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WARNING, we are in for a COLOSSAL housing crisis & supply issue in BC.

So how much of an issue is the market supply right now? And what might this mean for the future of real estate in not only Surrey, Vancouver, the lower mainland, and generally in British Columbia? There's no doubt that we are in a season or a period of uncertainty in the market to place, with interest rates climbing, money getting so much more expensive to be able to borrow to buy real estate. And with what happened with the prices during the Pandemic, there is no doubt that the market is quiet and we've seen prices come down for lots of products in various areas. In a previous video we did, we talked about some of the factors that will lead to a healthy real estate environment in British Columbia.

And this post is going to dig a little more specifically into one of those key issues that I mentioned in a previous video. While the sentiment to buying a home might not be the greatest right now, overlying economic fundamentals are always going to come into play at some point. And today's video is all about what is really happening with the market supply right now and what that might mean for the future. If that sounds like that's of interest to you, this is definitely the post for you.

What's good, everybody? It's Darin Germyn from the Germyn Group, where we know you've only got one chance to either buy or sell your next home. So we're here to help you get it right.

All right, so we know what's going on basically in the marketplace, especially for those of you that are a regular watcher of this channel, you should be very up to date on what's going on. We have seen prices start to change, and due to all the reasons and many more actually, I guess that I have brought up at the beginning of this video, there are so many fundamentals at play that will influence what is going on in the real estate market.

And obviously one of the biggest fundamentals we're dealing with right now is interest rates. Now, we can go on about interest rates for forever, but historically they're not high. They're high to anybody that maybe bought a house in the last few years. But for most of history, these are still incredibly low rates and we can get into that at a different time, whether you agree with that or not. But it is true one of the biggest things in economics, though, that really has an impact on what things are worth and how they will be priced accordingly in the future, is supply versus demand.

It's pretty simple. That's probably what they teach on day one of market economics. This is not something that can be ignored. The unique thing about housing as well is it's not like owning an iPad where it's kind of a nice to have. Everybody needs a place to live.

And that is true whether you are a renter or a homeowner that lives in your own home. If you've been following the news at all recently, you know that rent is astronomical in the lower mainland. It is so hard to not only find a rental because they're so competitive, but they're also an incredibly short supply. And one of the biggest reasons for this is obviously mortgage rates. A lot of people can't afford to buy a home based on what's happening with the rates, also based on what happened to prices in the last three years.

So if you are going to rent a property, you're probably going to show up to a lineup of people and it's going to be ultra competitive and you're going to spend a lot more, unfortunately, on renting that home than you would like because of the short supply. This kind of makes a lot of sense. People can't buy, so therefore it pushes more people into the rental pool. As rents start to climb and get too expensive, people either need to unfortunately choose to move out of the community or maybe they start putting their aim back on buying a property. With prices coming down for a lot of product in many areas, this will start to make sense again because the gap between what you're going to pay in rent and what it costs to own is starting to shrink.

Getting back to the supply and demand though, on the market, I want to share two graphs with you today that I think you're going to find really interesting because it gives a bigger perspective than just looking at it with a really kind of minute type of mentality or viewpoint. 

The first one is months of supply in the Fraser Valley Real Estate Board. So the Fraser Valley Real Estate Board runs all the way from North Delta all the way to Mission. So it's a big sample set of all various types of properties from detached to condominiums to townhomes. And what I found really interesting about this graph is where we are historically over the last ten years in terms of how much property we still have that's actually available for sale right now. You can see that there's been many periods since 2004 where we've dipped into what's called the seller's market, where the seller had an incredible advantage over the buyers. The gray bar there represents a balanced market where there's really no advantage to either party. And then when we get above that gray bar, we're into a buyer's market where the buyer has a ton of leverage and that's usually where you're going to see prices come down.

The interesting thing about this graph is we are still far below having enough inventory to even be considered a balanced market. So that just means obviously, there are other things at play that are impacting pricing. But regardless of what's happening with that, that doesn't just make more properties get built, that doesn't put more property onto the market. We are still in a crunch in terms of available inventory for active buyers to buy. They're just choosing not to necessarily buy them right now.

In fact, we've been living in this kind of environment for quite some time. And you can basically see in this graph, since 2014, we've had incredibly short supply. What happened in 2014 to 2017? We saw a massive spike in the values of properties due to a couple of things. But really there is a housing shortage that wore off a little bit in 2018 when the government stress test came in.

Somewhat similar to what's happening today because the government stress test took. Let's say. Roughly 20% of a buyer's purchasing power away from them because they had to qualify at a higher rate. Well, that's kind of like what's happening with mortgage rates right now. People have to qualify at a higher rate to be able to buy real estate.

So that impacted the market for a very short period of time. And so now that brings us to today. So while we are adding inventory to the market, we are still at historically low points for available inventory for home buyers to really get their hands into. So what is that going to do long term? The market in Surrey is really no different.

And whether you live in Langley or Delta or anywhere surrounding Surrey, these are all going to be similar numbers. But you can see back ten years ago that the market was at its peak, usually having about 5000 units in Surrey, available units being all types of homes available. At its peak during the boom market of between 2014 and 2017, the peaks were as high as under 3000 listings that were actually available for people to buy. And this was completely accentuated during the Pandemic, where you can see the lowest low on this graph since they've been tracking this over the last ten years. The absolute worst being in December of 2021 when there was under 10 available homes to actually purchase on the market, which likely led to the peak in prices of February & March of 2022.

So now that we know there is a huge inventory shortage and there's not likely a lot of things that are going to fix that short term, there's a bunch of other reasons why we know that there's people coming into BC in the lower mainland in Surrey that want to call this home. But I question what is going on with builders mentality right now as well. Think about the current environment. If you're a home builder or you're building a big residential tower even as small as a detached home, we know that inflation has driven prices completely bonkers. Do you remember the big lumber and timber shortage that happened during the Pandemic?

Well, prices are still relatively up from during that time. And not only is labor more expensive, but materials are more expensive as well. So builders have costs that are way higher than they used to be. To borrow money is way more expensive compared to where it was and the markets are a little unsteady right now. So obviously builders would likely be fairly unsure about what the future looks like.

Not a lot of incentive to start a new project and bring new units to the market. So the question is, how much product can we expect to come to the market in the next few years? The British Columbia Real Estate Association is predicting through their economics department that we are going to see housing starts progressively go down from the peak of where they were in 2022. So we've already got this shortage of inventory for buyers to purchase homes, but we've also got less homes being built and we know there's a lot of people that are going to be coming to BC to call it home. So my question to you, my loyal viewers out there is what do you think is going to happen?

This is a pretty big market indicator of what it might look like moving forward. Yeah, the sentiment might be gone as of right now to buy a home because people want to see what's going to happen. But how long might that last when you've got a product that is in demand or will be again very soon and there's a short supply of it with not a lot more coming to the market? What do you think? Leave your comment below.

Let me know what you think about this level of inventory that is available, whether that's going to change and what type of impact this is going to have long term on our market. That's it for today's post, guys. Again, I'm Darin Germyn with the Germyn Group, where we know you've only got one chance to either buy or sell your next home. So we're here to help you get it right.

Thanks for your comment and we look forward to seeing you on the next post. Cheers.

Graphs from video: https://stats.fvreb.bc.ca/infoserv/s-v1/LxJj-mZ2

Watch the full video here: https://youtu.be/xRZfYbYA1rA

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Darin Germyn PREC* & Adam Howsam
Macdonald Realty LTD
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The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Real Estate Board of Greater Vancouver (REBGV), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the REBGV, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the REBGV, the FVREB or the CADREB.
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