While there continues to be agreement about a housing market cleaving in half, experts disagree about where this could lead.
The Vancouver real estate industry reported another month of higher sales and prices in September and continues to defy dire predictions of a pandemic-induced downturn.
But some analysts point out fragile aspects of the market, such as a rising condo inventory and falling condo prices.
The number of real estate sales in B.C. year-over-year in September increased 63 per cent. The average residential price in B.C. increased by 15.3 per cent compared to last year, and set a monthly record of $803,210. Total sales dollar volume in August increased 88 per cent compared to last year, according to the B.C. Real Estate Association, which represents real estate agents.
The Canada Mortgage and Housing Corp. has been in a high-profile clash with some in the real estate industry over its prediction of double-digit percentage price drops in markets such as Vancouver.
The federal government housing agency, which has tightened underwriting policies for high-ratio borrowers, has also been vocal about the danger of fuelling the stress of home ownership in expensive markets for buyers with uncertain financial prospects in a weak economy.
Now, with sales and prices rising, there continues to be agreement about a housing market cleaving in half, but disagreement about where this could lead.
“The overall housing market system seems to be dividing in two, and this is where risks start to appear,” said Aled ab Iorwerth, deputy chief economist at the CMHC.
He and others think that while prices are holding and rising, there are nuances such as falling rents, a growing preference for suburban over city locations, and extended economic weakness that could hit the condo market and pull down other house prices too.
“I think it’s still too early to be doing the happy dance. Condo prices are declining while house prices are moving higher. The result is a higher average sales price as the composition of homes selling has changed. It’s very much a mixed market and the potential fallout from deferred mortgages has yet to be realized as these deferrals are only beginning to expire,” said Vancouver realtor Steve Saretsky.
Saretsky adds there will be a record number of new condos completing this year and next. These are projects that were started during the building boom which began in 2016.
“That new construction is finally completing at a time when condo demand has slowed, and the rental market has softened. These are obvious risks that are contending with the lowest mortgage rates we’ve ever seen and a sea of liquidity provided by the Bank of Canada. Hence, the short- to medium-term direction of the market remains very much in flux.
Realtor Ian Watt, who specializes in downtown Vancouver condos, where rising inventory has been more pronounced, said the median price in September decreased 10 per cent from previous month, and the median price decreased 14 percent from September 2019.
Housing starts across B.C. in September hit 25,308, down from 33,100 during the same period in 2019.
However, that is comparing housing starts in 2019 that ended up reaching a record high of 44,932, even though most forecasts, including that of the B.C. government, had been for the number at the end of the year to be around 35,000.
“If anything, new home construction has been remarkably strong given what normally happens in a recession,” said Brendon Ogmundson, the BCREA’s chief economist.
He sees the split in the market less pessimistically, but describes the economics as very unusual.
“Instead of seeing falling home sales and rising inventory as unemployment grew, we have been recording record high levels of sales and the supply of listings has fallen.”
He attributes this to “pent-up demand from sales that didn’t happen in the Spring, (very low) sub-2 per cent, 5-year fixed mortgage rates, and the asymmetric impact of the pandemic on the labour market. As of September, employment in high wage sectors was about three percent above pre-pandemic levels while low-wage sector employment was still about 7.5 per cent below pre-pandemic levels.”
As for the condo market, he said sales “are still strong, but that market also had pre-existing challenges before the pandemic due to strata insurance (issues). The impact of the pandemic on the rental market certainly elevates those challenges.”