and new construction: we have seen a slowdown in the pace of housing starts but expect them to resume in the fall. New design of units may allow people to work from home or have access to outdoor space, which is important during this time. Looking at what happens with presales and what extent people are able to close.
  • Rental market: watching for an increase in supply, particularly in condos that went from short term to long term rental which could lead to more choice and lower rental prices. Completing the CMHC rental market survey in the fall.

Housing ultimately comes down to the people. In the short term, there will be fewer people needing a place to live which will impact our housing market.

 

Thinking back to March, did you think we’d be in a better or worse spot right now?

I don’t know if I can concretely answer that. I would say we’re heading towards a better case scenario in BC. We have seen increased economic activity but not an increase on the migration front yet. A second wave or more shutdowns could really limit economic activity and turn us towards a worse case scenario. But in BC, we’re doing fairly well so far.

 

Will the entry/mid-level detached market be the most resilient over the next two years?

I might say that market has always been the most resilient. Buyers in this market place value on having four walls, a lot and the land. Attraction to that will always persist. It depends on what happens in other segments of the market. For example, if you have to sell a condo to move into this market, you’re impacted by the condo sale price and that market.

 

Are certain areas of Greater Vancouver better for growth or stability?

Our forecasting is done across the country on the Metro Vancouver level. So we don’t have a forecast for example, comparing Squamish vs Langley. It’s a macroeconomic forecast that is derived at the provincial level using local economic information.

We may see a return to greater differentiation in the condo market in terms of location but also amenities. In 2017, the condo market saw substantial price increases and people just wanted to own. No longer will people be okay owning just anything. They want something that meets their needs. If you pay $50,000 more now, it makes a bigger difference than if you had in the past. You will see a difference in product.

 

Will we see a push to the suburbs?

That is a very interesting question and I don’t have a concrete answer. I think it will take several years to play out. I wonder if this is a time for mid-size cities to shine. For example, will Nanaimo see a boom? It’s connected to larger cities but with lower housing costs and more choice.

Will this massive experiment with remote working remake our cities? It might. I don’t have the answer to that.

 

How will Vancouver’s real estate market compare to other major cities?

Because our forecast rests on employment, income and migration impacting housing demand, we don’t see a huge difference in our forecast between cities in the grander sense. In the prairies, we see the oil market impacting Edmonton and Calgary. With reduced economic activity and demand for transportation, the oil market has decreased so we expect a deeper impact on the housing market there.

Comparing Vancouver to Toronto and Montreal, it really depends on where we started from. We started with high prices and high levels of indebtedness, so we will see that play out in our housing market. In Montreal, prices were lower to begin with so recovery will be quicker and there wasn’t as deep of a decrease. But broadly speaking, it’s pretty similar.

 

Why does the CMHC issue forecasts? Do they affect expectations of the market?

We inform the market of what we’re seeing and help others make educated decisions. We explain what our forecast is based on (income, employment and migration drive housing demand) and whether people believe that is up to them. It gives people pause and reflection on the actions they may want to take in the market, given the uncertainty. We hope to help people meet their housing needs.

Expectations of the market are a factor but they’re very individual. Each buyer/seller is looking for something different and has different expectations. We don’t allow that to influence our forecast as we consider it essential for us to inform the market about what we’re seeing. People can use that information how they will and hopefully make a better decision.

We can try to compare our current market to 2008/2009 but that was based on a financial market crash, not a pandemic. We’re in the early stages. The parallels with other recessions may become more apparent over time. Looking at the 19th Century housing market in Paris after the pandemic, a recent study found that the market bounced back quite quickly once migration resumed. This speaks to the need of having housing data. We have gaps in that data in Canada so the more we can fill those, the better informed decisions we can make.

 

What is the long term forecast for Vancouver?

We don’t do a long term forecast in terms of house prices but we do on the demographic side. The huge variable now is migration, which has been interrupted.

The fundamentals haven’t changed. Vancouver remains an attractive place to live on a national and international scale. As migration grows, so will buying and renting demand. How we meet those growing needs is the challenge. How we address those challenges will determine what the market looks like.

 

5 wire:

Favourite neighbourhood in Vancouver: Kitsilano

Favourite bar or restaurant: Rain or Shine Ice Cream

Book you would recommend everyone read: The Wealthy Renter by Alex Avery

One piece of advice you would give your 18-year-old self: Spend some time to figure out what you value as early in your life as possible – this will guide your decisions throughout your life

Something you have purchased for under $1,000 that has changed your life: A bicycle!

Find out more about CMHC.

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