Real-estate spin torques the reality of home sales in a COVID-19 world

[Vancouver Sun – August 7, 2020]

You can be forgiven for feeling perplexed about what’s happening to Metro Vancouver’s real-estate market after almost six months of COVID-19 anxiety and varying degrees of lockdown.

The spin coming from the real-estate industry is bewildering — with some realtors saying the market is “hot” and “fantastic.” Some agents say B.C. buyers are “jumping in with both feet,” activity is “up dramatically,” numbers are “record setting” and prices are “20 per cent higher year over year.”

Alas, the hype from certain segments of the industry confirms why polls show the public generally has a low opinion of realtors. Insights West recently discovered only 47 per cent of Canadians have a positive view of real estate agents, much lower than their trust in police, teachers and even journalists.

Metro Vancouver housing prices, for instance, are definitely not up 20 per cent on average over last year, despite what you can read on the internet.

Still, the real-estate industry’s recent post-lockdown puffery is not entirely wrong. Pockets of pent-up demand appear to be showing in Metro Vancouver’s market, particularly in detached homes in the suburbs.

But many analysts believe realtors are in general exaggerating the strength of the market, torquing trends to make people believe this is the time they must buy. There are still reasons that the classic 1954 book How to Lie With Statistics remains a bestseller.

It is wise to focus on the details of this pandemic housing market, since it’s segmenting.

For instance, the city’s high-end property developers should be nervous these days, since the condo presale market, which has normally attracted a flood of domestic and offshore investors, is in danger of collapsing. And many people who had been holding condo apartments as investments, which traditionally has been almost half of all units, are trying to unload their units.

The head of the Canada Mortgage and Housing Corporation, Evan Siddall, is among those telling Canadians to be wary of marketing propaganda. He went on Twitter on Wednesday to debunk a boosterish magazine article quoting industry players talking about an allegedly sizzling housing market. Siddall warned:  “It’s better to heed the advice of objective voices, not ‘experts’ who earn fees on house prices.”

In May, Siddall echoed the warnings as several banks predicted at 9 – 19 per cent reduction in Canada’s housing prices over the next year or more, with Greater Toronto and Vancouver suffering the worst. Prices would drop, Siddall forecast, because of COVID-19-incited unemployment, a dramatic jump in the number of people not being able to pay their mortgages and growing household debt.

A strange beast indeed

But this year’s COVID-induced developments need to be understood in the context of how Metro Vancouver’s housing market has over the decades become a strange beast.

It’s been globalized since the 1980s, which is why in January Demographia International Housing Inventory dubbed it the second-most-unaffordable market out of more than 340 cities around the world, with Hong Kong first and Sydney third. The ratio of Metro Vancouver housing prices to average local wages was a devastating 12 to one. A four to one ratio is considered “affordable.”

In the midst of such bad news, COVID-19 has thrown a wrench into the real-estate machines operating in Metro Vancouver, Canada and other parts of the developed world.

Pandemic restrictions not only took the wind out of the market for about four months, they forced realtors to resort to changing what they do and, for instance, offer virtual “open houses.” More importantly, Angus Reid pollsters say COVID-19 has walloped the earnings of more than two out of five Canadian households.

The pandemic has also largely closed Canadian borders to transnational migrants, some of who used to come with capital that helped fuel big-city housing prices. Foreign visitors to Canada are now down to next to nothing. And the numbers of new immigrants (350,000 last year) and international students (645,000 last year) have been cut roughly in half.

Canadian real-estate buying and selling patterns have been radically disrupted, but Siddall has felt forced to defend why his medium-term prediction of sharply falling prices is not necessarily panning out in the short-term, particularly in June and July. He has reminded everyone that one in five Canadian households could default on their mortgage payments if the economy doesn’t rebound.

Siddall is also among the many analysts criticizing the federal Liberals for doing too much to stimulate the housing industry — arguably the country’s biggest economic sector — by offering extremely low mortgage rates and by standing by as the Bank of Canada rapidly prints money to encourage spending.

Siddall worries the federal Liberals’ hyper-promotion of home ownership is creating an unsustainable debt bubble, which, when it bursts, will eventually push prices much lower.

“The problem is that we’re in a game of musical chairs and when the music stops playing, it’ll be young first-time homebuyers who are holding the bag,” he said.

Amid this, there are signs pent-up demand has recently come into the housing market, with the Real Estate Board of Greater Vancouver reporting a 28 per cent increase in sales in July compared to a year earlier. It looks as if some who had been preparing to buy in the spring have delayed their decisions to this summer.

And what’s especially different — blame COVID-19 — is that analysts say there is a small but significant uptick in people, presumably those who have not lost their jobs, moving out of the urban core. Some are buying detached houses in the suburbs with the idea that they need larger homes if they’re going to have to work out of them. Many employers might be getting used to their staff telecommuting.

At the same time, condos in the city core are not selling particularly well. Even though there are now more than 1,200 condominium towers in Vancouver, Burnaby and North Vancouver — and roughly one-third of the region’s population lives in a strata unit — there is a distinct possibility that particular construction craze might have topped out.

Will there be a shift to the suburbs?

Raymond Wong, who has lived in Greater Vancouver all his life, has made it his avocation to become informed about the housing market, especially since 2015 when he attended an open house and asked the realtor how locals could possibly afford to get into it.

“She responded: ‘This is not a local market. This is a foreign market,’” says Wong, an engineer.

“I have a seven-year-old son and I do worry about one day how, or if, he could survive in Vancouver. I worry that one day my son would be forced to move away from me, and not by choice.”

In addition to Wong’s longtime concern that “overseas money has been coming into the market,” he believes his son in the future will be up against stubbornly stagnant Metro Vancouver wages and “will have to worry about hyperinflation, since Ottawa is printing money and providing low interest rates.”

The young are especially hurting in regards to wages since COVID-19 hit in March. A quarter of Canadians between 25 and 30 years old have lost their jobs or been put on unpaid leave because of the pandemic, according to a survey by Deloitte Canada. Only about a third of Canadians between age 25 and 40 said their employment and income were unaffected by the COVID-19 shutdown.

With the coronavirus wreaking economic havoc unevenly, Wong said professionals generally appear to be doing much better than young people, blue-collar and retail workers.

“Many professionals living in downtown Vancouver realize they don’t need to live close to work any more. They are working from home on their computers and want a larger space. This is probably one of the reasons we are seeing a downturn in downtown condos,” Wong said.

“I feel this is the new norm, and that’s why there’s been an uptick in single-family homes, particularly the starter ones. It seems single-family-homes are selling as far out as Chilliwack. And this is not happening just in Greater Vancouver, but across Canada as well.”

Veteran Toronto housing analyst John Pasalis concurs. He’s found data showing that the semi-rural suburbs of Toronto are experiencing much stronger sales than the core of Canada’s largest city, which, like Vancouver, has also been attractive to global investors seeking a place to park their wealth.

“I think what we are seeing in Toronto and Vancouver is a post-COVID behavioural shift away from condos and towards low-rise (suburban) homes. It’s not a mass exodus, but it’s an important trend to keep an eye on because I think it will be with us for a while,” Pasalis says.

Vancouver housing analyst Steve Saretsky tends to agree. “Housing sales are on the rise, and so too are prices, at least for single-family homes on the outskirts of the city.”

This week the Fraser Valley Real Estate Board, which includes Surrey, Langley and Mission, says its “benchmark” price of a single-family detached home rose to $1 million. It says that’s a hike of 5.3 per cent compared to July 2019.

Even though the real-estate associations says this summer’s sales volumes and prices have begun surpassing levels in 2019, analysts point out that 2019 was a down year.

For the first time in decades, money earned offshore is apparently not a major factor perking up the Metro Vancouver market.

“It’s cheap credit, not foreign buyers, driving the rebound in housing activity across the province of B.C.,” Saretksy told followers in a Thursday tweet.“Armed with record low mortgage rates and a sea of liquidity, Canadians are doing what they do best — borrowing money to buy real estate,” Saretsky said in a recent report. He expressed grave concerns the Bank of Canada is “running in overdrive” to print new money and support mortgage bonds. Such policy moves will help Canadians who already own real-estate assets, Saretsky said, but they will further harm the “have nots.”The apparent turn to detached homes in Greater Vancouver is not pushing overall prices higher compared to the boom years.

Stephen Punwasi, a prominent Canadian market analyst and director of Better Dwelling, recently said, “Greater Vancouver real-estate sales are returning to pre-pandemic levels, but prices are still falling” compared to their overall peak a couple of years earlier.

Most analysts owe the drop in 2019 at least in part to the cumulative effects of the B.C. government’s 20-per-cent foreign-buyers tax, as well as its speculation and vacancy tax, which targets “satellite” households in which breadwinners earn most of their wealth offshore but pay minimal Canadian income taxes.

Despite the slight June-July upturn in sales of detached homes in Greater Vancouver and the Fraser Valley, the volume of sales is still almost half what it was in 2016. And the average price for a detached home in July in the north of the Fraser parts of Metro was about $1.6 million. That is exceptionally high compared to most cities around the world, but it’s below the peak of $1.83 million three and four years ago.

The luxury single-family market is not what it was either. In many neighbourhoods of West Vancouver, for instance, where typical home prices of $4 million to $7 million were until recently driven largely by buyers with offshore capital, assessed values have fallen on average by one third in the past two years.

Across Metro Vancouver, data shows June and July sales are somewhat higher than last year’s levels.

“But despite the increase,” Punwasi said, “new listings are hitting the market at such a rapid pace, prices are actually falling further from the peak. It’s not incredibly straightforward, but not complicated either.”

And the longer view is not pretty, Punwasi suggests. Canadian banks are now responding to COVID-19 by allowing 16 per cent of their mortgage holders to defer their monthly payments, a rate double that in the U.S. It might just be a matter of time before many struggling with mortgage debt are forced to sell.

Condo mania may have peaked in Metro

Buyers are not as keen as they once were on the city’s often-shiny condo apartment towers, which have become the most obvious symbol of Metro Vancouver’s boom. Their presence once led author Douglas Coupland to write a book about the city titled City of Glass.

“I think there is less demand for condo towers now, since many people who buy in condo towers are investors,” said Wong.

“So, with Airbnbs not doing well here, and people losing jobs and rents coming down, many people who own condo units want to sell.”

An exceptional number of condos, 2,964, flooded into the market in July. “Greater Vancouver has seen its biggest single-month surge of inventory in half a decade,” Punwasi said in a recent analysis.

“Everybody had the same idea — sell, in June. … New listings are hitting the market at such a rapid pace it’s killing price gains.”

In July, the Real Estate Board of Metro Vancouver reported that condo apartment prices in July were averaging $680,000. That’s down from a peak of $740,000 two years earlier.

Given the muted condo scene in Metro Vancouver, Punwasi also noted that “pre-sales” of yet-to-be-built units had been down 50 per cent in June from the same month last year. Many developers, he says, are holding off on starting construction projects.

It’s hard to keep track of the many diverging shifts impacting the Canadian housing market. There are so many changes in the age of COVID-19 that even analysts such as Saretsky have been known to say the reality sometimes seems “impenetrable.”

Despite the way the detached family home market is functioning differently from the condo apartment market, Wong is among those who is not optimistic about what he considers the bottom line: Whether Metro Vancouver will become affordable in the future, including for his son.

“Our government is not doing us any favours,” said Wong, who has felt compelled to join Housing Action for Local Buyers, an ethnically diverse group of British Columbians who advocate more affordable housing for ordinary people.

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