It’s no surprise that Metro Vancouver has recently been engulfed in an extremely competitive housing market. With news articles astonished at how some properties have received as many as 20, 30 and even 40 offers, while others have simultaneously sold for hundreds of thousands over their asking price in a matter of days. The big question is: Why is this happening? What is causing this?
In the simplest terms, this can be explained with the concept of Supply and Demand. In the current market, the supply of homes from Sellers are not enough to satisfy the demands of Buyers. Well duh, we didn’t need you to tell us that, Rachel! But that doesn’t answer, why now? Why are so many people buying when we are still amidst a global pandemic? Especially one characterized with high unemployment rates and economic uncertainty?
To explain this, we have to first look into what one of its biggest driving factors is.
Historically Low Mortgage Rates
When we think of economic decline and increasing unemployment rates, it’s not usually a good thing. As many lose their jobs or are forced to close their businesses, people start spending less and businesses start investing less, which all eventually contributes to an overall lower standard of living for everyone. However, it is specifically because of this fear, that it becomes good news for interest rates as the government needs to maintain these low rates in hopes to help stimulate back and recover the economy. Especially being in a pandemic, where we can’t depend on tourism, restaurants and hospitality industries to contribute to the economy for the foreseeable future. By making it more affordable to borrow from financial institutions, it encourages more people to lend and put their money back into the economy. Accordingly, this is exactly what happened with our government at the onset of the COVID-19 pandemic.
In as early as March 2020, in an attempt to aid the nation’s financial institutions and cushion the economic shock to individuals and businesses, the Bank of Canada dropped their benchmark rates to a historic low of 0.25% overnight. As our major banks – including TD, RBC, Scotiabank, BMO, CIBC – determine their rates based on this overnight rate, they were able to offer lower interest rates too. Most major banks are now offering 5-year fixed term rates all under 2% interest. For comparison, the rate was averaging 5% in March 2019. This meant that at these rates, not only could people lend for less but also refinance their existing mortgages for less.
Therefore, exactly exemplified in our current market, people are now actively taking advantage of these low rates and putting their money back into the economy through real estate. This became increasingly evident in the amount of first-time home buyers and move up buyers that are now populating the buying group.
Remote Work & the Pandemic
For those of us that have transitioned to work remotely from home, while it did give us many fun memes and “zoom ethics” we can all relate and laugh about, many of us have started to realize that they could use a bit more room for the home offices. Especially for those whose coworkers have now become their partners, parents or their children’s entire zoom class now. This has also become a driving factor into why so many people are now looking to purchase a new home. In addition, as we are approaching the one-year mark of remote work, there is the uncertainty of how much longer this will go on for. Even if restrictions start lessening in the coming year, many companies and their employees had realized that incorporating a home office in their company structure or work schedules may be a viable option to be considered.
Also, as remote work has now become the norm, many are realizing they also do not need to live as close to work anymore. For example, if you worked in downtown and was previously renting at downtown prices, you may now realize you that it is no longer a necessity. Instead, you can take advantage of the low mortgage rates and purchase your own condo or townhouse at more affordable prices in the suburbs.
With up to 40 offers and properties selling hundreds of thousands over the asking price, we are absolutely in a seller’s market right now. Not only that, but we now because of the SAR ratio, or Sales to Active Listing Ratio calculated by the Real Estate Board of Greater Vancouver.
The SAR basically indicates what percentage of available listings in a month that are sold. For example, in February 2021, this ratio was 41.8 percent for detached homes and 41.7 percent for apartments. Depending on the percentage of the SAR, it can also help determine whether the current market is a Seller’s, Buyer’s Market, or a Balanced Market where supply and demand are about the same and home prices are rising in line with long-term average rate of inflation. They are broken down as follows:
Sellers’ Market: higher than 20%
Balanced Market: in between 12- 20%
Buyers’ Market: under 12%
With last month’s statistics coming in well over 40 percent, we are absolutely in a Seller’s Market. So, if you have a property that you have been thinking to sell, it is definitely the right time to consider selling!
Are you ready to buy or sell and need that perfect agent to help you navigate this crazy market and reap its benefits? Let us help!
Rachel Van: 778-960-2202 / [email protected]
Arthur Van: 778-822-8219 / [email protected]