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Hey Mister DJ

Blog, Market Updates | June 2, 2022

Madonna’s hit song “Music” is a catchy tune that I often find myself humming. It’s fun, it’s quirky, and it’s an uplifting tune. The tune and the thought of a DJ bringing a group of people into a frenzy certainly has some parallels to our real estate market over the last couple of years. Check out the lyrics….

Hey Mister DJ
Put a record on
I wanna dance with my baby

Hey Mister DJ
Put a record on
I wanna dance with my baby
And when the music starts
I never want to stop
It’s gonna drive me crazy

Music, music, music, music
Music, music, music, music, music

Music makes the people come together
Music makes the bourgeoisie and the rebel

Hey Mister DJ, the dance floor was empty when COVID hit and then you found the right mix that brought the dancers out. Eventually, packing out the dance floor with more dancers/buyers. The market drove the buyers crazy, much like the music made the dancers crazy. It is really the chorus that brings the parallel to our recent real estate market, “Music makes the bourgeoisie and the rebel.” Bourgeois is often mistakenly used to refer to people of considerable wealth or status, possibly because the French pronunciation causes us to associate it with opulence, yet the word is of decidedly middle-class origins. The market we have been experiencing over the last couple of years has made the middle class feel wealthy, at least on paper. Home prices have gone way up, but is the DJ finished playing his tunes? Is the market going to fizzle out like a bad DJ with the dancers leaving the club/market for better tunes? Is the market going to collapse or meltdown?

I have written and presented several times on the Fraser Valley and Vancouver real estate market conditions; the cause and effect, and framing it with the cycle of boom, slump, and recovery. Recently, I have had many sophisticated investors, homeowners, and buyers reach out to me questioning where we are in the cycle. The common question is this, “Is the boom over and the slump on its way?”  If you follow John Rubino from DollarCollapse.com, he believes that a large portion of the world’s real estate markets are heading for a meltdown. He describes the cycle as mania, peak, and bust, instead of boom, slump, and recovery.

Rubino describes stage one as mania; prices rise at an accelerating rate, fueled by foreign investment and bidding wars. Stage two is defined as the peak; jittery sellers wanting to cash out before the party ends and inventory begins to surge upward. The final stage is described as bust; inventory is at all-time highs and sellers start reducing their prices. The bust stage begins a cycle of buyers sitting on the sidelines causing further price reductions from the sellers. Personally, I like Rubino’s cycle descriptions, but I don’t believe it fits all markets. Specifically, markets like New York, San Francisco, Hong Kong, and Vancouver. These markets are not immune to a cycle change, a slowdown, or a correction in price, but from my viewpoint, they are insulated from major cycle corrections and it’s all in the numbers.

First of all, it’s about supply and demand. Yes, demand has diminished in the Fraser Valley and Vancouver markets over the last number of months, but supply outside of the luxury markets remains relatively low. This supply issue in the previously mentioned cities will always remain a constant. The immovable objects such as mountains, bodies of water, borders, or environmental protection that create a scarcity of development land will continue to cause supply issues into the foreseeable future.

Let’s compare Vancouver to another popular city like Phoenix. Both have foreign buyers. Vancouver has the wealthy, educated, and uber rich looking for a secure country or city to secure their generational wealth from around the world. Phoenix on the other hand has mostly Canadians looking for a place to escape the cold winter months during the year. Which city will continue to attract more foreign buyers? Which city will entice buyers with real money and wealth that will eventually lead to a supply and demand problem? The answer: Vancouver.

Now for the numbers. The city of Phoenix is 518 square miles, while Vancouver is only 44 square miles. Metropolitan Phoenix as a whole is 14,599 square miles, whereas Vancouver is 1,100 square miles. The population of Metro Phoenix is 4.5 million and Metro Vancouver is 2.4 million. Doing the math, Vancouver has half the population of Phoenix, but it is also physically only 1/10 the size of Phoenix.

When I look at these numbers and stack up cities like New York, San Francisco, Hong Kong, and Vancouver to cities like Phoenix or even Toronto, I see no dramatic bust as Rubino describes it. Don’t get me wrong, I definitely believe that the Fraser Valley and Vancouver market can and will see a slowdown and price correction, but I do not see a bust. A bust would be more that 25%, while a slowdown over the 6-12 months could see the median prices adjust by 10-15%.

Please reach out to our team for more information or help with all your real estate needs.

Click Below To See The Fraser Valley Stats:

Fraser Valley STR Stats

Click Below To See The Vancouver Stats:

Vancouver STR Stats

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

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