Real Estate Market Update: Overvalued Or Bubble

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Last week I was fortunate enough to spend a few days in hot and sunny Scottsdale, Arizona. After the horrible winter we experienced on the West Coast and a spring season that is still in hibernation, the 38 degree Celsius heat was therapeutic to my body, mind, and soul. For me, sunshine has healing powers. Soaking up the rays and drifting off while lounging in a beach chair is a magical experience.

I was attending a conference with 150 of the brightest and top performing real estate agents in North America that work under the RE/MAX balloon. It was a working conference with round table discussions. Topics were best practices, lead generation, tech tools, the latest apps, leadership, and other sales driven Q&A. Basically, the 150 agents came to learn, share, network, and leave with few new ideas to implement in their own business. Three days later, I did come away with many great and useful ideas. However, the common theme I heard from the majority of the agents was, “We have no inventory in our marketplace.” In other words, their markets had similar dynamics as our market here in the Greater Vancouver area.  They were also experiencing low supply and a strong buyer demand. Remember, these were agents from all over North America; Toronto, Montreal, Minnesota, New York, Florida, Carolinas, Texas, California, Colorado, Arizona, Washington State, and Vancouver to name a few.

The discussion of red-hot real estate markets was a hot topic. Today, the media hears red-hot market, whether it is the stock market or housing market, and they quickly jump to the conclusion that we are in a bubble market. Interestingly, bubble never once came up with the group of top realtors at the conference. However, the word overvalued came up from a number of agents, including myself.

I recently read an article written by Jared Dillian about identifying the differences between something that is overvalued and something in a bubble. Jared writes, “A bubble is a psychological phenomenon that occurs when an asset class becomes overvalued and is accompanied by an obsession or preoccupation with that asset class.” Dillian goes on to explain that strong markets will generate great interest but not necessarily an obsession in an overvalued market. However, he goes on to say that he feels the only real asset priced bubble is the Canadian, Sweden, and Australian real estate market.

Dillian may be correct in describing some of these country’s real estate markets as in a bubble. However, we need to remember that propaganda of fear and the potential for crisis are common. The word ‘bubble’ is the new code word for ‘be ready and fear the future outcome’. The media blasts out the word ‘bubble’ every chance they can get and maybe they are right. Heck, they have a 50% chance of being right. Those are pretty good odds.

The take away is this, when you hear “bubble” be a critical thinker. What are the drivers and influencers that are causing the market to be so strong or in some cases, overvalued before pushing the “bubble” panic button? If we look at the drivers and influencers in the Fraser Valley and Vancouver market, we can certainly make the point that it is overvalued, even extremely overvalued. Shoot, it may even have the psychological and obsession signs that we could be in a real estate bubble. However, the truth is the drivers continue to show that the market is not in a bubble but rather in an overvalued state.

I am a strong proponent of following the numbers. Understanding the inventory levels of what is currently on the market and what is coming to market. What are the sales volumes numbers, job growth, building permit counts, days on market, failed listings, and supply of new construction coming to market? Knowledge is powerful and by being a subscriber to this newsletter and having the latest statistics, it gives you an understanding that not many in the marketplace have.

Dillian’s bubble test is this, “If someone calls something a bubble, just set your phone to go off three years from now. Then it will be a bubble”. If all your buddies, neighbours, doctor, and the taxi driver are heavily involved, it probably is a bubble. Set your phone for 2020 and for now, be strategic about your investing.

Check out Randy Dyck’s latest market update video: https://youtu.be/wY-9O1oGZ7U 

If you would like to receive a copy of the statistical market report contact us here or if you would like to be on our next Investment Bus Tour contact us here.

Randy Dyck
Personal Real Estate Corporation
604-807-4366 or randy@eximus.com

STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales

 

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