Is the Market Going to CRASH?
Today, everyone everywhere is talking about the white-hot real estate market all the time. Our market focuses are the Vancouver and Fraser Valley markets; however, I speak with agents all over North America and they are also experiencing a similar white-hot market. The combination of ultra-low inventory or supply of properties, and the record high sales volume, has been pushing prices up monthly, if not weekly. Where does this all end? Quoting Isaac Newton, “What goes up must come down.” So, does this mean a market crash is on the horizon?
Questions that often come up in my discussions are the following: Can this market or markets around North America continue to go up in value? How will new buyers afford these obscene price increases? Will there be foreclosures post-COVID? Will interest rates rise and price buyers out of the market or cause them not to qualify for the new mortgage? Will history—and more directly—will the 2008 housing meltdown repeat itself?
This may all sound doom and gloom, but in my mind, it is actually quite the opposite. I am filled with optimism for the market moving forward. You might be asking, “How far forward?” To find out what the future holds and understand where things are headed, let us go back in time. I pulled the sales data of a home in Abbotsford on a 65X100 lot. In 1960, it sold for $10,000. Fast forward 25 years later to 1985 and the same home sold for $65,000. Another 25 years later, the same home sold in 2010 for $325,000. These three segments in time have an appreciation multiplier of five or six for every 25 years. In today’s market, this same home is selling for approximately $1,000,000! Over the last 60 years, we have witnessed an 8% appreciation per annum, from $10,000 to $1,000,000. In addition, in 1960, 1985, and 2010, the prices seemed too high and out of reach for many of the average buyers. Does this tale sound familiar to today’s market tale?
I personally have many reasons why a crash is not imminent or will happen. A slower or more balanced to sellers’ market will eventually enter our market, but it will not be the doom and gloom or crash that some will predict. As a side note, many of these so-called “experts” are not real estate minds and do not understand the fundamentals of what drives and influences the market. Here are 10 reasons to show you why we will continue to see a strong balanced to sellers’ market for the near and future market:
- Record low interest rates that will continue to stay low.
- People have record personal savings put away.
- Demographics are peaking for homeownership, especially with the millennials.
- Foreclosures are at record lows. In most cases, homeowners’ equity position has improved and is allowing them to refinance.
- Homeowners are equity rich.
- Cash buyers, no mortgages needed for a growing number of buyers.
- Banks and government have learned how to manage and work together from previous crisis (the 2008 meltdown).
- Immigration will continue to be a huge catalyst for the market. When we open the borders post-COVID, an explosion of buyers will enter the market.
- Technology and connectivity will continue to accelerate or give stability to markets, no matter where they are. Elon Musk and “Starlink” are bringing high-speed internet anywhere, anytime.
- Inventory, or creations of inventory, will be a major factor in putting upward pressure on the market. No or little supply with strong demand will continue to see prices rise like my example of the small single family home that was $10,000 in 1960. The inventory issue is a combination of lack of land, government regulation, and red tape. Anytime something is regulated or over-regulated, it slows the process and increases the costs.
That small home was built and sold for $10,000 in 1960, then sold in 1985 for $60,000, and then again in 2010 for $325,000. The question is this: will the multiplier of five or six factor into the price in 2035? Is $1,600,000 to $2,000,000 worth banking on?
Talk about banking on something. All sellers in the month of March could bank on a sale in 7 days or less and the sale price would be 5-15% above the listed price in most cases. To put the market volume into perspective, the first quarter of 2019 there was a total sales volume of 2986 properties sold in the Fraser Valley Board. The same three-month period in 2020 had a total sales volume of 3759 and increase of 26%. However, the sales volume for three-month period in 2021 was 7859 and this March had a whopping 3329. Traditionally we are coming into our busiest three-month cycle, April, May, June. It will be interesting to see if the sales volume continues and what property type(s) will surge and lead the charge. My guess is the condominium market will be the next property type to see a volume and appreciation increase.
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:
Click Below To See The Vancouver Stats:
STR (Sell Through Rate) Formula = Sales ÷ Active Listings + Failed Listings + Sales
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