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What Does It Mean To Be In Vancouver’s Buyer’s Market?

What does it mean to be in Vancouver’s buyer’s market?

By Misael Lizarraga

If you’ve been keeping an eye on the news lately, or simply been skimming through headlines on real estate news sites, you’re probably running into articles about how Vancouver is now solidly in a “buyer’s market.”

Seeing as how Vancouver’s infamously expensive real estate market weighs heavily on buyers’ mind, news about how the market is now beginning to favour them are certainly welcome. However, those articles tend to focus on the statistics, rather on what it actually means to be in a buyer’s market, and how it affects buyer and sellers.

Vancouver Buyer's market

Seller’s markets, balanced markets, and buyer’s markets

No matter what pundits or opinion polls may say, real estate prices are directly affected by the forces of supply and demand. Those forces can take the form of new construction, population increase or decrease, the Bank of Canada changing overnight interest rates, inflation, unemployment, government policies, taxes, the state of the world economy, and even the weather. Some of those forces affect the market on the supply side, while others on the demand side.

A metric often used to measure the state of the market is called the sales-to-active listings ratio. This ratio compares the number of homes sold in a specific time period vs the number of homes listed for sale. As an example, the Real Estate Board of Greater Vancouver (REBGV) reported a total of 1,103 homes sold, and 10,808 homes listed for sale on January 2019. If we divide 1,103 by 10,808, we get a sales-to-active listings ratio of 10.2%.

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Economists generally agree that if the sales-to-active listing ratio falls between 12% – 20%, the market is balanced. In a balanced market, neither buyers nor sellers have an outright advantage at the negotiating table. Sellers generally receive and accept reasonable offers, homes remain on the market for an average amount of time (by the local market’s standards), and buyers are able to find homes and qualify for mortgages relatively easily.

If the sales-to-active listings ratio goes to 20% or above, the market becomes a seller’s market. In a seller’s market, demand for homes is high, but there isn’t enough housing inventory to meet it. As a result, prices rise, and buyer’s have to compete for the same, reduced inventory. Homes sell at listing prices or above, bidding wars become common, and homes don’t stay in the market for long.

Finally, if the ratio falls at 12% or below, it becomes a buyer’s market. In a buyer’s market, the situation flips. Home listings become abundant, fewer buyers are able (or willing) to buy, and prices start to fall. Homes also take longer to sell, and sellers are forced to drop their listing prices in order to entice buyers.

How does a buyer’s market affect buyers

Every year we see a drop in sales during the winter, as fewer people are willing to go on home showings in the cold. We could call this period of time a buyer’s market, since technically speaking, it favours buyers. Because the total number of homes for sale increase at this time, buyers are at a better negotiating position because they have more inventory to choose from, and are usually able to buy at lower prices. But as soon as the weather warms up,  home buyers start touring homes again, and prices trend up.

But our current buyer’s market is not the result of a polar vortex, or a large number of homes being built, or an exodus of Vancouverites looking to settle in greener, more affordable cities. We are in a buyer’s market that has lasted longer than winter, and will continue throughout 2019. This buyer’s market was primarily caused by the implementation of last year’s mortgage stress test, and made worse by Bank of Canada’s increase of interest rates.

Phil Moore, REBGV president, expresses cautious optimism about the current market. “Realtors are seeing more traffic at open houses compared to recent months – however, buyers are choosing to remain in a holding pattern for the time being.” Moore goes on to say, “Economic fundamentals underpinning our market for home buyers and sellers remain strong. Today’s market conditions are largely the result of the mortgage stress test that the federal government imposed at the beginning of last year.”

Our current market conditions are favourable, but only for those who already have the purchasing power to afford Vancouver’s expensive real estate, pass the mortgage stress test, make their down payment, and afford monthly mortgage payments at our current, higher interest rates. If we consider all these factors, you may begin to disagree that our current buyer’s market really is really all that favourable.

That’s not to say that home prices haven’t dropped. The latest monthly market report by the REBGV shows that the total number of homes sold in January 2019 are down by almost 40% compared to January 2018. The benchmark price for all property types are down by 4.5% in a year-over-year basis, and 7.2% over the last 6 months.

The largest price drops took place in the detached, and luxury home markets. To highlight that fact, an article recently published by Daily Hive showed 19 homes throughout Vancouver experiencing gigantic drops in listing prices. Some of them dropping their listing price by nearly by a million.

Though our current market technically meets the requirements of a buyer’s market, it wouldn’t be completely accurate to say it favours all buyers. Given all the requirements that first time buyers need to meet to even qualify for a mortgage, not to mention the still ridiculously high listing prices, first time buyers, and those looking to upgrade from a condo are still priced out of the market. While we don’t expect the term to start catching on, perhaps a more accurate name for our current market should be a “rich buyer’s market.”

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