2020 continues to be a perplexing year. In August there were negative news abound in the real estate market. Reduced immigration. Reduced foreign students. A quarter of Canadians between 25 and 30 years old have lost their jobs or been put on unpaid leave. A huge number of condos flooded the Vancouver market in July. 30% of restaurants may permanently close. End of government programs coming. Many predicted softness in the market, except the real estate boards and real estate companies. But this time they have gotten it right with their eternal optimism.
The August sales volume is 19.9% above the 10-year average. There was enough competition in the market to drive the prices up. The benchmark price of a detached home went up 1% from July 2020. For an apartment, the benchmark price went up 0.5% from July 2020. And for an attached home, it went up 1.1% from last month. These are strong numbers!
There are many parallels between the Vancouver real estate market and the American stock markets. Both seemed disconnected with economic realities. The economic conditions now must be worse than conditions before covid-19 in January of this year. However, both the markets are now priced at a higher level than the start of the year.
It is entirely possible that people are looking past covid, expecting it to be over soon and everything will be back to normal. However, if this is true, they are overlooking the economic impact that has yet to hit. The mortgage arrears and permanent business closures have not yet begun. As you can see from the graph below the Bank of Canada expects mortgage delinquency to start to pick up in October.
The other possibility is that people are betting on the government to keep on pumping money into the system to prop up the market. The real estate market in Canada represents a significant part of the GDP, but can the government continue to flood the market with cheap money? Right now people are betting with their wallet and they are saying yes to Vancouver real estate.
