The 5 'What If's?' in Vancouver Real Estate Right Now!
With the world seemingly going crazy, it’s no wonder that we are hearing every facet of real estate be discussed. The problem with that, is keeping up and understanding what it means. Especially at a trying time, you can read one article stating the highest level of optimism vs the lowest level of pessimism. So which is relevant to you? What does it mean and How does it affect the market?Well we’ve gathered all the topics in one place to discuss what they mean, and how they are relevant to you, both good and bad!
Put simply, how many of the population/province is currently unemployed. When this number rises, that typically means less and less people have the ability to continue paying their mortgages (default on payments) or qualify for a new mortgage (Mortgage approval). Put bluntly, if people cannot afford to pay their mortgages, they typically need to sell, which increases inventory. If people cannot qualify for a new mortgage, they are not buying, which decreases demand. These two outcomes put pressure on the real estate market over time to reduce prices because there is too much supply, and not enough demand. In BC, we currently sit at 10.2% for unemployment, so the question now, is whether that 10.2% is heavily homeowners/potential buyers or not. If so, we could see the above happening, if not, then it’s likely the above won’t happen as they are not in the housing market one way or another. The argument is currently unemployment rates are higher year-over-year, vs. That’s due to the pandemic, and unemployment rates have been coming down every month for the last few months.
Further on from the above, most lenders applied a mortgage deferral scheme during the pandemic. This, put simply, allowed homeowners to defer their mortgage payments during a time of need. This came to an end at the end of August. This is a hot topic now, as if a lot of people can now not pay their mortgage payments each month, they will have to sell/foreclose and it will flood the market with supply (inventory). Once again, if the market is flooded with inventory, without the demand to keep up, it puts pressure on prices to drop over time. In BC around 7-11% of homeowners deferred their payments. This is very minimal compared to Alberta at 21%. The argument now becomes on whether we start to see more of these homes come to market now the deferral scheme is finished. We’ll only be able to tell this over the coming months. On top of that, home buyer demand is very high in various areas, so even if that extra inventory comes available, is it possible the demand will eat it up anyway?
Depending on your article of choice for the day, you can read the market is boiling hot, or the market is freezing cold. The truth to this is, where is YOUR market? If you’re looking for an East Side single family detached house, you need to be ready to move immediately, and expect multiple offer scenarios with homes selling above asking price. If you’re in the downtown 2 bedroom, 2 bathroom space, you’relooking at a very solid buyers market through and through. Now more than ever, it’s important to look at the macro numbers, not the birds eye view of markets, as they are COMPLETELY different and inaccurate. Similarly, in points 1 and 2, if these results happen, they could have very different effects based on each market. If condo owners downtown default on mortgages and need to sell, it’s going to make it even more of a buyers market downtown. If the same happens in East Van with detached housing, it’s likely any new inventory will be gobbled up whole, and not put pressure on the market.
In an effort to support the housing market, the Bank of Canada has reduced interest rates, meaning it’s cheaper to borrow money. This is to spur incentives to potential buyers looking to get mortgages. It also opens up the door to more potential buyers due to the added Stress Test. The Stress test is essentially qualifying for 2% more than you are seeking in mortgage interest. I.e. $1,000,000 at 3%, means you have to qualify for $1,000,000 at 5%. Invariably when interest rates are lower, it allows for a wider group of people to qualify for mortgages. The opposite obviously happens when mortgages go up. The argument then explains itself, what is going to happen with mortgage interest rates?
Recessions are not good for real estate markets. A recession is defined as a falling GDP for two consecutive quarters. This can be defined by many things such as unemployment rates, industrial spend, trading etc. There is an argument we are currently in a recession due to the numbers, the counter argument is this is not a real recession, just temporarily imposed by Covid-19 with the economy set to recover fast, and already doing so. Recessions are tough to forecast as they always happen, but when? A lot of people have been predicting a recession for 5 years. If you keep on predicting the same thing, the law of averages states at some point you will get it right. In our opinion, this is not something to dwell on right now. Even (IF) after a recession hits, it takes time for the real estate markets to react to it.
So there we have it. The 5 ‘What If’s? in real estate right now! Depending on which side you are on, you could be predicting either or. Hopefully this blog has helped you assemble all the pieces to your puzzle, and make the continued discussions that much more simplified!
Don’t forget you can always reach out to us on the contacts below if you need more information. Or feel free to listen to our latest vlog on the matter at our Mcinnes Marketing Youtube Channel. Or check out our Podcast during your morning/evening commute!
Thanks again and we’ll be back next week!
With the world seemingly going crazy, it’s no wonder that we are hearing every facet of real estate be discussed. The problem with that, is keeping up and understanding what it means. Especially at a trying time, you can read one article stating the highest level of optimism vs the lowest level of pessimism. So which is relevant to you? What does it mean and How does it affect the market?Well we’ve gathered all the topics in one place to discuss what they mean, and how they are relevant to you, both good and bad!
- Unemployment Rate
Put simply, how many of the population/province is currently unemployed. When this number rises, that typically means less and less people have the ability to continue paying their mortgages (default on payments) or qualify for a new mortgage (Mortgage approval). Put bluntly, if people cannot afford to pay their mortgages, they typically need to sell, which increases inventory. If people cannot qualify for a new mortgage, they are not buying, which decreases demand. These two outcomes put pressure on the real estate market over time to reduce prices because there is too much supply, and not enough demand. In BC, we currently sit at 10.2% for unemployment, so the question now, is whether that 10.2% is heavily homeowners/potential buyers or not. If so, we could see the above happening, if not, then it’s likely the above won’t happen as they are not in the housing market one way or another. The argument is currently unemployment rates are higher year-over-year, vs. That’s due to the pandemic, and unemployment rates have been coming down every month for the last few months.
- Mortgage Deferrals
Further on from the above, most lenders applied a mortgage deferral scheme during the pandemic. This, put simply, allowed homeowners to defer their mortgage payments during a time of need. This came to an end at the end of August. This is a hot topic now, as if a lot of people can now not pay their mortgage payments each month, they will have to sell/foreclose and it will flood the market with supply (inventory). Once again, if the market is flooded with inventory, without the demand to keep up, it puts pressure on prices to drop over time. In BC around 7-11% of homeowners deferred their payments. This is very minimal compared to Alberta at 21%. The argument now becomes on whether we start to see more of these homes come to market now the deferral scheme is finished. We’ll only be able to tell this over the coming months. On top of that, home buyer demand is very high in various areas, so even if that extra inventory comes available, is it possible the demand will eat it up anyway?
- The Market Is Hot And It’s Not
Depending on your article of choice for the day, you can read the market is boiling hot, or the market is freezing cold. The truth to this is, where is YOUR market? If you’re looking for an East Side single family detached house, you need to be ready to move immediately, and expect multiple offer scenarios with homes selling above asking price. If you’re in the downtown 2 bedroom, 2 bathroom space, you’relooking at a very solid buyers market through and through. Now more than ever, it’s important to look at the macro numbers, not the birds eye view of markets, as they are COMPLETELY different and inaccurate. Similarly, in points 1 and 2, if these results happen, they could have very different effects based on each market. If condo owners downtown default on mortgages and need to sell, it’s going to make it even more of a buyers market downtown. If the same happens in East Van with detached housing, it’s likely any new inventory will be gobbled up whole, and not put pressure on the market.
- Interest Rates
In an effort to support the housing market, the Bank of Canada has reduced interest rates, meaning it’s cheaper to borrow money. This is to spur incentives to potential buyers looking to get mortgages. It also opens up the door to more potential buyers due to the added Stress Test. The Stress test is essentially qualifying for 2% more than you are seeking in mortgage interest. I.e. $1,000,000 at 3%, means you have to qualify for $1,000,000 at 5%. Invariably when interest rates are lower, it allows for a wider group of people to qualify for mortgages. The opposite obviously happens when mortgages go up. The argument then explains itself, what is going to happen with mortgage interest rates?
- The ‘R’ Word - Recession!
Recessions are not good for real estate markets. A recession is defined as a falling GDP for two consecutive quarters. This can be defined by many things such as unemployment rates, industrial spend, trading etc. There is an argument we are currently in a recession due to the numbers, the counter argument is this is not a real recession, just temporarily imposed by Covid-19 with the economy set to recover fast, and already doing so. Recessions are tough to forecast as they always happen, but when? A lot of people have been predicting a recession for 5 years. If you keep on predicting the same thing, the law of averages states at some point you will get it right. In our opinion, this is not something to dwell on right now. Even (IF) after a recession hits, it takes time for the real estate markets to react to it.
So there we have it. The 5 ‘What If’s? in real estate right now! Depending on which side you are on, you could be predicting either or. Hopefully this blog has helped you assemble all the pieces to your puzzle, and make the continued discussions that much more simplified!
Don’t forget you can always reach out to us on the contacts below if you need more information. Or feel free to listen to our latest vlog on the matter at our Mcinnes Marketing Youtube Channel. Or check out our Podcast during your morning/evening commute!
Thanks again and we’ll be back next week!
Jay McInnes
T: 604.771.4606
jay@mcinnesmarketing.com
Ben Robinson
T: 604.353.8523
ben@mcinnesmarketing.com