The Bull vs The Bear

Ok, our last blog post was from the end of April, when the REBGV market was significantly down as lockdown measures were in place. I had said that the Bear had woken up. But a lot has happened since then. BC reopened a lot of places in mid-May, and mobility increased significantly in June. As people started moving, it is clear that a significant number of people jumped in the Vancouver Real Estate market. This following figure summarizes the number of sales per sold date (not reported date, actual sold date), and you can see how the market pulse was almost gone in 2019, it resurrected in early 2020 (most sales happening on Mondays presumably after open houses), and then it died in late March/April/May. But it came back roaring in June and July. It seems that the Bear and the Bull are fighting:

Number of sales per sold date in 2018,2019 and 2020 in the REBGV region. This is with sales reported as of Sept 2. Since sales take on average 14 days to be reported, here we are showing only sales from Jan until August 15. Some of the early August sales might not be reported yet. The peaks you see correspond mostly to Mondays in the calendar.

At first glance this might seem surprising. We hear headlines about high unemployment numbers (according to Stats Canada in BC it was 13% and 11% for June and July, respectively). But actually, if you look at the latest figures from the survey conducted by BC CDC, the unemployment has disproportionately affected more the lower income brackets (it is 24.5% for those earning <$20k vs 9.2% for those earning >$140k), who are probably not real estate buyers.

Source: https://news.gov.bc.ca/files/COVID-19_Going_Forward.pdf

In other words, high income earners still have jobs, and appear to be buying (low interest rates probably help as well). But are they buying the same as before? Planet Money had a short podcast indicating that in the US people are moving to the suburbs looking for more space. There are multiple reports (1,2) of a similar phenomenon happening in Canada, where cottage demand has increased significantly. Could the same be happening here?

Well, the August REBGV numbers were released this week, and this is how the Sales to Active Listing ratio of the unit types today compare to that from February, pre-COVID:

Unit typeFebruary SAL (pre-COVID)August SALChange
Apartments28.4%21.6%-6.8%
Townhomes26.9%30.5%+3.6%
Detached17.3%23.7%+6.4%

It appears that demand for apartments dropped significantly, and demand for townhomes and detached houses increased significantly (mind you that there is seasonality also in the numbers, although this August is more like a typical March/April…). Now, has this translated to price changes? Absolutely, as we have discussed before, SAL is a very good predictor of price changes. Here’s the representative data we could find for median prices vs assessment for 2020 (thanks Johnny for the data).

Average and median differences between sold prices and assessment prices from 2020 for REBGV. Some filters to remove outliers were applied.

Clearly after the April correction, the market has split. Detached houses have considerably increased in prices, whereas apartments remained just above the values seen in the April correction.

Something similar is seen in the benchmark values (the numbers reported by the REBGV), although those normally lag average values, as we discussed before:

So our first conclusion is that detached and townhomes are up, but apartments are flattish (pun intended). It appears that people are looking for more space. Here’s the median prices for detached homes, sorted by the regions where sold prices are exceeding assessed prices the most

Units reported sold from June 1st to September 1st. Numbers shown: Sold price – assessment price, total floor space in square feet, median price, price per square foot.

It seems that Pemberton, Squamish, Bowen Island, and the Sunshine Coast are the hottest markets (for detached homes) from the outer cities, and within the Greater Vancouver area Vancouver East is the hottest. It will be interesting to see if the trend continues.

Now what?

There are many reports of apartments listings going up both for rent and sale. (See also this excellent report showing some stats for rents). Some of it comes from the AirBnB debacle, but it appears that the pandemic has also driven available buyers to move out of the city into larger homes. This appears to be happening in many cities around the world (in the US, Australia, the UK, among others). Our data points to a similar phenomenon in Vancouver. Buyers are buying larger properties, particularly outside of the main urban areas.

In Canada, the big event coming up in the Fall will be the mortgage deferral expiries. Right now there are +500,000 mortgage deferrals expiring on October 31st, with more to come in November and December. Robert McLister from RateSpy ran the numbers. If you assume 90% of the borrowers currently deferring payments go back to normal and 10% become impaired, you could see the arrears rate get close to 2%. For context, the arrears rate in the 1980’s housing bust was just over 1%, and in the 2009 recession it was about 0.5% (in Ontario). Spring 2021 will be when the inventory would start to grow, that is if the government does not announce additional support. The federal government is already running a very large deficit, as this graph shows, although recent reports indicate that this might even grow to half a trillion by the end of the year:

Source: https://pbs.twimg.com/media/EgnQGs5WoAM_H6t.jpg

And more sectors of the economy will face difficult times. “According to a recent report from Statistics Canada, more than 60 per cent of Canada’s restaurants may close their doors forever within the next three months because of the economic fallout from COVID-19. Before the pandemic, the food services sector was responsible for 1.7 million jobs, or one out of every 15 jobs in the country—and generated $30 billion a year in gross domestic product.” (Bloomberg).

In previous crises, the economic repercussions were reflected months and years later after a shock. By Spring 2021 we should have a better idea of how things are going to evolve. Both, for the pandemic and the economy. In the mean time, I’d be cautious about making any big 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.

admin

One comment

  1. Amazing article as always Eric. Thanks!

Leave a Reply