Metro Vancouver home sales 43% below April's 10-year average as buyers wait it out
April is usually the month when we see an uptick in real estate prices and sales, but that is not the case this year.
April home sales in Metro Vancouver were 43 per cent below the 10-year average as many buyers continue to sit on the sidelines hoping that if they are patient, the market will continue to become less expensive.
We are at an impasse as sellers want last years prices (which were much higher) and buyers want tomorrow's prices (expecting them to be lower) — nobody wants to act first.
To get a deal done, we first need to understand what motivates people to buy and sell real estate. It often boils down to two emotions — greed or fear.
In our current market it's all about fear. Buyers hope to find a seller who has had a house on the market for some time and who is reading all the negative headlines about the housing market. They want a seller to agree to their low offer out of fear. Buyers need a compelling narrative, backed by data, to convince sellers that the longer they wait, the worse it could get.
By feeding into the seller's fear of a price collapse, a buyer hopes they capitulate and take the "bird in the hand" low-ball offer. And buyers have a number of arguments at their disposal.
B.C. Finance Minister Carole James vowed to stop money laundering which, in her words, has hiked real estate prices by 20 per cent in certain parts of Vancouver. This, combined with the mortgage stress test, the foreign buyer's tax, school and speculator tax, have all reduced demand.
Real estate is a numbers game. Many sellers reject initial offers they see as too low, so buyers need to continue to negotiate or just move on until they find the right deal. It's currently a buyers' market so there is no need to rush a purchase.
Values will rise
I believe that real estate values will continue to rise over time as it is very expensive to build a home or condo in the Lower Mainland. Back in 2011, I built two homes at a build cost of $100 per square foot, not including the price of land. To build similar homes today it would cost over $300 per square foot. In just eight years the cost to build has tripled due to higher labour and material costs and new regulations.
Recently several developers cancelled or delayed projects citing cost as the reason. If this trend continues, once the current stock of condos is sold, we could experience a lack of housing inventory in a couple of years. It is at this point in the real estate cycle when demand outstrips supply and prices start to rise.
More choices for single family homes
One group that I believe should take advantage of our current market are the owners of two- or three-bedroom condos and townhouses who are looking to upgrade to single family homes.
Over the past three years, the price of townhouses has been increasing while single family homes were trending down. If these owners sell their townhouse, they would be able to buy a lot more house today than they could have two or three years ago.
Another group who should consider buying are those who are looking to buy a home to live in for at least five years. Prices could continue to trend down for a couple more years, but they will rebound. If you negotiate a good deal and are happy living in your home, then you needn't worry about the short-term fluctuations.
For people looking to be landlords, it's a much harder call. It is very tough to make the numbers work to justify the headaches of owning a revenue property. Unless you get an amazing deal or are an experienced landlord, you might want to take a "wait and see" approach.