The Bear Has Woken Up

A few months ago we discussed data that showed that the Bear market of REBGV had ended. Indeed, as we will see, during the first three months of the year a rapid increase in the sales was observed, indicating a Bull market was in place. The data suggests that prices were indeed going to go up in the first months of 2020. But then, a pandemic was declared. It seems that the Bull got sick and went into self isolation for now, and the Bear is back.

(you can click on any of the charts to enlarge them on your phone)

Pandemic declared

On March 12th, the WHO declared COVID-19 a pandemic. Shortly after, social distancing measures were put in place. Businesses were closed, and many people got laid off. Official numbers indicate that more than one million Canadians lost their job in March, an unprecedented number as seen in this chart from CBC:

Source: https://www.cbc.ca/news/business/canada-jobs-march-covid-19-1.5527359

A severe market crash took place, and central banks had to drop interest rates to zero, and inject liquidity into the system to prevent a collapse in the financial system. For example, this is the chart of the Balance Sheet from the Bank of Canada showing an unprecedented increase:

Source: https://www.bankofcanada.ca/rates/banking-and-financial-statistics/bank-of-canada-assets-and-liabilities-weekly-formerly-b2/

Obviously with unemployment skyrocketing, and credit getting tighter, real estate was certainly going to be affected. In addition, social distancing measures make it more difficult for people to sell their house. On March 19 the Real estate board strongly recommends REALTORS┬« refrain from hosting open houses. So let’s look at what the data says about what happened in the real estate market of Greater Vancouver.

Pre-pandemic sales

Let’s start by recapping what was happening before the pandemic. (Again, thanks to Johnny for the data!).

This chart shows the number of sales in January and February. There is no doubt that 2020 started strong.

Post-Pandemic sales

As things shut down in early to mid-March, real estate sales were no exception.

With data from reported sales as of April 23rd, we plotted the number of sales in March and early April. These sales are as per sold date, not reported date. Given that the average delay from sold date to reported date is about two weeks, the number of sales in March is unlikely to change significantly in these plots, but it will for the ones in April. Nevertheless the trend is very clear:

Only REBGV numbers plotted.

Another way to visualize the collapse in sales is by plotting them day by day. This chart shows that the periodicity of sales on Mondays after open houses had returned to the market, after being absent in the Bear market of 2019. However, it vanished after the pandemic was declared. March 16th, 2020 was the last Monday of strong sales.

Only REBGV numbers plotted.

Pandemic effect on other metrics

The following chart shows the percentage of units selling above/below final asking price. The trend reversal in the data points from April is very clear.

Only REBGV. Data for March and April is as of April 23rd.

Another metric we discussed before is the diligence period, which is the delay from an offer being given and subjects being removed. In hot markets this number is low, as many offers are subject free and completed faster, and in cold markets it is long, as more buyers put subjects and take longer to complete the sale. We discussed this in a previous blog post.

This following chart shows the diligence period per week since early 2019 to mid April 2020. You can see the increases in January that are typical of the Christmas period where transactions take longer, and you can also clearly see the increase in the most recent weeks, as the market has cooled down:

Effect on Prices

The increase in sales in late 2019, Jan/Feb 2020, translated to an increase to the Sales to Active Listing Ratio as seen in this graph.

We know this ratio is seasonal, but that it does translate into price changes, as we discussed in a previous post. When we look at the average and median sold price vs assessed price from 2020, we can see how prices were indeed going up, until the pandemic hit.

The thickness of the bars is proportional to the number of records available. Filters: Only units sold by less than 100% above assessed, REBGV only, units 3 years or older. Only data points available to April 23rd included.

For April we have only partial data, so the number will certainly change, but the following chart shows the trend so far:

We are heading to the lowest sales number on record (since 1998 at least, which is the earliest number we could retrieve from the REBGV website):

Given that SAL is calculated using reported (entry) date, not sold date, we compared the price changes per month vs SAL of the month after from the recent data (using projected SAL for April). This suggests that the SAL for May will also be very low.

What next?

In the short term mortgage credit is contracting. Ron Butler had a good summary in an interview he gave to Doug Hoyes. Ben Rabidoux also discussed expected changes in credit availability in HELOCs. A back of the envelope calculation by the federal reserve of St. Louis pegged US unemployment in the second quarter at ~30%, which would be higher than that of the Great Depression of the 1930s. Unclear what it will be in Canada, but nearly 5.4 million Canadians are receiving government support during the pandemic. That is more than 30% of the workforce in Canada. Recent polling shows that at least in Vancouver, the pandemic has affected jobs, with almost half of the respondents saying that they have lost income, and many will not be able to pay their rent/mortgages. These will no doubt decrease demand and put additional downward pressure on prices in the near future.

On the other hand, new listings are extremely low, almost 500,000 Canadians deferred their mortgage, so inventory is at a very low level. A lot of the quantitative easing money could put some upward pressure on many assets, including real estate.

As Butler said, in times like these (of great uncertainty), pressing the pause button is a better solution than rushing any decisions.

Disclaimer: We did not curate all the data and assume no responsibility for missing points or errors. Take any specific information with caution and consult with a professional advisor if you are in the process of making a big decision.

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