Home Buying, Real Estate News, Your Next Home
Shorter days, cooler weather, and the dreaded arrival of rain, rain, rain, signal the push to year-end.
Like the rain greeting us every autumn, it is time for the Fall edition of the Fifth Dimension, presenting a concise summary of the new multifamily development market of the Third quarter of 2022 for Metro Vancouver and the Fraser Valley. Fifth Avenue is a full-service, suburban market-focused residential real estate sales and development marketing organization. Combined with our associated entities Vancouver-based BakerWest, Okanagan-based Epic Real Estate Solutions, and Vancouver Island-based Island Realm Real Estate, we are an integral part of British Columbia’s ever-growing and changing new home market.
The season’s story is one of uncertainty for buyers and sellers alike with further interest rate hikes and cost increases to daily living. The emerging trend is a further slowdown in sales absorptions in most neighbourhoods.
The supporting data for this report is objectively collected and presented by renowned and renamed Zonda Urban (formerly Urban Analytics), a leading provider of advisory services on the new multifamily home market and a vital contributor to this report since 2010.
How certain or uncertain are you about today’s real estate market? As the Third Quarter of 2022 concludes and the October market showed signs of stability, it is fair to say that the market has officially stabilized in most neighbourhoods of Metro Vancouver. Compared to this time last year, absorptions have slowed down significantly; however, 2021 was clearly an outlier. That said, sales during the end of the second quarter and through the third quarter slowed month after month. It is interesting to note that October sales in the resale market broke a five-month trend of decline compared to months prior, albeit with moderate increases.
Like in 2019, a significant part of the story is related to developers opting to delay releasing new developments thus curtailing supply. Simply put, you cannot sell what you do not have.
The slower absorptions have resulted in the increased use of incentives and realtor bonuses. Many of these planned launches were purposefully held off but are expected to come to market in the First or Second Quarter of 2023, assuming continued stabilization with respect to market conditions.
Developers who have maintained certainty in the neighbourhoods they are developing in, and proceeding to bring new developments in the current landscape, are adapting to help ensure the overall success of their projects. What does this new adaptation look like? As hinted at, it includes sharp pricing, creative incentives, and possibly even realtor bonuses. Those that are able to price within the bounds of the market in their neighbourhood location, in addition to incentives and a long-term value and lifestyle story, are still selling successfully today. The definition of success today versus a year ago has simply changed as part of our adaptation to the current environment. Instead of selling out in days or even hours, developments are now reaching their pre-sale targets in months and selling the remainder at tempo. This also means prices are more stable.
The plus side of all of this is that in British Columbia, due to the Covid-19 pandemic, the British Columbia Financial Services Authority has made disclosure statements valid for 12 months of selling instead of just 9 months as it was prior to the pandemic. This means if a development is launched now it will have until the same time next year to simply reach its pre-sale requirements and obtain its building permit. We have experienced worse markets than this throughout our history in this province and still made bringing new homes to market possible in just nine months. Times are harder than they were a year ago but not anywhere near 2008/2009 figures.
The fourth quarter can typically be slower than other quarters despite market conditions. Some have opted to take this quarter to rest, recharge, and brainstorm how to adapt to the market for 2023 as well. Others, especially with products priced between $400,000 and $750,000, are charging and their fortitude is bearing fruit.
With this passage of time and season of togetherness, more people will naturally feel more certain about themselves, their current situation, and their futures. There is even rumored talk of rates getting too high and the Bank of Canada potentially starting to lower them in the new year, which would help influence consumer confidence in the market and developer confidence.
What can you do today to help with buyer confidence in pre-sales? The interest rate and unknown costs are the biggest fear drivers for most buyers. If you can work closely with lenders to have a blanket appraisal done for the development that holds the rates until completion, these fear drivers can be eliminated as the rate is held at the rate of the date the contract is written or approval applied for, and held until completion. Should rates drop between purchase and completion, the buyer will still receive the lower rate, just not at a higher rate if it has increased. This is something experienced developers have done in other tough markets. That said, we will also repeat the fact that the Lower Mainland and Metro Vancouver is a sought-after places to live, essentially landlocked by mountains in two directions, an ocean, and an international border. This means despite market dips, the long-term outlook for real estate in general in this area is good as we are an “in demand” location with only so much space to build.
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