Making sense of a Declining Real Estate Market
(November 1, 2022) In August, I wrote a blog post entitled, “Is the Real Estate Market cooling?“. The commentary from that article is still spot-on, but I’d like to provide an update on declining sales and prices in the real estate market over the past 3 months. Follow along with my discussion by viewing detailed Market Statistics for your neighbourhood.
Is the Market in imminent danger of a crash?
Prices in the Lower Mainland have declined 9% from the peak reached in February 2022. Sales volumes are also down – October 2022 sales volume was 44% lower than October 2021. The declines in the Fraser Valley are even greater: prices have declined by nearly 18%, and sales volume is down 65%! And the declines continue month after month. Against that backdrop, I can certainly understand why people are worried…
But let me try to bring some perspective to these numbers.
- Prices increased by 46% from the beginning of the Covid-19 pandemic to Feb. 2022. (That’s certainly unusual – a pandemic is generally associated with job losses, recession and declining house prices. Chalk one up for the power of government intervention with declining interest rates and MASSIVE infusions of cash into the economy). The current decline in prices has only brought the declining real estate market to where it was in November 2021. Yes, the market has given up the outsize gains it made between November 2021 and March 2022 – but that’s hardly the catastrophe painted by the news media.
- Economists are forecasting declines from the peak prices ranging from 15% (CMHC) to 30% (RBC and Oxford Economics) in 2023. The upper end of this range would just about wipe out the pandemic gains and only return prices to pre-pandemic levels.
- Greater declines than 30% would imply that large numbers of home owners are being forced to sell. I believe that is unlikely to happen. Firstly, the majority of recent homeowners have been stress tested prior to being granted a mortgage, and most will ride out this downturn just fine. Secondly, the banks have a number of tools available to homeowners in financial distress, including extending the amortization period and allowing repayment of only the interest on the mortgage. The banks do not want a string of foreclosures on the books!
- There are a LOT of investors in Vancouver with cash sitting on the sidelines, salivating at the prospect of buying real estate at fire sale prices. We have first hand knowledge of this, with many clients waiting to buy at opportune prices. As a contrarian, I believe the existence of a large pool of buyers waiting is the best guarantee that the market is unlikely to enter an extended freefall.
- Most sellers are just sitting on the sidelines, and there is a real shortage of high quality listings. If you want to sell, there are definitely still buyers out there – and you can still achieve prices within 10% of the peak. However: doing this requires perfect staging of your home and flawless marketing. Call us – we have a demonstrated track record of pulling off challenging sales at stellar prices!
- The sales to active listings ratio is used to gauge whether we are in a buyer’s market, a seller’s market or a balanced market (see our Market Statistics pages for more details). All housing types (condominiums, townhouses and detached homes) are registering as seller’s markets, with the exception of the very high priced detached homes in Vancouver West and West Vancouver, and the detached homes in the Fraser Valley which had particularly outsize gains during the past 18 months. The sales to active listings ratio suggests that the latter markets are balanced. We may see a buyer’s market at some point in the future, but not today!