Are there cracks in B.C.'s condo market?
Pandemic has fueled a demand for detached homes with backyards
In last week's opinion piece, I mentioned that I was seeing cracks in the B.C. condo market and here's why.
Greater Vancouver condo prices peaked in January 2018 at an average price of $751,632 which is approximately eight per cent higher than today's average.
There are now more than 6,000 active listings, thousands more than we saw in March or April of this year. Granted, would-be sellers were reluctant to list at that time as they didn't want strangers walking through their homes during a pandemic.
As COVID-19 restrictions relaxed, the number of listings increased. Both July and August had approximately 2,900 new listings each, compared to only 1,400 sales.
COVID-19 exposed us to the limitations of condo living and also changed how condos are used.
Pre-pandemic, homeowners used their condos maybe 12 hours a day, eight of which were spent sleeping. Much of their work and entertaining took place outside their homes, particularly if they live downtown. That changed with the onset of the pandemic. And as people spent more time at home they missed "space" — green space or a dedicated area to work.
Some people also became uncomfortable sharing common areas such as elevators and hallways.
And much of what makes downtown condo living desirable such as the energy of living in a busy area, nearby culture and entertainment, has been put on hold. For these reasons and more, those who could afford it have been listing their condos and buying detached homes in the suburbs.
Pre-pandemic, the expectation was that a wave of boomers would sell their detached homes and downsize to a condo to help fund their retirement. COVID-19 has delayed this move.
For example, my parents were considering downsizing, but the lockdown made them realize just how lucky they are to have a backyard. It allowed them to safely spend time with their friends and family in person — not over Zoom.
Recently, many would-be sellers of detached homes have taken their homes off the market which has limited the supply and driven up prices.
Add to this an expected surge in condo inventory created by owners forced to sell because of job loss and the end of the mortgage deferral program, and lower prices should be the result. Speculators who have overextended themselves and hundreds of pre-sale units expected to be completed in 2021 could also push prices down.
Today's condo buyers are very different from the people purchasing during the peak of 2018. Back then prices were rising and there was a lot of greed and speculation in the market. Today there is a lot less speculation and most buyers are local who are purchasing for personal use.
Several forecasters including Moody's Analytics, Canadian Mortgage and Housing Corporation and Eitel Insights, are expecting further weakness in the real estate market (detached and condo) until 2021 and possibly 2022. If these forecasts come to fruition, it is good news for buyers. However, a forecaster's prediction, while often useful and insightful, should never be the sole reason to buy or sell a property. Forecasts are constantly being "revised" as new information comes to light.
Over the next few months, or year, I'm expecting to see further cracks in the condo market. Many investors who bought multiple units near the peak of the market that no longer provide cash flow will be forced to sell at a loss.
If you are in the market for a condo, their crisis could be your opportunity. If the condo inventory continues to trend higher and prices drop, it should result in a strong buyers' market. If that's the case and you find a home that works for you, negotiate hard and write an offer.