The most successful real estate entrepreneurs do everything they can to reduce uncertainty when investing. But despite those best efforts, every now and then Mother Nature comes up with something completely unexpected, as is the current case with COVID-19.
However, there’s a lot that can be learned from looking at previous crises, reviewing how business people and investors responded, and learning from their success.
In this article we’ll look at where the Vancouver housing market has been, where it is now, and how the BC real estate market may perform for the forward looking investor after the virus runs its natural course.
20 years of rising prices
Since 2000, home prices in Vancouver have grown over 200% faster than New York City. In fact, over the last 20 years housing prices in Vancouver have increased by 316%.
To be fair, both Toronto and Montreal – with increases of 240% and 189% respectively – have also shown huge price growth over the same time period. But not nearly as great as Vancouver’s.
Part of the reason for the astronomical growth in home prices in Vancouver is due to the city’s well-deserved reputation as a world-class destination for business and investment. Vancouver has grown faster than similar premier cities like Seattle and San Francisco that are also driven by the high tech industry.
Where the Vancouver housing market is today
The most recent report from BCREA (BC Real Estate Association) predicts that the volume of home sales in British Columbia will fall by between 30% and 40% as a result of the recession caused by the COVID-19 crisis.
BCREA forecasts sales volumes will remain depressed through summer, as residents and business practice social distancing and self-isolation. Real GDP growth in British Columbia likely began turning negative in February, with large numbers of business closures and layoffs expected to continue the economic contraction.
However, as the BC Real Estate Association notes, while this current recession will be deep, it could be shorter than previous recessions.
The average recession in Canada lasts between eight and 25 months, with both GDP and employment contracting. But beginning the year following the recession, home sales have historically risen by between 24% and 46%, due to pent-up demand and low interest rates.
What we can learn from historic market cycles
For most millennials and many baby boomers too, real estate prices in Vancouver may only seem to go in one direction – Up. But the fact is that real estate markets have fairly predictable cycles, going from boom to bust and back again.
We’ll begin our look at historical real estate market cycles in Vancouver by going all the way back to 1977. That’s the year the Elvis Presley died, the first Star Wars film premiered, and French was adopted as the official language of Quebec:
1977: The average cost of a house in the Vancouver metro area was about $80,000. Over the next four years the price of an average house nearly doubled in price, and by the end of 1981 interest rates in both Canada and the U.S. had risen to over 20%.
1981: Double-digit interest rates ushered in the housing market crash of 1981. Houses in Greater Vancouver lost about 50% of their value, and prices remained flat for the next several years.
1986: Five years after the crash real estate in Vancouver began to recover, fueled in large part by Expo 86. Under the theme, “World in Motion – World in Touch”, the World’s Fair ran for nearly six months, helping to put Vancouver on the map for the international investment community.
1986 – 1994: Over the next eight years, prices for all types of housing in the Vancouver real estate market increased in sales price by nearly 4X, as this archived article from the Global News describes.
1994 – 2001: Housing prices in Vancouver began to cool once again, although parts of North America were still booming. Buyers from Asia initially invested in British Columbia due to uncertainty in Hong Kong, then pulled their capital and reinvested in their home market once the handover to China was complete. In 2001, the U.S. entered a recession with the tragedy of 9/11 occurring later that year.
2001 – 2007: The six weeks following 9/11 saw both the U.S. and Canada decrease interest rates by about 2%. Rates were now in the 3% range and the housing market in Vancouver and North America took off for the next seven years.
2008: The Global Financial Crisis, triggered by the banking meltdown in the U.S., dramatically slowed the housing market in Vancouver. Real estate investors buying during this short-term dip were handsomely rewarded over the next six years.
2010 – 2016: Housing prices in Vancouver increased by nearly 50%, ushering in another boom cycle for the local real estate market. Average detached home prices topped $1.8 million, while average condominium and attached housing prices exceeded $721,000 and $517,000.
The last few years has seen a growth of government regulation in British Columbia and Canada. Attempts to cool what was perceived as an overheated market include increased transfer and speculation taxes, foreign buyer taxes, a vacant home tax, and stricter rules for mortgage qualification.
Why Vancouver will continue to prosper
The fact is that the attributes that make Vancouver such a fantastic city to live, work, and invest in for over 40 years haven’t gone away.
As the Vancouver Economic Commission reports, key metrics for investing in Vancouver include:
- #1 fastest-growing economy in Canada since 2013
- #1 fastest rate of job growth in Canada over the past seven years
- 2nd lowest unemployment rate in Canada
- Most diverse economy in Canada
- 75,000+ people work in tech jobs in Vancouver
- Average entry-level salary for software engineers is $73,000
- #1 airport in North America for eight years in a row
- $700 billion in Cascadia (Vancouver-Seattle-Portland) GDP
- 2nd best city for Asia Pacific business
- Port of Vancouver is the most diverse port in North America
Vancouver is committed to delivering quality core services that meet the needs of residents and business. According to the City of Vancouver 2020 – 2024 Budget Outlook, priorities over the next few years are:
- Address affordability and the housing crisis
- Protect and build the economy
- Increase focus on diversity and critical social issues
- Accelerate action on climate change
Is now the right time to invest in Vancouver real estate?
The BC Real Estate Association expects home sales and prices to recover by the beginning of 2021. Next year, home sales volumes in Vancouver should regain the baseline of 85,000 units per year.
This graphic from the BCREA illustrates various housing price forecasts over the next 18 months based on previous recessions:
If listings accumulate over the next 12 months, prices could be more severely impacted, especially if much of the available inventory comes from foreclosures or people desperate to sell due job loss or financial stress.
A scenario such as this could create a short-term window of opportunity to invest in Vancouver real estate at below market prices.