Major Price Correction Underway

Some realtors believe major price correction underway in Metro Vancouver

The number of detached homes selling in Metro Vancouver has been dropping for more than six months, but only recently has there been signs of easing of the city's stratospheric prices.

A number of Vancouver realtors believe a significant decline is happening in Metro Vancouver house prices, though official statistics are so far providing more muted signals.

The number of detached homes selling in Metro has been dropping for more than six months, but only recently have there been signs of easing of the city’s stratospheric prices.

Greater Vancouver Real Estate Board figures for all residential properties still show modest price gains over last year, but prices stopped rising in June. Then, in July, prices slipped 0.6 per cent from the previous month. The Metro real estate board uses its own home price index to show price changes. It calls the statistic a “composite benchmark price” that comes from looking at “typical” homes that are picked for being “in the middle of the pack” when it comes to attributes such as number of bedrooms or square footage.

Other agencies and market watchers prefer using average or median prices and drill further into prices for specific housing types and neighbourhoods. These statistics suggest prices have been dropping for longer and more dramatically than the real estate board’s index.

Realtor Ian Watt uses the independent figures from SnapStats Publishing Company, which reports median prices. For July, it shows that prices for detached homes on Vancouver’s west side have fallen 26 per cent in a year, dropping by just under $1 million, from $3.8 million to $2.8 million. In West Vancouver, detached home prices have fallen over 30 per cent or $1.1 million, from $3.6 million in December 2017 to $2.5 million in July.

By comparison, the real estate board’s index shows a year-over-year decrease in July of 8.4 per cent for the west side and 8.3 per cent for West Vancouver.

Realtor Stuart Bonner watches detached homes on Vancouver’s west side and says the drop in sales and prices that he is seeing feel like a “canary in the coal mine” — a warning of what is to come in other parts of the Metro market because the west side is where the “chain reaction” starts. 

If sales and prices drop in this segment, sellers have less wealth to use for buying in other segments — including other areas and other kinds of homes such as condos and townhomes — spreading out the downward pressure on sales and prices of these.

"If you don’t have someone selling a home for $10 million, with $3 million or $4 million to buy another home and then another $1 million or $2 million to give each of their children (or make an investment property purchase), there is a ripple effect when the volume of sales drops dramatically.”

Watt agrees, adding that each transaction of a detached home on the west side leads to several others elsewhere.

The downward trend would come off some intense price gains in the last few years. Watt says, in January 2015, the median sale price for downtown condos was for $493,000, according to SnapStats. In January 2018, it was $950,000 for an increase of 93 per cent.

“My thoughts are if they went up that fast, they can certainly go down that fast. That was a one-time Chinese money infusion and a spectacular frenzy, which are both over. Vancouver will never be affordable, but it will
drop 25 per cent or more,” says Watt.

Prices tend to be cut as properties sit unsold on the market. So another way to look at things is to count how many months it would take for the current inventory of homes on the market to sell, given the current pace of home sales, a measure called months of supply.

Bonner says as this statistic increased in July, the average detached home price dropped 11.6 per cent to $3.323 million from $3.757 million last year. The median detached home price dropped more slightly from $3.009 million to $2.984 million.

There has been a drop of 25 per cent in average home price and 22 per cent drop in median home price since the highs of 2017, according to Bonner.

“Detached, attached and apartments on the west side are now all experiencing price reductions and while this is creating good buying opportunities, buyers are holding off in anticipation of further declines,” Bonner wrote to clients in a note. “This will exacerbate the decline and soften prices further.”

Realtor Steve Saretsky says when prices were rising, it was the “irrational buyer who would set a new level by bidding $200,000 over the asking price.”

Now, the prices are being set by owners who are willing to take a lower amount because they have to sell for personal reasons, such as a divorce or an illness that forces downsizing.

“We are in a period of price discovery,” says Saretsky, with some sellers adjusting their expectations and some finding it harder to do so.

One would-be seller of a one-bedroom condo in Yaletown, for example,who thought in the fall of 2017, his place might go for $750,000. He gotan offer for $735,000, but didn’t take it then, says Saretsky.

“He asked me what it would be worth now, based on recent sales and I said, ‘asking anything higher than $700,000 would be on the high side. Maybe $685,000. And he said, ‘oh no, he couldn’t sell it for that since he had that previous offer for $735,000. So it’s tough to adjust if people have been anchoring those prices.”

Updated: August 20, 2018