The Vancouver Life Real Estate Podcast Episode 27 - Who Controls The Price Of Real Estate In Vancouver? With Steve Saretsky

The Vancouver Life Real Estate Podcast Episode 27 - Who Controls The Price Of Real Estate In Vancouver? With Steve Saretsky

2020 has really shown how much power the policy makers have on controlling real estate prices in Canada, and particularly, Vancouver.  From mortgage deferrals, lowered interest rates, increasing access to credit and easing of the stress test, these changes have fuelled a double digit annual gain in real estate prices - all while during a recession and pandemic.   Looking beyond just this year, we explore zoning, building permit applications, rental restrictions, taxes and other vital factors that impact the pricing of Vancouver Real Estate.  With special guest Steve Saretsky.

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Who Controls The Price Of Real Estate In Vancouver? With Steve Saretsky

Dan Wurtele  0:02  

Hi, and welcome to the Vancouver Live podcast.

Ryan Dash  0:06  

This podcast is created to answer the most talked about questions when it comes to navigating the Vancouver real estate market. I'm your

Dan Wurtele  0:13  

host, Dan Wurtele, a licensed agent and accredited Real Estate Investment Advisor based here in Vancouver, and I'm joined by my co host, Ryan dasht ident.

Ryan Dash  0:23  

I'm also a local realtor and exhausted father of two, husband of one and really happy to be here.

Dan Wurtele  0:30  

Let's get right into today's episode. Hello, and welcome back to the Vancouver life real estate podcast today. We are very excited to have our colleague, Mr. Steve Zaretsky joining us, Steve is he's a real estate afficionado. And he's a realtor here and definitely a housing analyst. An avid student of macro economics and credit cycles, says his Twitter

Ryan Dash  0:55  

handle. I've also heard he's a bit of a washed up hockey player.

Dan Wurtele  1:00  

Steve, again, he's a regular contributor to BNN, CBC, c, k and W CTV and BC magazine. So Steve, thank you so much for joining us today.

Unknown Speaker  1:11  

Yeah, thanks a lot for having me on to be fun.

Ryan Dash  1:13  

Yeah. Yeah, I mean, today, and in today's episode, what we really want to talk about here, I guess the topic of our conversation is going to be what really controls pricing in Vancouver real estate, I think 2020. It surprised a lot of us in many ways. And I think, you know, in this episode, we'll endeavor to find the levers that work behind the curtains at all different government levels. You know, without question, we know that price is commodity driven. Right. It's supply and demand. But with so much at stake in the real estate market? You know, we're asking the question, what's pulling the prices here? Right. Why is there anything more to it than just simple supply and demand?

Unknown Speaker  1:57  

Yeah, I think there's, there's obviously a lot more to it. And I think the more sort of left scratching your heads and looking for answers this year, more than ever?

Ryan Dash  2:03  

I think so too. I think in 2020, we were expecting? Well, I know, at least from the conversations I have with my own clients, they were like, great time to get my COVID deal. You know, and we're gonna see another correction here, and it's gonna be a good time for me to buy. Well, I mean, interest rate wise. Sure. But, you know, activity levels, holy cow.

Dan Wurtele  2:22  

Yeah, I think 2020 really kind of shine the light brightly on the fact that it's not a free market, per se here, right. I mean, like you said, Ryan, we and a lot of the general populace thought that Yeah, the crash was imminent. And the banks kind of did, too. And I feel like that's why they jumped in immediately, very early and offered the deferral period, because that just kind of put homeowners at ease. Yeah, because I think the alternative to that could have been a lot scarier. And that's why they acted so fast.

Ryan Dash  2:46  

Yeah. Steve, I mean, in terms of when you analyze, and you look at the way pricing works, certainly let's look at 2020 because it's such a fascinating year. What do you think? It just can't just be supply and demand here? Because there's, I mean, you look at interest rates, you look at fundamentals of an of a marketplace, and and they're strange right now, they don't they don't support what's happening. Why is that?

Unknown Speaker  3:14  

Yeah, so I, I tend to focus like things like the the adage, in the real estate space, like we hear around the office here and stuff is you supply and demand was, you know, the demand of people buying real estate, and then how much new condos are we building? For example? Yeah, I tend to focus on the supply of credit. Like, basically, our How are banks lending? Because I think like, yes, you have to ask yourself is like how what? How do you derive the demand of buyers, right, like every buyer that's buying in Vancouver, essentially needs a mortgage. And so unless they have access to that mortgage, unless the bank is freely and openly willing to, you know, extend credit to you, you can't buy a house, right. So the banks essentially, in my opinion, are responsible for conjuring up the demand. So you can do that, obviously, in many, you know, a couple ways. One of them is by lowering interest rates. So when we're seeing mortgage rates today at you know, one and a half percent, obviously, that is going to create some demand, but at the same time, yes, you can lower the interest rate, you still have to extend that credit to people. Right. And, and so and people have to be willing to take on that credit. So, yeah, I really focus on the supply of credit, more than anything, because

Ryan Dash  4:29  

sometimes when when I look at 2020, and I look at how it unfolded, I think to myself, Well, okay, we we ran into the pandemic, everyone kind of stopped working for a month, the government came out with a huge stimulus package that basically put money in people's pockets. Then they lowered the interest rates to create a very well, a very attractive buying market. Right. And, as it any surprise that we're we are where we're at. I mean, I don't know if if I search Didn't think Canadians had the appetite. But certainly they do. Or maybe they're using government funded money that they didn't have before. It's a it's a big question mark, you know, because I think a lot of people are preparing for 2021 to be quite bullish here.

Unknown Speaker  5:16  

Yeah, I think I'm definitely still surprised. But I think if you start to like, look at it, it's a lot of it's being driven by I think people's emotional desires to get into I mean, I didn't think that people would be openly willing to take on more debt. Yeah. And like one upsize. Like I thought people will be more conservative. But we're definitely seeing is, you know, again, policymakers pulled the levers that they needed to sort of keep the system afloat. Yep. That gave people you know, I think as people started to see that prices weren't correcting and everybody wanted more space. It just sort of started to create this self reinforcing feedback loop where, okay, hold on a minute, prices aren't falling in a pandemic. They're actually pretty good

Ryan Dash  5:57  

at money now.

Unknown Speaker  5:58  

Yeah. And their x prices are actually rising. Yeah. Which is definitely counterintuitive to what everybody's expecting, even around government agency, tmh, CMHC was calling for the opposite. Yeah, opposite. So everybody was kind of hanging their hat on now that it's happened, you know, the reverse has happened, I think that at least when I talk to some of my clients is almost like this bit of like, FOMO, that's starting to come out like, well, if they're rising, you know, in a pandemic, like what's going to happen once this thing's gone. And, and, you know, we open up our borders. And, and people are, you know, everyone's back to their full time jobs. And so, you know, it could then just take off, and I think some of those fears are definitely warranted,

Dan Wurtele  6:34  

I think, and that's, we now know, sort of what the policymakers have done. But it really begs the question of why did they do it? Like is housing like prices being supported that important to the government and banks that if they hadn't come in with the stimulus, they hadn't come in with the deferrals? They hadn't lowered rates? and prices dropped dramatically? How does that affect the policymakers? A B? Oh, well,

Ryan Dash  6:57  

yeah, I got a job, I would assume.

Unknown Speaker  7:00  

I think that they understand, like, if you kind of look what they did, is they're well aware, like everybody's well aware of, like, how large component of, you know, real estate is in Canada, in terms of GDP. Yeah, it's a huge, you know, between the real estate, the finance, and you know, insurance sector is 25% of GDP. But then at the same time, it's like, you know, rising real estate prices creates a wealth effect, which then spurs consumer spending, and consumer spending is 65% of GDP. So it's like, obviously, if real estate prices correct across the board by, say, 20% people are going down, if people have to trim down their expenses, you're not going to go and buy that RV. And and, you know, you're not going to go, whatever, let's say you're staying at home. So you're maybe you're buying a bigger TV, you might not buy bigger TV if your house is dropped 20% Yeah, yeah,

Ryan Dash  7:46  

that's a good point. Right? I, you know, it kind of brings up maybe another fundamental aspect into the conversation, which is the borders, right, which is what we just touched on here. I mean, pre pandemic levels, we're seeing, you know, just shy of 30,000 people a month coming through the border, right, those people were largely going to the major centers to and I think those are in large part the people that buyer one bed condos, they're the people that get you know, they're footholds in the city, there may be your renters too, right. So they're supporting Airbnb, they're supporting the rental market for investors here. We've now gone down to roughly 4000 people a month or less, right, essentially, it's essential travel. And yet, I mean, the condo game has certainly suffered. But for how long? Because I think, you know, come the rollout of the vaccine, we open up the borders, we're going to start to see condos come back to but again, these seem like leavers at play. Yeah. And trying to time that seems impossible. Right. And maybe it's also understanding the combination of all those effects, which seems to be very difficult to do.

Unknown Speaker  8:53  

Yeah, definitely. Like, I think I think like the rental market is like an indication or an indicator of like, the real economy, right? So it's like, he can see like, the pain there. You know, rents are down in Vancouver, like in the city, or especially, you know, 10 to 15%. There's a real decline. And I think that's more indicative of like, Okay, that makes sense. And then I think that you have on the flip side, you have sort of like, you know, the the financialization of the economy or the financial asset market, which is like, okay, you look at it, it's like real estate's printing new highs, you know, stock markets, printing new highs, like that's just like, those are just so disconnected from like, the real economy. Now,

Ryan Dash  9:29  

it certainly seems, though, you know, I mean, certainly at the end of 2020, I think the wealth gap now is bigger than it's ever been. You know, and I think you really are starting to see the separation of sort of the bottom third of the economy or maybe even the bottom two thirds of the economy, right. And largely driven in part by income and the price of homes. Yeah,

Dan Wurtele  9:53  

yeah. To further touch on your point there about immigration as well. Talking about the policymakers. Yes. Obviously, there was a tremendous pullback on immigration in 2020. And knowing that, you know, Trudeau and the immigration minister have basically come out and said, Look, we're going to ramp that up to something like 401,000 people next year as the target. So primary residents here are permanent residents, rather. And again, that's just them sort of opening the floodgates and saying, We're not only going to make up for last time, but we're going to accentuate that, because like you said, the average person who comes to Canada for the first time, they rent on average for two years total before they buy. So there comes your rental market, screaming back, the people start flooding into the city centers, again,

Ryan Dash  10:32  

that's gonna largely depend on the vaccine rollout, I would assume, right? Yeah,

Unknown Speaker  10:35  

I still think they're, I think they'll miss those targets. Personally, I think like, so the target, say, 400,000, but at the end of the day, it's like those, you know, a lot of immigrants are coming here for work. And so the labor market still kind of, you know, saw off. Yeah, it's just, it's harder to attract people. So that's typically what you see is like, a lot of the growth in populations tracking over the last like three or four years is like non permanent resident growth is essentially people coming here, get on work, stuff like that. So and interprovincial. Travel was big, too. Yeah. So that I mean, that'll be interesting to see, obviously, again, like that's, that's their desired goal, of course, it will certainly ramp up a lot higher than within them where it is today, it's just a matter of, you know, will they hit those targets, you know, is remains to be seen. But yeah, I think I think either way, it's just something that we need to watch, you know, in the next one to two years.

Ryan Dash  11:21  

So and that's, I mean, that kind of speaks at least to the federal level things, right. I mean, if we dropped down now to say, provincial level, and we wanted to continue to stimulate pricing here, you know, we've got a 20% foreign buyers tax, right? That seems like a lever that can be pulled. We're certainly when you look at the cost of buying a new home and in Vancouver, let's just take a million dollars, for example, it's a very, I would say, very average cost of Vancouver for decent home. If it's brand new. I mean, you're gonna pay 50,000, in GST, you'll pay 18,000 in PTT, and you'll pay roughly 3030 500 bucks, annual taxes, right? That's three levels of government purchase. And yet everyone's screaming for affordability. And nobody's, I don't know, the government doesn't seem to look at some of their positions. And I don't think anyone would have a problem with PTT or GST, if they knew that money was going back into affordable housing. But for all I know, it's I don't know where it ends up. You know? And maybe that's a much bigger question, but. But what it speaks to is the fact that when we talking about affordability, and getting people into homes, you're looking at the government, you know, anywhere from seven to 27%, involved in your purchase, right, it's a quarter of the purchase. And that's just, that's just on the buyer side. That's not to mention the developers who pay in tax to acquire property to hold it all that kind of stuff. Right. So I just don't know if what, I don't know. But how do we solve that problem? Right, that's a ton of leaders at play here. Right. And the affordability aspect, just not getting addressed is the wealth gap continues to grow.

Unknown Speaker  13:10  

I think that's why you have like all all levels of government, like, obviously, they won't say it publicly. Yeah, for political reasons. But they're all incentivized essentially, look at the City of Vancouver, I mean, they depend exclusively, not exclusively, but hugely on property taxes and property taxes. So everybody's kind of incentivized by like this, this golden goose, and you know, you so you, you kind of want to bring affordability, or at least you want to look like you're bringing in affordability, but the only way to actually really bring affordability is actually to have lower prices to be able to crash the market, but nobody will do that.

Ryan Dash  13:44  

Yeah, we're built more faster. There seems to be a big problem here, too. Yeah.

Dan Wurtele  13:47  

Well, and you just touched on a great aspect there, Steve, is that, like you said that they're making so much money from the taxation of real estate, that if prices went down, 20% of our income drops significantly as well, especially we're talking about transfer tax, and that's directly related to the cost of purchase or sale. So yeah, if that drops too low, then I guess what the coffers are the lighter that year. But then you also, we should look at the flip side of this, too, because it wasn't so long ago, it was only what 2016 2017 when prices were rising so fast. Yeah, that they wanted to put pressures on me or on lowering or decreasing those prices. Right? That's when of course the stress test was implemented the foreign buyer tax vacancy tax, these type of things. Oh, of course, they interest rates increased as well, during their amortizations were shortened up, right. So you know, it's like they're okay for it to go up. But they have to sort of have the control of how fast it feels like,

Ryan Dash  14:39  

yeah, it feels like leverage to me. It's a bit of a cat and mouse game, you know, between developers and, and the government. I think a large part, especially here in Vancouver at the municipal level. Sure,

Dan Wurtele  14:54  

at that point, I think was the optics of helping people and making it more affordable. Like we'll just tax it then then all those taxes. funds will go into, you know, buying or building affordable housing, which I haven't seen yet.

Ryan Dash  15:07  

Or, you know, even if it is affordable housing, quote unquote, affordable housing, what about the rest of the market? You know, I don't necessarily want to buy in an affordable housing building. But I would like to buy something that is affordable. You know what I mean? And that cat and mouse game seems to take place in Vancouver, especially with developers and and the government. You know, the government says, We want more affordable housing. And then they say, well, but we're gonna limit rent controls. And then the developer goes, Well, I'm not going to build a bunch of units, then because I can't sell to investors who are going to rent these units out. So I'm just gonna sit here and wait to change your mind. But

Unknown Speaker  15:46  

yeah, you're definitely I mean, you definitely seeing some of that now. Yeah, it's kind of, there's always there's always a guy. And my view is that there's always for every action, there's always a reaction. Yeah. So it's, you know, you can't, okay, it's just, it's just kind of the way it goes, right. Like you bring in these rent freezes. And I get it makes sense. But, you know, especially on the rental market was like, extremely overheated. Yep. But then again, you're obviously going to disincentivize investors. So

Ryan Dash  16:11  

I was just gonna say, though, if it is overheated, is that not another indication that maybe we need to be building more faster? Right? I mean, the government's not going to make their income every time they do a development permit, or every time they sell a piece of land. It just, it's strange to me, I don't know, what's why this, you know, supply and demand is supposed to be fairly fluid. But there's so many things at play here that that are screwing with fundamentals. Now. There's making it difficult for a lot of people to understand what's actually going on.

Unknown Speaker  16:40  

Yeah, I mean, the the approval process on like, the development side obviously, doesn't help when you go look at like other cities and how they're doing it. It's it's definitely, it's almost like, yeah, you definitely always have a cap on the supply

Ryan Dash  16:51  

here in terms of how much you can build. I think it was in Seattle, they built last year, I think it was 13 towers to Vancouver's one.

Unknown Speaker  17:00  

thing is I would almost say we were like running at capacity. So even like back in, like 2000, whatever the height of the sort of building boom, here is maybe what 2018? Yeah. Like, I would just argue the developers are already at capacity here. Like everything was so everything was like, construction was like, on every project was like a year to 18 months behind schedule trades.

Ryan Dash  17:22  

We're gonna build it fast.

Unknown Speaker  17:24  

You couldn't you just couldn't you didn't have enough people materials? Like it was just like, I think they were already at capacity. And we think we had record high like 40,000 units. Yeah, under construction at one point. So I'm not really sure how much more capacity we could have added. Obviously, it's just, you know, he sure if you want to create affordability, you want to maintain that pace of new construction. But, again, once the prices start coming off, obviously the developers pulled the polar foot off the gas, as any sort of private business would absolutely,

Ryan Dash  17:52  

yeah. Right. Interesting.

Dan Wurtele  17:55  

So I mean, looking a bit ahead now, Steve, it's it's hard to make predictions in the, you know, most normal of times, let alone right now. I think obviously, there's there's tons of capacity for the policymakers to go either way right now. Do you know, I mean, they could certainly loosen up and make housing even more attractive. kootenay? Yeah. Oh, yeah. Yeah. I mean, like, for example, like you said, no negative interest rates, I guess, yeah. One that obviously jumps to mind. And then again, you know, they could certainly remove the stress test,

Unknown Speaker  18:23  

is another office. So my view is, so the so I think it's like I focus on like, the supply of credit, because I think like, clearly, there's not a whole lot of fundamentals driving the market right now you have basically the Bank of Canada, you know, central banks everywhere, engaging in, you know, quantitative easing. So again, maybe the listeners don't know what quantitative easing is, but it's essentially the loose form of calling quote, unquote, money printing, essentially, driving up inflation. Yeah, essentially, essentially, you know, buying government bonds, to then lower the yield or interest rate on those bonds. So then that's why you're, that's why your mortgage rates are now you know, one and a half percent, right?

Ryan Dash  19:03  

Conversely, the Bank of Canada or not the bank account, or the government seems to own what 30% of the mortgage bonds and

Unknown Speaker  19:07  

Bank of Canada bases buying up, they own 30 I think it's 35% of the supply of

Ryan Dash  19:13  

government bond before before the pandemic,

Unknown Speaker  19:17  

right, basically of zero.

Ryan Dash  19:18  

So,

Unknown Speaker  19:21  

so, I mean, at this time, next year, they'll own 50%. But the thing is, like, if you actually look like the, the actual wording of quantitative easing, so like, it's on the bank of England's website, interesting, and it actually says like, the function or the purpose of quantitative easing is to raise the level of asset prices and through that mechanism, they hope to basically create a a wealth, wealth spending spree right so stocks go up, real estate goes up, and people are, you know, so it basically by lowering the yields and government bonds, it goes oh, I don't want To your almost forcing people into alternative assets, like stocks and real estate, so pushes the price up, and then they're hoping that that will drive, you know, consumer spending. So you basically have a central bank here. That is, by doing QE, quantitative easing, again, they, I would argue the middle might not have much choice. But by doing these programs, they're explicitly telling you, our goal is to raise asset prices like housing, so keep

Ryan Dash  20:22  

kicking the can further down the line. Yeah, exactly.

Unknown Speaker  20:25  

So I know and then everybody talks about like housing affordability. And it's like, okay, but you're literally running a program that is designed to not raise prices.

Dan Wurtele  20:35  

Well, did the government see this happening this QE, historically, anywhere else? And they just adopted this and said, okay, we kind of know the outcome here like it was there a bit of a crystal ball as to what might have happened, knowing that QE was gonna come into play here.

Unknown Speaker  20:47  

Yeah. Well, I mean, it's like like Japan's been doing it for like two decades sort of on and off I think they own I think they almost own the entire Japanese government bond market. Europe's been doing it

Ryan Dash  20:58  

hold on though. But what what happens when that when you own the whole market?

Unknown Speaker  21:02  

So you basically just like you basically nationalized the bond market? You see basically say like, it is from from what I understand what a bond trader, but there's days where like, there's these bonds literally don't trade in the open market. Oh, it's just because like this, there's no like, there's no, there's no bio in the cellar. There's only one buyer. Yeah, I would sell them. Until eventually, you just kind of like own all the government debt. And the people argue the end game is they just sort of stroke a check and say, okay, your debts are forgiven.

Ryan Dash  21:29  

Right.

Unknown Speaker  21:30  

So. So that's, again, that's probably

Ryan Dash  21:34  

a lot of that debunks the idea of supply and demand. Right, which is what we think we're doing here.

Unknown Speaker  21:40  

So this is when you get down to this whole rabbit hole of Okay, well, free markets, do we really have them? Yeah,

Ryan Dash  21:45  

if that's what we're trying to poke at right now.

Unknown Speaker  21:47  

Right. So so I don't know. It's just it's very interesting, because, I mean, we can kind of go down this rabbit hole, but like, you have the Swiss National Bank, which is like the Bank of Canada's, you know, equivalent in Switzerland. These guys literally, you know, in order to like control their currency, right? They'll print money to buy stocks. of the largest holders of Apple Apple stock, just so I mean, that's kind of like, again, if I look at Canada and say, Okay, well, how do we, you know,

Ryan Dash  22:17  

how do you predict? Nobody, nobody

Unknown Speaker  22:19  

in Canada gets excited about like the TSX rally, nobody's like, Oh, I want to buy. No, no Canadian stocks. Everybody here just buys real estate. So I think like the government, you know, whether it's the Bank of Canada or the federal government of the BC government, they're pretty much implicitly supporting the housing market, even though publicly they'll probably won't tell you that.

Ryan Dash  22:37  

It's interesting, because Dan, and I just did a podcast last week on you should be buying Canadian Real Estate and you should be buying American stocks. Yeah. Yeah. Which is interesting, because that sounds like what you're saying, I think in the US, right? They basically like they have like a running joke with with one of my

Unknown Speaker  22:56  

finance buddies. He's in the US. He's, he's got a good following. But he you know, he writes a financial newsletter on this beat, we always joke because he says in the US, in the US, we implicitly backstop stocks, like, the US like the national pride as the stock market. Well, Canada, it's that everybody backstops rules.

Dan Wurtele  23:12  

That's right. Well, look at the biggest bailout in American history. Right. Straight to the banks. Yes. The 2008 collapse, right. I'm sorry. All the money went to the big banks. Yeah, billions. But it's like the

Unknown Speaker  23:23  

running joke, right. It's like buy the dip.

Dan Wurtele  23:29  

It's interesting. There was one talking about stimulus today. I just saw this on the Twitter feed. Australian government today is offering incentives up to $50,000 for foreigners to come in and buy their real estate. Oh, my God, that's

Ryan Dash  23:43  

how they're doing. It talks about trying to trying to raise an asset price. Yeah.

Dan Wurtele  23:47  

I mean, it's being done, I believe, sort of, like 50,000 off of their their taxation kind of thing. Like you get a rebate, I say, but again, that's $50,000. Right. So it were the other way over here.

Unknown Speaker  23:56  

So I could continue on that path. So yeah, I mean, Australia is like housing is like, almost equivalent of like, Canada, or thing. It's very similar. But I think people always ask me like, okay, you know, mortgage rates are 1.5 today, like, could you imagine, like, when they hit like, three, they go back up to three or three and a half or 4%? Like, obviously, things get very nasty. They do. Yeah. And but I mean, this is the thing is like, they're basically already policymakers are already telling you what they're gonna do, which is they're gonna follow the lead of countries like what Australia is doing now, which is a policy lever called you know, yield curve control, or the central bank basically, can they pay, you know, the five year Canada government bond cannot trade above you know, I mean, they could yield 2.5 today, but they'll say cannot trade above point seven. As soon as it gets close to point seven, we'll buy hand over fist as much government bonds as we need to basically target because they can't have obviously, you know, that's like the most important rate in Canada. We can't have that five year bond yield tripling? No, because again, that was just a control destroy everything. So that's kind of the next policy tool and the bank account has come out explicitly and basically has told everybody that that will be their next policy tool if they need it, which I think they will need it. Because it could be a couple years, they've been pretty aggressive on their stance in terms of,

Ryan Dash  25:22  

you know, I've never really heard them say, Hey, we're gonna keep interest rates low for two years. Yeah, you know, that's a very aggressive stance, which is giving investors a lot of speculative power to go in and start doing stuff. certainly feels like that. Totally. Right.

Unknown Speaker  25:36  

Yeah. And that's, that's basically their, their whole goal is they call it forward guidance, right? So they're trying to, like, incentivize you through

Ryan Dash  25:43  

so we do our clients.

Unknown Speaker  25:47  

These guys called for guidance, but it's funny, because they say, well, based on our like, analysis, you know, we won't raise rates, because we don't see, you know, quote, unquote, inflation hitting our target of 2% until at least the end of 2023. It's like, well, inflation is such a bogus metric to begin with, because everybody knows in Vancouver that inflation is more than 2% per year. Yeah. I mean, the cost of living the rents groceries,

Dan Wurtele  26:12  

real estate,

Unknown Speaker  26:13  

they'll say, Yeah, right.

Ryan Dash  26:15  

Yeah.

Unknown Speaker  26:15  

I mean, the fact that they these guys have been saying for the last decade, or the last decade, they've said that inflation has actually been slightly below their target of 2%. Which is laughable, right. But I mean, again, so it's kind of a it's a manipulated metric. Yeah. Like, the fact is, these guys basically run the rules. And you can either play the game or, and for the average consumer, that means if you've got your money sitting in it in a savings account, earning 1%, you're actually losing 1% on your money every year, even though you think you're saving it. That's if the official rate is 2%. Right. So I think I honestly think nothing could be more out of be like, let's just call it what, 5% a year maybe it's expensive. So yeah, you're earning like, half a percent on a savings account. You're losing like four and a half a year.

Dan Wurtele  27:01  

Yeah. Actually part of the demand part, I think, yeah. Meaning that people yeah, they're not going to keep their, their money in the banks, because it's, they're not gonna earn more from it. So they are going into the harder assets like real estate. And it kind of begs the question, and we'd love to hear your insights into this. Steve is, you know, a lot of people right now are seeing the volumes that are happening, especially here in BC, right? We literally had record sales volumes for the month of November ever last month, and I believe December is likely on pace to do the same. So ask the question, like, okay, who's buying, right? Like, who? Who is buying? Well, you don't have any, or we have a record low immigration. We've got all these taxes in place to kind of slow down foreign purchase. So who is it? That's that's buying?

Unknown Speaker  27:41  

I mean, I don't know what you guys see. But for me, it's been all like end users like, yeah, I'm not really seeing a whole lot of investors. I think they're still a little bit tepid. And yeah, again, a rents are down double digits, I get it.

Ryan Dash  27:51  

I think, I think investors right now, are doing the sit on the sidelines and wait kind of thing. When it comes to, especially when it comes to condos? You know, because that's a timing play. And I think you're gonna see that. But then, you know, I think we've seen a lot of domestic demand. It's getting surpassed right now. But I didn't realize that domestic demand was that crazy. I just didn't, I didn't think we'd be setting records. put it that way. without, without the borders open.

Unknown Speaker  28:19  

Right? I'm seeing like all these all of my clients that come out of the woodwork saying like, oh, where have you been? A couple years ago? Yeah, I'm ready to double down and buy another one. And it's like, oh, like this wasn't even on the radar screen. But a lot of this behaviors like all these purchases seem to be moved up.

Ryan Dash  28:36  

Yeah. I'm seeing a lot of personally anyways, a lot of people divesting out of the condo market and getting into the townhouse duplex single family. And I think that's largely driven by initially largely different by the Coronavirus and the fact that people just didn't want to be around anyone else. But I think now people are recognizing low interest rate environments. And if 2021 is going to continue to keep pace with what's currently happening now, you want the law of larger numbers on your side.

Dan Wurtele  29:03  

And that then leads to Steve's point about access to credit. Right, so I believe Canadians are what the most indebted in the G 20 Is that correct? So they're, they're highly indebted. We have a stress test in place to protect people from getting further in debt. And yet it seems like the access to mortgages is incredibly easy right now. Right we're seeing credit rates growing at phenomenal I think we're at all time highs right now.

Unknown Speaker  29:30  

Yeah,

Dan Wurtele  29:30  

so it's I mean, so that's gonna feel demand if people can afford it. Yeah. But you know, what's How are people qualifying for mortgages mortgages excuse me authority so indebted?

Unknown Speaker  29:42  

That's a good question. I think that I think that there's the battery that the banks have obviously like their their protocols and stuff but it just seems like for to shareholders to they need to make a profit. Yeah, it's just I always find it interesting that like, it's not uncommon in Vancouver, like Some guy in their late 20s, early 30s to get a million dollar mortgage is just like it's

Ryan Dash  30:05  

I did

Unknown Speaker  30:08  

not like you're just like, Huh, okay, like, you know, if you did that in any other city, there's like, no way you're getting approved in Vancouver, it's like, well, that's just it's the norm is the norm. She's I don't really know how those, you know, the qualification process works there. But

Ryan Dash  30:19  

what we

Dan Wurtele  30:20  

do, we should look a little bit at the delinquency rate, because, you know, pre even pre stress test, I believe, Canada, and definitely bc was one of the lowest in Canada as far as people that were actually defaulting on their mortgages. And then the stress test came into play, which kind of it's dropped a little bit since then. I guess that's largely what they look at. Right, people are clearly able to make that payment. And I think it's something that Ryan, I touched on earlier is that no matter how much, let's say, in financial distress, you are the first payment, you're going to try to make no matter what is your home, right? Because if you don't make that it's not like you walk around the corner and you rent software for free, right, you're still paying to have a roof over your head. So I think it's the one sort of asset and payment that people protect and make first always

Ryan Dash  31:03  

certainly seems to be the one that tab, you know, in speaking to large numbers of mortgage brokers and, and a client's General, you know, they don't, when you think about it, if you're looking at a visa bill, or you're looking at your mortgage payment, you're gonna push your visa bill. You just are even though even though your visa bills at 18%. doesn't it's not financially prudent, but at the end of the day, people will not risk losing their their home. And I think that that is speaks to Canadian culture, too. And very much that people buy into Canadian Real Estate and buy into American stocks. It feeds into that right,

Unknown Speaker  31:40  

I think, I almost think yeah, I mean, they also argue, too, it's like a rising tide. rising tide lifts all boats too, right. So NBC, you know, it's hard to go delinquent if your prices are going up. 10% a year, and you can't pay the mortgage, just sell a

Ryan Dash  31:55  

thing. Yeah, you owed us. 36. But you made 60.

Unknown Speaker  31:58  

Yeah. So I think that's that's definitely helped. But yeah. Well,

Ryan Dash  32:05  

I mean, certainly very interesting conversation to me. I'm trying to think here if there's any other levers to pull, or at least talk about,

Unknown Speaker  32:11  

I just wanted to add one last thing. Yeah, well means you were talking about Vc homesale setting like, you know, new highs or whatever. So nationally, nationally, this year, like December's obviously been busier than normal. So we have the data up until November 2020 will be the highest sales volume year in Canadian Real Estate history. Oh, my God. So it'll be 2016. Wow. So 2016 we know was like super frothy. Yeah. You know, crazy. Offshore money immigration. Connie was hot.

Ryan Dash  32:45  

So did we did we push all that demand that local domestic demand four years down the road by entertaining a lot of foreign money? That's a it's kind of a interesting question. You know, I mean, we didn't have stopgap measures, like foreign buyers tax and things like that, that would stop foreigners from coming in here and buying up huge amounts of real estate, which is possible, right? But then you lock out the domestic demand, because they no longer either they can or they cannot, but they don't want to live in that area. And so they choose to rent. Has that are we seeing sort of like a lag of four years? Maybe it's it's too long. And I think that's probably painting too much with one brush. But I'd like to think that seeing the domestic demand levels that we have right now, locking out the international community, if you will, for a few months, has shown that domestic demand is huge.

Unknown Speaker  33:40  

Yeah, I think that that's the clear, obvious one is that people were like, Oh, it's, you know, foreign foreigners coming to Vancouver. Like there's there's no travel. That's right.

Ryan Dash  33:49  

Yeah. So now what? You can't blame them.

Unknown Speaker  33:52  

I mean, I have to laugh because I was kind of, you know, the point I was also trying to hit home was so you have a record? You know, 26 is record 2020 this year? Yeah. Nationally, and you have national home prices up, you know, about 12% year over year there. So right now, they're accelerating like they're growing basically just over 1% per month. Right, which is pretty impressive. Considering job losses fitting. Yeah. So the Bank of Canada governor came out last week saying that. This, he says that this housing market is not like 2016 that he doesn't see any froth. And I'm thinking how can you not No, no fraud. Realize, yeah, we're growing at 12% a year with like, like this literally record unemployment. Yeah, I mean, yes, it's getting better. People are getting their jobs back. But that's basically speaking. Yeah,

Ryan Dash  34:44  

three times the level it should be going.

Unknown Speaker  34:45  

Yeah, so you shouldn't see double digit home price growth in a severe recession and record home sales. So I think you actually do have froth, maybe not the speculative investor frenzy coming in. But I think there's some things to be concerned about. If I was a policy, but I know

Dan Wurtele  35:01  

you throw on top of that, what $92 billion in savings this year and Canadian banks and then potentially the open doors to immigration next year. I mean, what what is that not just throwing fuel on the fire sounds

Ryan Dash  35:13  

like a cannonball. It sounds like you've just loaded a cannonball. And you're lighting it with this sort of flipped order. There's this border of light. Right? It's

Unknown Speaker  35:23  

definitely a border. Definitely concerns me. Yeah. Like, I think it's has the potential to get out of control. Yeah, it's kind of like a green light just to buy real estate because there's, it can't go down. And I actually think you've created so by intervening like they have again, I would argue that I understand that it had to kind of intervene and try to support the market, you know, given the calamity that probably would have unfolded had you not? Yeah, but you also then create these like speculative feedback loops, where in problems, people just are reminded that you can't lose. So like, the old adage in 2015 16 was like, Oh, you know, Vancouver real estate never goes down because 2008 happened, financial crisis and every property market decline, but not Canada. And so and then, you know, by suppressing sort of another natural correction this year, which were your your supply and demand forces,

Ryan Dash  36:11  

yeah, but

Unknown Speaker  36:12  

people are gonna say, Oh, see, doesn't he didn't everyone down and away? Yeah, and everyone down in 2020. So don't bet against this. So why do you have to be an idiot to bet against it? And so you're just gonna, people are just gonna throw caution to the wind? I think, yeah,

Dan Wurtele  36:26  

no, that definitely feels like it feels a bit like 2016 with the FOMO. And something. Yeah. You know, it's

Ryan Dash  36:30  

like, you just think that we're known for that full. I mean, when everybody starts rolling, everybody goes nuts. Yeah. Right.

Unknown Speaker  36:38  

And, okay, so so I'm just waiting for that investor to like, really step back in because I think that's kind of the last interesting, you have the local and user demand. That's, like, quite feverish. Yeah. You just don't have that spark yet

Ryan Dash  36:51  

for the investors. Yeah.

Dan Wurtele  36:53  

I think that'll come back basically, very shortly after the borders are reopened.

Unknown Speaker  36:58  

Yeah. Which I mean, I log in. I mean, we were downtown right now recording this, but like, you know, 50% of the condo market. 50% of the buyers or investors like, Yeah, for sure percent of people downtown rent 100%. So it's like wanting to purchasers investors, if you get those guys off the sideline that thinks that this, this market picks up?

Ryan Dash  37:16  

Well, we've got 1100 condos plus sitting in the downtown market right now. Right. So when that border opens, right, and then you know, if we continue to see this sort of 10 15%, price correction and condos, just going to be good, good time to buy coming.

Dan Wurtele  37:29  

Yeah, downtown condos are about 14%. Last I checked from March to April 14%. down, and I definitely work with a bunch of investors. I've never had more interest in downtown. They're all saying let me know when it kind of feels like the bottom because the eyes are there. Right? And yet. Sure, everybody wants to time a deal. But again, when you see a 14 point swing, you know, in seven, eight months, it's it's it garner some attention, because they do want back in and sure you know, once tourism comes back immigration comes back, you know, is downtown desirable? Again, it might just be

Ryan Dash  38:00  

okay. So I'm, I'm a consumer on the end game here. Right. And I've got some money set aside. Thanks to Trudeau. Some other reasons, right? At the end of the day here, I'm thinking maybe it's a good time for me to think about buying something. Right? How should I position myself for 2021? Should I be buying at the start of 2021? Should I be waiting for more inventory to come? Do I think prices are going to further come down in the downtown core? A lot of questions, but I guess what I'm asking, How do I position myself for 2021

Unknown Speaker  38:31  

data? So I was gonna ask you, I you're talking about the condo market downtown. I've been watching this size investor clients, same sort of thing. Hey, you know, watch it.

Ryan Dash  38:40  

Let me know. Yeah,

Unknown Speaker  38:41  

I actually think, to me, I feel like it's bottomed. Yeah, or bottoming get getting there right now. Because I know I just noticed, like, even some of the stuff that I've had here and clients that are looking, yeah, all of a sudden, it seems like everything's getting accepted offers, hey, can be see these four units, three of them was accepted offers like, and these things were going like no bids. Yeah.

Ryan Dash  39:01  

So any days on market?

Unknown Speaker  39:03  

Yeah, these things are going like just completely dead, you know, three, four or five months ago, where, you know, you'd have a listing downtown, you go, no calls for a month,

Ryan Dash  39:11  

I had a couple of them. Nobody

Dan Wurtele  39:12  

help. Interesting. So you know, those people that were looking for the Coppa deal back in April, maybe it's time to pick up that phone again. Yeah. Because if you're looking at potential downtown condo investment, you know, maybe we are near or at the bottom with low interest rate environment on the horizon for the foreseeable future as

Ryan Dash  39:27  

well. It's probably a good time,

Unknown Speaker  39:29  

right. Just don't feel like you're almost like downtown. You just almost like I guess you can try to track the virus count. Like, yeah, I think the vaccine news helped, but I guess you know, the virus. Definitely seems like it's getting worse. So maybe you start to see light of that you get through January, maybe February, then yeah. Hopefully, things start to get better from there and that people get back to the office and stuff like

Ryan Dash  39:51  

that. You'll start to see

Dan Wurtele  39:52  

some normalcy. Maybe they'll allow rental rate increases in 2022. We can look forward to that. There's a little, you know, on the sidelines now who wants to buy a condo put up a tenant? No, you can't raise the rent for a year. This is

Ryan Dash  40:05  

all with a big caveat around the fact that we hope that the federal government doesn't do anything to capital gains tax.

Unknown Speaker  40:13  

So like, I just got it. I bought it, I think, yeah, I think those policy levers are probably coming next. Yeah.

Dan Wurtele  40:18  

It's like a we protected and raised your asset for the last 20 years. And it's payback time.

Ryan Dash  40:23  

Yeah.

Unknown Speaker  40:25  

You know what I mean? So I'm a resident

Unknown Speaker  40:27  

is a tough political sell, but I think it's coming.

Ryan Dash  40:29  

Yeah. Well, I don't know how it's one. How do you pay it back to you know, I've seen more sort of legacy sales on the market now, which are like condo buildings that are being put up for sale, which if you're, you know, a big powerful family, and you have a ton of that kind of stuff that feeds your income. And you're now staring down a new capital gains environment. Why are they all of a sudden coming to market, especially when condos are down? 14%? It's an indicative move. I think people that know stuff.

Unknown Speaker  41:00  

Yeah, that's a good point.

Dan Wurtele  41:03  

Amazing, Steve, why don't you get the last word in here? And we'll wrap it up.

Unknown Speaker  41:08  

Yeah, it was a lot of fun. I think it'll be interesting to sort of see how 2021 shapes up. But I think I personally am quite bullish. I think like I've I'm an I'm a noted housing bear, for. So I, you know, I've maybe I'm the contrarian indicator, and maybe we'll, we'll slip slip sideways here in 2020. But I'm bullish right now. I just think like, policymakers, I don't really listen to what they say I look and see what they're doing. And loading is raising asset prices.

Dan Wurtele  41:35  

Yeah, that's it. But the data is the data, right? The numbers don't lie. And I think you're a very data driven person. And of course, you can kind of have a crystal ball when you when you do analyze to that degree. So Steve, thank you once again, for people who want to learn more about you. where's the best place to find you?

Unknown Speaker  41:52  

I'm pretty active on Twitter, probably at Steve strategies, my handle, that's usually the best spot. Cool.

Dan Wurtele  41:57  

Right. All right. Thank you so much.

Unknown Speaker  41:59  

Thanks, gents.

Ryan Dash  42:02  

That wraps up this edition of the Vancouver life podcast.

Dan Wurtele  42:07  

For more information on this podcast, and to access a ton of free downloads, investment opportunities, current market info, and then homes for sale. You can find it all at WWW dot Vancouver life.com.

Ryan Dash  42:22  

Thanks and we look forward to bringing you more podcasts about Vancouver real estate