A Slowing Market: The deeper you look, the more you see”
The Fifth Dimension Summer Edition
Welcome to mid-year edition of Fifth Avenue Real Estate Marketing Limited’s: The Fifth Dimension. Click here to download the Fifth Dimension | Quarterly Market Report
Our aim is to share perspective, stimulate thought and encourage dialogue with respect to what is and what will be through the remainder of 2019 and into 2020.
To ensure the supporting data for each and every edition is objectively collected and presented, we collaborate with highly regarded Urban Analytics (UA) a leading provider of advisory services on the new multifamily home market. UA has been tracking the new multifamily home market in Metropolitan Vancouver since 1994.
A slowing market: It is times like these that one tends to seek as many informed perspectives as possible. As they say, “The deeper you look the more you see.” And there is clearly more to see than declining sales in the Metro Vancouver market.
Recently, the Urban Development Institute held its annual late-Spring Fraser Valley Outlook meeting. For the sixth consecutive year it was our privilege to join speakers from Central 1 Credit Union and CMHC to share our perspective. By all accounts, attendance at this annual event is trending up as the suburban markets contribute more to the overall market story each successive year. I began my introductory remarks by sharing my perspective that this was not 2008.
While the first half year total with respect to sales is arguably one of the lowest in over a decade, the trigger for this mark last time around was the global recession of 2008. Despite the low volume of sales this is clearly not 2008.
Yes, re-sale and new multifamily prices have fallen over the past year and sales volumes have followed suit. These totals do resemble figures in 2009/2010 in many ways. That being said, there are compelling re-sale and new product exceptions to the trend, particularly where condominium product can still be offered priced between $300,000 and $500,000 and where new townhomes are being offered between $500,000 and $625,000.
It is interesting to point out that almost all notable sales activity reported this quarter was outside the central Vancouver core. Is that a first? I believe so. This time around the more suburban markets are out-performing the more central and less affordable areas within the Metro Vancouver market. This was not the case in 2008 where all type of buyers fled the outlying areas to snap up lower values in these central areas. It is also of interest to note that in this edition that no single market area is rated as a “Red light” for new development. However, all market areas except four are rated “Yellow light”. The four “Green light” areas are: Tri-Cities, Ridge Meadows, Surrey/North Delta and Abbotsford. Is that not telling a story?
Even with recent price reductions in more central areas, the prices offered today are still approximately 40 to 60 percent more than in 2009/2010. It is also highly unlikely to see re-sale or new High Rise or Low Rise product in Vancouver West or Downtown offered for less than $1,000 per square foot. It is not practical from a pure cost perspective.
Despite decreased first time buyer activity since the introduction of the government stress test, we anticipate an increase in first time buyer and downsizer activity in the fall. The new government program to aid buyers is likely to be most impactful on the suburban markets as will the recent easing of the qualifying rate with respect to the stress test. Further positive government initiatives are also anticipated to come into play as it is an election year.
Simply put, demand still exists in the market unlike 2008. However, developers uncertain with respect to costs and achievable pricing are opting to defer releasing product until what is on the market absorbs. Thus, a primary reason of late for the decline in sales year-over-year and and quarter-over-quarter is restricted supply. In contrast, the re-sale market is experiencing increased supply and increased in selling time. However, for the most part there is less than 6 months of supply in each neighborhood.
By the way, one of the reasons the market recovered more quickly from 2008 here than in other area in the world pertained to the presence of genuine, population growth based demand. Another was a hard signal communicated by developers with respect to a) restricting supply and b) lowering prices to the point that consumers understood the floor had been reached. We may very well be at this point this fall and given the restricted supply we could very well see improved sales volumes in the remainder of this year and through 2020. Thus we anticipate accelerated absorptions in 2020 with price levels stabilizing. As for the long term, major price escalation in Metro Vancouver in the next 3-5 years is not unforeseeable.
Finally, enjoy the rest of the summer sunshine with your families and keep smiling. Things are looking up.