So, do you want the good news, or the bad news?
The bad news: We have been seeing some major shifts in the market in the last 3 to 6 months. With supply expanding and demand at 20-year lows, we are seeing frustrated sellers and uncertain buyers leading to a decline in market values. In previous years, sellers ruled the market. If they didn’t get the price they wanted, they would simply refinance and take it off the market. Now, we are seeing some very motivated sellers which we have not witnessed in Vancouver or Fraser Valley since the crash of 2008-2009. Exciting times!
One Example: Our firm completed an appraisal for the sale of a two-bedroom apartment unit in North Vancouver in a building that had over 20 active listings. The seller could have sold for $740,000 in May/June 2018 but had to do a quick sale at $660,000 in October 2018. In previous markets, this would never have happened. 1) Because there would be no supply of similar 2-bedroom units, and 2) Sellers were never desperate. Times…they are a changin’!
Even when we saw markets like Tsawwassen, Ladner, South Surrey, Vancouver West and West Vancouver dry up in 2017-2018, nobody was selling at a loss, and most sellers could refinance and stay above water for another year or two. Homes in West Vancouver would just sit on the market. There were periods of time where there were very limited sales transactions in some areas making it very difficult from a valuation perspective. Up to this point, most homeowners and investors have been on a 15-year joy ride. Whether they bought a home in East Vancouver that doubled in value in 6 years, or a pre-sale condo that doubled in value in 2 years. In either case, it has been a fruitful decade for anyone involved in Real Estate in BC. When values are increasing at double-digit rates every year it allows homeowners to use their homes as bank accounts, which is great! But at some point real estate fundamentals (reality) must prevail.
The combination of government intervention, highly-leveraged borrowers, an increase in housing supply and the decline in real estate prices across the board has left some borrowers in a tight spot. They are now in a position where they need to sell. If this continues, in conjunction with increasing interest rates and demand waffling, I predict that we will see a correction of 10 to 20%, perhaps even more, within the next 12 months.
But let’s not forget the good news!
The good news is two-fold:
1) This is a very natural correction and with any change (up or down), there will be winners. So wait until you see an excess of supply of a certain housing type and jump in when you see a good opportunity.
2) Our team is always available to discuss the micro-markets (like single-family, detached dwellings in Abbotsford or one-bedroom, apartment units in downtown Vancouver) with you, your sales team and/or your underwriting team anytime. We always believe education is one of the most powerful tools in this business and preparing yourselves and your clients for market fluctuations will reduce stress and optimize the experience – so never hesitate to reach out to us!
A full discussion and comprehension of the national and global macro-economic forces are beyond my pay grade, but I can easily see how the changes are affecting real estate in BC. Taxes on foreign investors! Taxes on vacant homes! Rate Hikes! These changes are having the exact results the government has intended which is a slow-down of the burning hot real estate market in BC. The changes may be unsettling for some, but these are natural fluctuations and will enable buying opportunities for those prospective buyers who couldn’t participate in the market in the previous years.
Wishing you all health, wealth and happiness!
Adam Lawrenson, AACI
Owner, Adlaw Appraisals Ltd.
26-Oct-2018