COVID-19 crashed home sales by up to 50 per cent in April

Frank O’Brien
Western Investor

Housing sales across the Lower Mainland fell sharply in April, the first full month since the COVID-19 crisis hit, but benchmark prices increased in both Greater Vancouver and the Fraser Valley from a year earlier.

Metro Vancouver home sales in April were the lowest total for the month since 1982, according to new data from the Real Estate Board of Greater Vancouver (REBGV). 

Yet the April benchmark price for all Greater Vancouver homes was $1,036,000, 2.5 per cent higher than it was one year earlier and up 0.2 per cent from March. 

“Predictably, the number of home sales and listings declined in April given the physical distancing measures in place,” Colette Gerber, REBGV’s president-elect said. “People are, however, adapting.”

Sales in the Fraser Valley were down 50 per cent from a year earlier to a level last seen 38 years ago.

According to Gerber, adaptation is coming in the form of “using different technology to showcase homes virtually, assess neighbourhood amenities with their clients and handle paperwork electronically.”

Across the REBGV region, 1,109 homes changed hands last month. This is a 39.4 per cent drop year-over-year and a 56.1 per cent decline compared with March 2020.

The Fraser Valley Real Estate Board processed 688 sales in April, a decrease of 52 per cent compared to March and down 50 per cent compared to April of last year, to a level last seen in April of 1983. They were also 63 per cent lower than the 10-year sales average for the month – a direct result, said the board, of social distancing due to the COVID-19 pandemic.

“Home prices have held relatively steady in our region since the COVID-19 situation worsened in March,” Gerber said.

A total of 388 detached homes sold in April in Greater Vancouver, 33.8 per cent lower than the 586 houses sold in April 2019. The benchmark price for detached houses is $1,462,100 – up 2.3 per cent year-over-year.

In April 2020, 503 apartments were sold, which is 43.2 per cent lower than the 885 sold in the same month last year. The benchmark price for apartments is $685,500, up 2.7 per cent from April 2019. 

For attached homes, sales reached 218 – a 39.1 per cent decline year-over-year. The benchmark price was $796,800 – up 2.8 per cent compared with the same month last year.

In the Fraser Valley, the benchmark detached house price in April was  $993,400, up 0.5 per cent compared to March and 3 per cent higher than in April 2019, while townhouse prices advanced 1.9 per cent, year-over-year, and condominium prices were up a slim 0.8 per cent from April of last year.

Copyright © Western Investor

REBGV maintains real estate market will rebound

Douglas Todd
The Vancouver Sun

The official, optimistic message from the Real Estate Board of Greater Vancouver at first sounds plausible.

The REBGV maintains with confidence that “pent-up demand” for housing, combined with low interest rates, will re-energize Metro Vancouver’s dormant real estate market once the COVID-19 lockdown ends and real life again kicks in.

But the counter-arguments are almost too numerous to mention. Coronavirus shutdowns are hammering the factors that most fuel housing prices in Canada: Wages, household debt and migration-based population growth.

The real-estate industry, including construction, normally makes up Canada’s largest sector, accounting for 15 per cent of economic output. And it’s almost inconceivable real estate values will not be slammed by the multitudinous ways the lockdown has weakened the finances of both Canadians and the trans-national migrants who invest in housing in Vancouver, Toronto and Victoria. Australia is already providing early warning signs.

Job apocalypse

There is a job apocalypse occurring in Canada. More than seven million laid-off Canadian workers have applied for Ottawa’s emergency COVID-19 benefit, receiving up to $2,000 a month. And this week the Liberal government launched an additional $73-billion wage subsidy program. The grim effects are sure to drag on.

Talk about a knock to confidence.

How could this shock of financial anxiety for millions of Canadians, especially those on low to medium incomes, not significantly affect housing choices in the future? Economic uncertainty does not exactly make people feel excited about buying a home. And, after all, interest rates have been low for years.

The downturn in house prices might come gradually. A house is not always as liquid as other commodities, since in many cases it is also a home. And as Westview realtor Barry Magee says, some rattled owner-investors can wait out a shock if it’s temporary, “primarily out of fear they would be selling at a low point.”

But it’s hard not to be persuaded by the suggestion of Magee and other industry players that, if the lockdown extends for any considerable time, it will turn prices lower.

Household debt trap

The second potential blow to Metro Vancouver’s super-high housing values is the debt trap — the record high levels of borrowing people in Canada and offshore have been doing to get into some of the country’s urban housing markets.

People have gone crazy with borrowing in Canada, fuelled by a fear of missing out and visions of the past two decades of ever-rising property valuations. But since COVID-19 came out of China, roughly half of Vancouver homeowners say they can’t fully pay their mortgages, according to a mayor’s office-commissioned Research Co. survey.

The frenzy has led to the average Canadian household paying out $1.76 in debt, typically on mortgages, for every dollar they earn in net disposable income. In Vancouver, that ratio jumps to a trauma-inducing $2.40, the highest in the country, the kind of ratio that precedes financial crises.

UBC geographer David Ley points out Metro Vancouver’s suburbs hold the highest debt ratios in the land, up to $3 for every $1 in income. That’s especially the case in neighbourhoods where Ley believes young families have been buying starter homes. “If there is ever a meltdown, these areas would be particularly at risk.”

Vancouver, Toronto and Victoria households have the highest debt ratios in Canada, a country noted for its generally high mortgage levels. (Source: Steve Saretsky)

One of the most important insights into debt and the future of urban Canadian housing comes from Anthony Scilipoti, president of Toronto-based Veritas Investment Research Corp.

Scilipoti’s researchers have discovered that half the country’s property investors (such as the tens of thousands who have bought condo units in towers to rent out) aren’t getting enough cash from tenants to cover their mortgage costs. “There’s only so long they can hold on,” he says, before being forced to sell.

All it would take to create a sudden oversupply of housing would be for two of 100 more owners in a particular market to list their dwellings for sale, Scilipoti says. “This will take time to play out,” he says, but the downward process is in motion.

Migration impact

The third major factor for Canadian real estate is the migration of people and capital.

Start with the drastic drop in tourist numbers. With borders virtually closed to international travellers, investors who relied on short-term rentals like Airbnb to hold onto their properties have been left in the lurch. Many Airbnb hosts will likely be forced to sell.

Then there are larger immigration trends, which are arguably the biggest thing affecting housing prices in Metro Vancouver (and Toronto), as suggested recently in The Vancouver Sun by both former NDP premier Mike Harcourt and Anne McMullin, the head of B.C.’s Urban Development Institute, which represents builders.

Even though the federal Liberals have hiked immigration targets (from 250,000 per year in 2015 to 350,000), citizenship ceremonies have been cancelled during COVID-19 confinement and the processing of would-be permanent residents is being held back.

This pandemic is sure to affect the choices of would-be immigrants, who have accounted for 85 per cent of population growth in Metro Vancouver. And it will also affect people who might buy urban Canadian properties with money earned offshore, which is the gasoline that has been accelerating Vancouver’s already-unaffordable housing costs.

The B.C. NDP government has tried to respond to the strong flow of offshore capital by strengthening the surcharge on foreign property buyers and by introducing the speculation and vacancy tax, which has an impact on “satellite families” in which the breadwinners earn their incomes outside the country and therefore aren’t subject to Canadian income taxes.

Those housing taxes will continue to be influential. “If the COVID-19 pandemic lasts longer than three months … price drops will be inevitable” in B.C., says Magee, noting there will be particular pressure on owners facing the speculation and vacancy tax, which has quadrupled to two per cent this year from 0.5 per cent.

A related migration factor for Canadian housing, rarely discussed, is the almost one million people who until recently were in Canada on temporary study and work visas.

Australia offers an early warning sign about this cohort: International students and temporary foreign workers are leaving that country in droves. Australia’s acting immigration minister says 300,000 people on temporary visas have already left since January.

A former senior immigration official in Australia, Abul Rizvi, predicts up to one-quarter of foreign students and workers will depart by the end of the year. That is destined to soften Australia’s housing and especially rental prices, which many will find a blessing. (Canadian immigration officials did not respond to requests for data on study and work-visa holders in this country.)

The Vancouver, Toronto and Victoria housing markets have been somewhat difficult to forecast for decades, since prices in these cities are not as closely tied to local wages as they are in many places. Offshore factors are highly significant for these globally desirable cities.

Yet, even though it’s hard to predict the future with certainty, it is safe to suggest some form of house-price correction will come in Canada’s urban markets, especially early next year.

© 2020 Vancouver Sun

Property tax delinquency a possibility

Ephraim Vecina
Mortgage Broker News

Vancouver might run into a significant budget deficit soon, as only 55% of homeowners said that they would be able to pay their mortgages in full this month, according to Mayor Kennedy Stewart.

Citing a recent online survey by the municipal government, Stewart said that only 68% were able to fully pay their April mortgages.

Among renters, 70% made full payments last month, while 63% would be able to complete their May rent payments.

Stewart expressed grave concern about the possible growth in property tax delinquency rates indicated by these numbers – a trend aggravated by the significant weakening of the Vancouver labour market once the COVID-19 outbreak took hold.

“The only way we can stay afloat is with the help of the federal and provincial governments,” Stewart told CTV News. “Otherwise, local governments will be forced to take drastic measures that will hurt residents and businesses and significantly slow any post-pandemic economic recovery.”

A report to Vancouver City Council estimated that the city’s funds could lose anywhere from $61 million, should the economy restart by May 31, to $189 million, if social distancing policies last until the end of the year.

Stewart’s own predictions point to a grimmer outcome, however.

“If 25% of home owners do end up defaulting on their property taxes, we could shed up to an additional $325 million in revenues,” Stewart said. “Losing more than half-a-billion dollars in operating funds in 2020 would devastate the City’s financial position, forcing us to liquefy assets and exhaust every reserve fund we have – just to avoid insolvency.”

Copyright © 2020 Key Media

It is either a seller’s market or a buyer’s market

Paul Maranger
REM

You can’t dance at two weddings at the same time.

In terms of real estate, I would say this saying could refer to a balanced market. Is there even such a thing as a long-term balanced market? I would suggest that the short answer is no. It is either a seller’s market or a buyer’s market.

We are well accustomed to these terms, which relate to months of inventory on MLS, sales-to-new-listing ratios or absorption rates. These are key figures to look at, as they are indicative of whether we are in an over-supply or under-supply situation. Supply is everything. Ignore days on market or sales-to-list price ratios, as these figures can be easily manipulated.

According to CREA, in March 2020, we had 4.3 months of inventory nationwide, with higher inventory in the Prairies and Newfoundland/Labrador. The sales-to-new listings ratio was 64 per cent. Both figures would indicate very light seller’s market conditions.

You may think that 4.3 months of inventory is substantial (the long-term national average is 5.2 months, according to CREA). However, keep in mind that this inventory includes overpriced listings, unsaleable listings (usually because they are overpriced) and houses that are located on super-busy streets, in substandard areas and/or in poor physical condition (again, usually this is not reflected in the price). Irrespective of market conditions, I would suggest to you that, at a minimum, at least one-third of inventory falls into these categories. Yes… at least one-third of sellers are unmotivated (and this figure is probably higher). But this situation has existed for an eternity and won’t go away.

A balanced market lies somewhere in-between. The glass is half full or half empty. Or is it? It is sort of like purgatory. Neither heaven nor hell.

I think that a balanced market is temporary. The sand keeps shifting, so sellers and buyers do not know how to react. During this temporary period, sellers usually lean towards the “glass is half full” mindset, sure that market conditions are bound to improve. Buyers tend to lean towards the “glass is half empty”, thinking that the sky is falling. This is why, during balanced market conditions, it is so difficult to bring deals together. There is a chasm between the mindsets of both parties. We can only start doing more business when inventory either decreases or increases, and the gap between seller and buyer mindsets closes.

We are set to enter buyer’s market conditions across our fair nation. This means that we will see inventory exceed five months on average and the sales-to-new-listings ratio fall to below 40 per cent. Assuming inventories don’t swell, it certainly will be easier to bring buyers and sellers together than during temporary balanced times. Mark my words, inventory will grow as we enter into an economic recession.

Purchasers will be worth gold in a buyer’s market. So will motivated sellers. There is an old adage in real estate that I learned from the wonderful, late real estate mentor Howard Brinton: “In life you want to be the first-born child, the second spouse and the third Realtor.” Maybe it’s time to say good-bye to unmotivated clients and refocus on good business. Gone are the days where the seller says, “We are in no rush to sell” or “We are not going to give it away.” If we each had a loonie for every time that we heard that in our careers, we would be sitting together on a beach in the Caymans.

When we represent buyers in the new market reality, we need to keep a list of “the top 10 buys in today’s market.” Who doesn’t want a great buy? When we represent sellers, we need to show them where their home falls in relation to the competition, and price ahead of the market. More than ever, our listings need to be best in class, beautifully presented and the best priced in their segments.

And, we’ll have to be more creative in putting deals together. Buyers will be fussier than ever on inspections. Old roof shingles may be a problem. Sellers may have to re-roof or replace their furnace as a contingency in an offer. Vendor-take-back-mortgages may come back in vogue for hard-to-finance buyers.

In my last article in REM, I wrote about getting back to basics in our business. Part of this new reality is to take a hard look at our buyer and seller clients and choose to work with those who are most motivated. The glass is half full.

© 1989-2020 REM Real Estate Magazine

Less than 20 per cent of tenants seek rent relief

Frank O’Brien
Western Investor

Office and industrial sectors saw the fewest tenants seeking rent relief in April, while requests for rental help is exploding among retail tenants due to COVID-19 closures, according to a national survey released May 1.

Colliers Real Estate Management Services (REMS) undertook the national assessment of all the tenants in its managed portfolio of over 67 million square feet across Canada. The makeup included office, industrial and retail projects.

The survey found that 15.7 per cent of office tenants requested relief from rent in April, followed by 19.7 per cent of industrial tenants and 39.7 per cent of those in the retail sector. 

The sector with the lowest amount of tenants seeking a rent deferral or reduction was in the mixed-use category, at 14.2 per cent. 

Overall, office assets are benefitting from the number of tenants whose employees can work remotely Colliers notes, adding that 67 per cent of office buildings remain open in some form during the pandemic.

Class C offices have seen the most business closures and the least number of tenants operating remotely. Subsequently, Class C tenants, at 17.6 per cent, were more likely than Class A or B tenants to ask for rent deferrals. 

In the industrial sector, flex industrial assets – which often have tenants in the light industrial category, which may include design firms or light fabricators – are the hardest hit of the industrial asset class with 22.7 per cent of tenants requesting rent relief. This is mostly associated with a higher portion of small businesses, as 34 per cent of flex tenants are in that category. In comparison, only 14 per cent of tenants in warehouse/distribution assets asked for rental assistance.

Retail has seen the highest demand for rent relief, but the level of need differs among asset classes. Regional malls, many of which were closed in April under pandemic restrictions, saw requests for rent relief from nearly 50 per cent of tenants. Podium-level retail in mixed-use projects had the lowest requests for rent relief, but even it was at 28 per cent, the survey found.

Retail rental defaults could soar, Colliers warns, if stores must remain closed.

“For each additional day of closures, we are seeing a 1 per cent to 2 per cent increase in rent relief requests, on average. Assuming this trend were to continue for the next 30 days, we would anticipate May rent relief requests to nearly double for the highest risk category: retail small businesses that are closed, “Colliers cautioned.  A recent survey of small businesses in Toronto found that 72 per cent will not be able to fully pay May’s rent, the report noted. 

Copyright © Western Investor