Downtown Vancouver & Westside Real Estate

Trends and Price Forecast

 
Westside Vancouver
 

HIGHLIGHTS

  • Westside house prices have dropped hundreds of thousands of dollars since peaking and the benchmark house price has dropped below $3 million.
  • Downtown and Westside Vancouver condo prices are also down since their peak in 2018.
  • Higher-priced Lower Mainland markets like Downtown, Westside, and West Vancouver have been hit hardest but the surrounding areas are all impacted.
  • There has been a sudden increase in buying activity this Spring however it is still slower than prior years and there are many homes for sale.
  • Some houses on the Westside have been trying to sell since 2017! As we enter the Summer months, some sellers will likely accept price concessions rather than wait to re-list next Spring.

Economists broadly agree that higher interest rates and tighter mortgage rules will have a larger, longer-lasting dampening effect on home sales than we previously thought. B.C. is also impacted by new registries designed to keep dirty money out of the market. As a result, foreign investment has shifted to Toronto and Ottawa. As well, there are now fears of Canada hitting a housing induced recession.

This article covers:

  1. Where are prices headed?

  2. Recent buyer trends

  3. Should investors sell?

  4. Is this a good time to buy?

1. Where are prices headed?

Over the past 10 years, the price of a Metro Vancouver house has doubled. That’s the equivalent of prices rising 7% every year while people’s incomes increased by an average of 1.5% over the same timeframe.

In the summer of 2016, house prices tumbled after the introduction of a foreign buyer tax and subsequently recovered. The 2016 drop in prices was much steeper than the one seen today, and it raises a question about the degree of volatility in the market. If prices can skyrocket $600,000 between 2014 and 2016, drop $100,000 in 2016 and then recover, could Metro Vancouver house prices drop by $400,000 between 2018 and 2020 before a recovery sets in?

Prices on the Westside, which peaked at $3.6 million, have already dropped over $700,000, a 20% drop, so another bad year could bring prices down to $2.5 million. Still beyond the reach of most Vancouverites.

West Vancouver (over a 20% drop from the peak) and Westside house prices are the hardest hit, but a 10% drop in Richmond house prices, once popular with foreign investors, is a sign that foreign speculative investors have, for the most part, moved on to find better deals in Toronto and Ottawa, or outside of Canada.

It seems that Vancouver Westside house prices have passed a tipping point. This doesn’t mean you don’t buy a home for your family, but it does mean that you’re buying it for shelter and lifestyle, rather than for a low-risk investment. It also means you’re driving a hard bargain.


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Downtown and Westside condo prices didn’t appreciate at the same rate as other parts of Metro Vancouver, but they still appreciated by an average of 12% annually over the 3 years to 2018. After peaking in May 2018, downtown Vancouver condo prices have taken a bumpy path downward. The benchmark Downtown and Westside condo has lost approximately $100,000 in value since May 2018.

If you’re looking to buy or sell a home in the next three years, you’ll want to pay closer attention to recent trends. With fewer buyers in the market, sellers have begun to lower their expectations, and prices have dipped in recent months.

Unfortunately, first-time buyers who earn $100,000 a year and have saved up $50,000 can only afford a home priced around $425,000 so the run-of-the-mill Vancouver condo is well beyond their reach. Prices would have to drop significantly for first-time buyers to get into the market without a substantial gift from the “bank of mom and dad”.


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Metro Vancouver

Real Estate News & Forecast

Trending Toward Buyer’s Advantage

The markets for both houses and condos in the Westside are trending toward a position where buyers can negotiate discounts and incentives from sellers. This means more selection for home buyers, fewer bidding wars and less upward pressure on home prices.

Anecdotally, there are houses that have been for sale since Spring of 2017 and still haven’t sold. Today there are more condos for sale than the three previous years.

The chart below shows there is enough supply of houses to last over a year.

If the trend continues, buyers can expect house prices to trend further downward.

The condo market is much tighter than the detached home market, but the condo market is a solid balanced market now.


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2019 Metro Vancouver House Price Forecast

Different forecasters have different approaches. Some will only provide a provincial forecast, some a city one, while others forecast by type of dwelling within a city. The chart below depicts 6 forecasts from December 2017 to provide a broad picture of the market. These forecasts don’t differentiate between detached homes and apartments.

2018 Forecast Metro Vancouver Home Prices

The most optimistic forecast calls for 6% price growth while the most conservative expects no price appreciation at all. No one predicted prices would drop but in Metro Vancouver they dropped by 3%.

Looking forward to 2019, we see most forecasters expect prices to drop.

2019 Forecast Metro Vancouver Home Prices

The brunt of price drops will likely be felt by higher priced properties (i.e., more expensive neighbourhoods and detached single family homes).

Metro Vancouver House Price Change

Condos likely won’t be unscathed in 2019, prices have been dropping rapidly since mid-2018.

Metro Vancouver Condo Price Change

Given the forecasts, the current market weakness, and the increased downward price pressure, prices will likely remain flat or drop for the next few months. As well, homebuyers and homeowners shouldn’t expect much price appreciation between now and the end of 2019.

2. Recent Trends - No One is Buying

2018 house sales were the lowest in years, and last year's condo sales were worse than every year going back to 2013. Not only that, the beginning of 2019 has been even slower than last year which implies we will see continued downside price risk.

The worst hit markets are Richmond, the Vancouver Westside, and West Vancouver. We at Mortgage Sandbox interpret this to mean that foreign buyers in foreign speculators are no longer placing money in the Metro Vancouver market. Scanning news outlets across Canada and reviewing realtor marketing materials, it becomes clear that any foreign money still coming to Canada seems to be directed toward Toronto, Ottawa and Montreal.

Although foreign direct investment helps Canada with the construction and house price boom, investors who treat housing as a commodity bring commodity-like price volatility (e.g., gold, oil, coffee) to housing which can be very disruptive for people who believe homes should be used primarily as shelter for the people who live and work in the local community.

Condo purchases followed the house market down however the number of condos for sale is astoundingly high.

Pre-sale Homes

You may not know this, but sales of brand-new homes (“Pre-sales”) are not included in the statistics published by the real estate boards. In Vancouver, pre-sales make up over 30% of the market, so that’s a pretty big information gap.

A recent report by MLA Advisory shows that developers used to sell a far higher proportion of pre-sales within one month, but this figure has been trending downwards. One could say that the market has moved from frenzied to disciplined. According to MLA Advisory, current pre-sale activity levels “reflect a more normalized pace of sales for the Lower Mainland.” Since developers often need to sell 70% of a project to secure the financing needed to break ground on a project, prospective buyers can look forward to seeing developers offer more competitive prices, incentives, and amenities.

Developer incentives can take the form of free storage lockers, parking spots, home décor store credits worth thousands, and nicer party rooms. Whatever it takes to help you decide faster, so they can begin building.


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Causes of the slowdown

At Mortgage Sandbox, we break down our market analysis to five key factors: affordability, capital flows, government policy, supply and popular sentiment.

Five Factors Driving Home Prices

Affordability

  • Canada may be headed into a recession: A recession would reduce employment and lead to forces home sales and that puts downward pressure on home prices. The Canadian economy shrank in December 2018 as a result of slowing home sales. In a terrible self-reinforcing problem, the economic slowdown could cause the housing market to slow further.

  • Reduced borrowing capacity has pushed out family homebuyers: Mortgage stress tests and rising interest rates have effectively reduced the maximum amount people can borrow by 20% while condo prices rose by 20%. Perhaps home prices have surpassed people’s ability to pay? In July, CMHC, the government agency charged with helping Canadians achieve home ownership, reported that prices in Vancouver “are higher than incomes, mortgage rates and other fundamentals can justify.”

  • Home prices outpaced people’s ability to buy: There are no houses in East Vancouver available for less than $1 million, but only 8% of income earning households in Vancouver can afford a million-dollar home. Is it possible that the constrained supply has meant that only the top 8% wealthiest people in Vancouver have been buying, and now that they’ve filled their boots, there’s no one left to buy at the current prices?

Metro Vancouver Affordability

Find out what you can afford with the new mortgage rules!


Capital Flows

A Synchronized Global Real Estate Market Correction has dampened Foreign Buyer activity: Home sales have slowed in Manhattan, Sydney, Stockholm, London, and the list goes on. Perhaps global real estate investors have lost their appetite? Has the Chinese government been successful in their campaign to prevent citizens from taking money out of the country? If there were a global real estate downturn, how would this impact Vancouver?

If Vancouver is simply caught up in a global real estate correction, then at least there is no one to blame for the turn in the market. If this is the case, then it means that Canadian policies and government intervention will be powerless to change the global flow of capital and investment, and that’s a scary thought.

Foreign direct real estate investment has left Vancouver: Seeking better value in other cities because Vancouver house prices are some of the highest in the world (i.e., foreign investors believe you should buy low and sell high). Evidence for this shift in investor interest is seen in the dramatic drop in Vancouver home purchases and simultaneous upswings of activity in Toronto, Montreal, and Ottawa.

Government Policy

All levels of government are coordinating to bring about a “soft landing”: Whether it’s federal mortgage, provincial foreign buyer taxes or local empty home taxes, the government will not rest until prices drop another 10 to 20%.

Some industry advocates blame the January 2018 stress test for causing a slowdown in the market but the slowdown began in 2016.

Supply

While fewer people are buying homes, the Metro Vancouver population continues to grow: There is still a chronic undersupply of housing. In fact, population growth has ballooned from ~30,000 people annually to ~65,000. As a result, we are left with an inherent contradiction. How can we accept so many more people but sell fewer homes? The problem is we didn’t build enough to satisfy the wealthy and the middle class, so the wealthy (and their bankrolled children) are the only ones buying homes.

In 2018, 23,000 new homes were built in Metro Vancouver and a record 41,000 homes were under construction at year-end. Those new homes will help alleviate the extreme supply shortage in Vancouver. Keep in mind, rental vacancy needs to reach 3% before Metro Vancouver can be considered to have enough supply, and vacancies are currently below 1%.

Popular Sentiment

A change in buyer sentiment has led to a Wait-and-see Strategy:  Another theory is that homebuyers can buy at today’s prices but are playing-it-cool until they see a turn in the market. Low sales volume means the prices of most recent homes are a less reliable indicator of where the market is headed. This is because prices set under heavy sales volume are more representative of the consensus of many buyers. Low volume implies that many buyers believe properties are mispriced and are sitting on the sidelines. Declining volume in a market with rising prices is usually a leading indicator that a price drop will follow.

Here are some recent headlines and a video you may be interested in:

3. Should Investors Sell?

Forecasts are intelligent guesses, and when making investment decisions, we often focus on the most likely outcome. Prudent investors also consider for the worst-case and best-case scenario.

To benefit from the best-case scenario, a home buyer should talk to their mortgage broker about prioritizing flexible loan conditions.   These allow you to get approved for more money, move quickly to close, and have lower fees, rather than focusing solely on rates. Every lender has very different lending rules, and most people underestimate how these impact:

  1. How much you can borrow.

  2. How easy it will be to meet all their conditions by the closing date.

  3. How quickly you can pay off your debt.

  4. The penalties and fees charged to pay-off the mortgage or move it to another lender.

To mitigate the risk of a worst-case scenario, try to buy a home at a price that allows financial breathing room, and plan to live in it for 5 to 10 years.

If you are investing to earn rental income, then your risk is lessened, but if you are not earning enough rental income to cover expenses, and you have greater reliance on a price rise in the property, then you should move with an abundance of caution. Buying in a dropping market is risky because it can be difficult to get financing. Banks lend based on the current market value verified by an independent appraisal and don’t consider the price you’re paying.

CMHC, a Government of Canada Agency, predicts house prices will be flat or drop for the next two years. As well, In October 2018, there were 41,000 homes under construction in Metro Vancouver and due to be completed in 2019 and 2020. Just under 20,000 homes have been bought so far in 2018. If a significant number of those homes under construction were pre-purchased with the intention to flip, they could overwhelm the market with supply.

From a seller’s perspective, likely now is a better time to sell than in two years.

4. Is this a good time to buy?

Buyers of houses certainly have more negotiating power. So long as you aren’t taking on an uncomfortable amount of debt and this is your “forever home”, 2019 will be a good time to buy but 2020 may be even better.

At the end of the day, a home is a place to live more than it is an investment. If you feel you need a home to have the lifestyle you’ve always wanted, then now is the best time since 2008 to be a buyer. Just be sure to drive a hard bargain and keep in mind that prices will likely continue to drop after you buy your home. It’s impossible for everyone to perfectly time the peaks and troughs of the market.

We recommend also you also read this article on the current risks present in the real estate market.


Our platform matches you with local, pre-screened, values-aligned Realtors and Mortgage Brokers because shared values make better working relationships.


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