Hello readers:
As most of you are aware, the current REBGV market is in hyper-drive with records showing a market that is even hotter than 2015. For most of us, we did not anticipate that we would ever see a year like 2015 particularly when the foreign buyer rules and mortgage stress tests were tightened. But with quantitative easing and interest rate at historic levels, we are in the midst of the greatest real estate rally in our generation. With real estate price becoming a hot topic yet again in Vancouver, I would like to address what you should expect in the upcoming year and for few years thereafter instead of presenting my charts as usual this time around. As you can guess, the charts look ... well... pretty astonishing or gross depending on which side of the debate you are in.
The 12-month outlook from this point on is now looking very clear. There will be another 15% increase in 12 months in REBGV and 20% increase in FVREB in 12 months. Spiking TH prices will lead the way and pressure an increase in real estate prices of entry-level detached homes. Condo prices will remain relatively stable consolidating to a baseline figure next year which will remain stable for years to come. To be clear, there won't be any major down-correction in entry-level condo prices as entry level condos have moved relatively in line with today's economy. This was achieved by builders building smaller entry level condo units to keep the entry level prices down. If prices rise further, the developers will build even smaller studios and 1-bedrooms to keep the sales party going as the only way of adaptation to a world where RE prices and salaries no longer match. If you are waiting on the sideline for an entry-level condo price to drop, you will lose value of your cash due to inflation while you are destined to end up with a smaller entry-level condo months or years down the road.
Only 1,000 new THs (and other attached properties such as row homes and duplexes) have been built this year in the REBGV territory where there has already been 7,700 TH sales this year alone. There are only 1,700 THs under construction at the moment with only 50% of them (850) expected to be completed in the next 14 months. The TH supply squeeze in REBGV is worse than what we are seeing with BTC supply squeeze (19 million BTC already mined out of 21 million available). What do you think will happen if you only build 850 THs in 14 months in the district of REBGV that has 1.5+ million people? Do you not think that there is more than 1 in 1,700 people in Vancouver who wants a TH or other attached properties? Will a 2% interest rate increase stop this train? Or will a 4% IR stop this train? I doubt either will be enough. TH prices have gone up 26.6% in 12 months in Fraser Valley and yet the SAL ratio for THs is through the roof high at 127% this month in Fraser Valley. This frenzy, by no means, is over.
The situation with detached housing is also getting worse by the day. There have only been 1,200 new detached homes built this year so far. But it is estimated that about 500 detached homes had to be torn down to build new attached homes (row homes, townhomes and condo) this year. That leads to a net plus of 700 more detached homes for the year in REBGV. This is a record low by a wide margin with situation getting worse every year. Of course, majority of these 700 net pluses are not true net pluses as majority of them required an older home to be demolished for a new home to be built. Also, most of the new homes are high-end $2+ million homes in REBGV and doesn't impact the availability of entry-level detached homes. Given that entry-level detached homes are the ones being demolished to make way for high-end detached homes and attached properties, the supply of entry-level homes are shrinking already year-by-year.
