Market Update March: BoC Rate Hike Pause

Hi everyone, I’m James Garbutt. And I’m Denny Dumas. And this is the Garbutt Dumas Real Estate Podcast.

Denny: It is March 15th already which is kind of crazy. We are nearing the end of Q1 2023. Seems like it was like this year is kind of a bit of a whirlwind. There’s been a lot of changes, notably the most is interest rates this year. And what is happening with Bank of Canada, what is happening with inflation, what is happening with consumer price index. There’s a lot of terminology, economic terminology that consumers have been hearing and asking us about and since neither with their economist or that we have a background in this it’s difficult for us to project but at the same time, we do like sharing our thoughts, we do like sharing our experience in the real estate industry of what is currently happening, what consumers are saying and where we are getting a feeling that this market could go if rates hold as they did last Wednesday.

Monica: It’s kind of funny. It’s like turning into a pastime of ours talking about interest rates. Producer Karl mentioned this morning and I’ve had a few clients mention like I’ve never cared more about interest rates. Hilarious times, like most, most dinner conversations are about the interest rates. Everybody cares about the interest rates. We’re all very invested in the interest rates.

Denny: I’ve been a realtor for nine years now. And I’d say the first seven, the conversation of interest rates came up so infrequently. That like, I wasn’t even aware other than like a personal mortgage or something, I wasn’t even really aware of what was the current offering from banks and interest rates. I knew roughly that, you know, 20 whatever, I’m just making this up now but 2014 to 2018-19 let’s say an average interest rate was like around three to 3.5%. And a variable was slightly lower than that if you’ve got like, something around two seven. That’s pretty good. That COVID happens. Interest rates go literally to zero. And now we find ourselves in the opposite.

Monica: It’s really interesting how it’s impacted the sentiment so far this year. A lot of people were hopeful in January that the rates would hold, they didn’t, there was a little tiny increase and now that they’ve held, it’s like everybody wants to have market confidence. It seems like all of the buyers that I’m working with we’re just holding out for that tiny, tiny glimpse of hope so they can be like “See Dad? Now I’m gonna buy” like it’s been a real yeah, it’s been a real roller coaster for some of them but just that hold. It really goes back to what we always say, especially in Greater Vancouver, that it’s a really strong market and people want to buy and right now what’s happening you know, in the US, you’re seeing a little bit more market confidence and people would be like, Heck yeah, look at the real estate market. We’re doing pretty good.

Denny: I think it’s a natural human characteristic to be risk averse and so when people see rates climbing and market value is changing weekly. It’s a natural reaction to kind of sit on the sidelines and say let’s kind of wait this out until there’s a little more certainly. And maybe this last Bank meeting, Bank of Canada meeting on last Wednesday, March 8, maybe that is a sign that people need. If you don’t know, the Bank of Canada did not increase the overnight rate last Wednesday. That was the first time in about 12 months that the rate has not gone up which is due to a few things. I think the, the Canadian consumer price index CPI was lower than anticipated after the month of February. It came back at 5.9 and they were expecting it to be in like the 61-62 range. So I think that kind of helped steer them towards holding off and seeing what happens over the coming months. But what’s going on in the States right now seems like there’s, seems like the Bank of Canada and economists locally, are more cautious about future rate hikes now and I’ve even heard some hinting towards rates starting to come down as early as end of Q2  this year. I’ve heard more to like towards the summer and into the fall, which sounds like that’s more the consensus, but I’ve heard a few people say it could happen sooner than what we’re expecting.

Monica: It’s kind of hard to wade through all of the opinions on speculation. I find that a lot of the speculation and opinions are very positive. Everybody wants to cheer us on. Everybody wants to be like yes, we think interest rates are gonna hold yes, they’re gonna go down. The important thing is to look at the overall picture, which is what the Bank of Canada has been doing and economists have been doing. They’re really, really like looking exactly pointed at inflation. So as long as inflation can stay below six, I think that will probably see them hold off on certainly on raising it but I don’t I think if, if that number goes down from 5.9, we should see some relief in the interest rates with you know, within the next few months, maybe which would be pretty exciting. I wonder what that will do to the real estate market.

Denny: Let’s talk about that. Let’s talk about what I mean, I have actually considered the idea of putting “Real Estate Fortune Teller” on my business card just because it’s fun. 

Monica: Use that little crystal ball emoji?

Denny: That’s not bad. That’s not bad. Or maybe you just have a business card shaped as a crystal ball. But let’s talk about what is actually happening right now. In the last seven days since that Bank of Canada announcement.

Monica: I’ll say from, from someone on the streets like working with people every day, it’s, it’s been it’s been a pretty interesting turnaround, even leading up to the announcement. We were already feeling people settle into the new banking environment and the new interest rate environment. Most of the buyers and sellers that we’re working with have already educated themselves on the interest rates. They understand what they’re purchasing. They’re purchasing within their means. Whereas there was a time in the summer of 2022, where people were quite literally approved for one amount one day and then the next day it went down significantly. So those days are behind us. Most of the buyers right now are buying in ranges that they’re aware that they can borrow in, with the hope that they will buy and then write the interest rates back down. 

Whereas before they were buying, knowing that they were going to be writing the interest rates up. So I think leading up to last week we were already starting to see a little you know, a little turn in the market. And overnight, I’ve seen multiple offers on properties that we weren’t getting multiple offers on before. Now, it could be a coincidence because we’re heading into March. And it’s just that time of year but we haven’t seen multiple offers. Like we’re seeing right now.

Denny: I think the reality is, is that with this new announcement and just naturally because of the time of year, there’s a lot more people who are seriously looking at making a move and the inventory is not catching up. So I think we’ve said on the podcast before January was the lowest number of new listings in Greater Vancouver since 2004. In February was 5% higher than January. There’s just not enough on market. And as demand increases, guess what? There’s more people looking at each listing, there’s more people offering on each listing. 

We can share examples for in the last seven days alone. A two bedroom condo in New West priced at $450,000 in an old building that has worked coming up, multiple offers within 24 hours. 10 showings, three offers. Brand new duplex, half duplex in East Vancouver. Multiple offers, very different price point obviously. We have been on the buy side of a handful of different multiple offer scenarios me personally, had one a couple days ago we were there was eight offers in New West. Adam had one the other day that was 12 offers

Monica: I’ve had three this week.

Denny: There you go. It’s it seems like anything that is priced correctly, regardless of product type is, seeing a lot more activity than I would have 30 days ago and significantly more activity than it would have in October, November, December.

Monica: Right. I think on the listing side too when it comes to the market’s response to the change in interest rate is sellers are now educated with where their price points should be. Versus the last, you know nine to 10 months they were pricing higher than the last sale while the market was really holding tight to those values. So now we’re seeing sellers with more realistic price points and when the price points are within market value, those properties are selling really quickly. We had I think three or four townhomes listed last week and all of them got multiple offers. They’re all listed within market value. They’re not not listed, but we’re not like listing for multiples we just listed for what we thought they were worth.

Denny: Where are you seeing the I mean, is it just across the board or where are you seeing the most activity? Talking about product type and the patient maybe? And maybe like the price point.

Monica: Right. It’s actually been kind of interesting. Usually there’s little hotspots that always see a little bit more action than others. But in the last 10 months, it’s been really slow in areas like Langley and in some areas of Surrey especially in the higher price points like detached houses in the $1.9 to over $2 million range. And I was booking a buyers tour yesterday or day before yesterday. And of the six Langley homes in the $2 million range that my clients sent me, one was available. One was available. Now, six months ago I could have taken them to see 12 properties and every seller, every agent would have actually showed up for showing which doesn’t really happen in Langley usually. And they would all be following up with me asking me for feedback. But I’m taking them to see one tomorrow. That was the only one that’s available.

Denny: Wild, it’s funny because like late in the fall it seemed like the activity is starting to pick up on low price points. Say less than a million dollars. We’ve talked about it was like, kind of the magic number and that like, two bedroom condo, one bedroom condo. Smaller townhomes in the Tri Cities they were getting busier quicker, and the single family, especially the luxury stuff was not, was still very slow. You would still be able to go see 12 properties tomorrow that were listed. That seems to have changed. And I think it really is just the lack of availability.There’s not a lot of good homes that are priced correctly for sale longer than seven days right now.

Monica: So I would say for me that really, that shows a very positive sign when those higher end price point homes are starting to sell and we all know it, for all the realtors that are listening and I’ve listed anything over $1.5 in the last month we all know that they, they really have been sitting and these homes are are the last ones to kind of catch on when the market starts to improve. So that’s a really positive sign that they’re starting to go. It could be any number of things, it could be the market confidence, it could be that the sellers are now actually pricing it within the range that they should be but I think it’s mostly demand like it’s been pent up for so long as we talked about eventually. You have to make way because people need to buy, people need to sell, that’s just part of the normal flow of things. 

So like, places like Langley price points, I think watching things sell now is pretty exciting. Port Moody stays really strong all the time, but there’s been a few properties and really higher price points that have been lurking around those ones that I’ve noticed and sold recently. Same for Coquitlam. New West has been very, very hot. New West has been so hot. I’m so proud of New West real estate market because sometimes it really gets overshadowed by places like Port Moody and Coquitlam. And right now it’s like really, really holding its own. Everything that we’ve listed there selling very, very quickly. Our buyers have to be on top of it if they want to buy or sell in New West. New West is like performing really well right now.

Denny: Noting that a lot of places are selling quickly and getting multiple offers and a lot more showings in the last let’s say 30 days, but even more so in the last couple weeks. Are you seeing price points go up yet?

Monica: Yes, actually, I would say a good example would be here in Port Moody. We sold a townhome for you know, $10,000 more than the last sale on the complex and like $13,000 more $13,000 more than the last sale on the complex and then another one popped up right after us that listed a little bit higher than they should have based on the sales in the neighborhood. And really close to ours wasn’t of the quality that our listing was. But they were just kind of riding the back. They knew that we got multiples, they knew that there were buyers kicking around so they priced a little bit high, which is a GD team move that we do all the time and they also got multiples, accepted offer, removing subjects tomorrow. And the agent told me the price is pretty decent. So I think yeah, we’re definitely starting to see that climb in prices. These are really small increments we’re talking about like $13,000 an $10K and $5K but that’s a big difference from where it was a few months ago.

Denny: Totally agree. It’s difficult to put a percentage on it comparatively to like let’s say, if we look back when was the bottom was in November? December there wasn’t much available and it seemed like things sold pretty quickly and then January was a bit of a turnaround and February got busier and now the first couple weeks of March are even busier.

Monica: November was a snooze fest. Yeah. I think that was probably about the right time.

Denny: It’s difficult to put a percentage on it. We can point out like individual properties that did much better than they would have in the fall. We had another townhouse in Port Moody on Cambridge that probably was like $75 to $100,000 higher than I anticipated based on looking back at fall sales. That one was super busy and got multiple offers. These couple of condos and New West we’ve mentioned quickly. They are, their product types that regardless of market can be really challenging to sell. Having one last week, get 10 showings in 24 hours and three offers, is a sign that people are, people are feeling the bottom has come and gone. And there just is a lack of availability of what to go look at.

Monica: Yeah, the vibe has certainly changed. I’ve had a few realtors that have offered on our properties that have gotten, that have won them be like “Wow, I thought I would never get something like we’ve been, we’ve put offers on so much”. And I was like wow, that’s something we haven’t heard in a long time like buyers have struck out quite a few times in the last three months. That’s pretty interesting.

Denny: I think what you mentioned and like really highlighting this is really key: is when you start seeing sales in a specific complex that are very similar to each other week after week after week that are increasing in prices. This is telling us a sign of what the spring is going to be unless we see this big flood of inventory. 

The likelihood of that happening is probably pretty low. Because, have we ever seen that in Greater Vancouver? And noting how much demand there is like it’s gonna take a while for inventory to build up. But when you see a really nice renovated unit sell and then a mediocre unit a week or two weeks after get the same response or better. That’s when, that’s when you can kind of summarize as buyers are feeling this anxiety a little bit again, and the FOMO kind of thing like they don’t want to miss out again and again because they feel like prices are starting to climb.

Monica: Nowhere in the world is there more FOMO and mob mentality than the Vancouver real estate market. This is where FOMO live, it lives in Vancouver in the real estate market.

Denny: It’s a true story when you talk to younger people who do not own there’s this like terror in their mind of “Oh my gosh, am I ever gonna own? Am I gonna be a renter forever? When my Dad bought his first house for $72,000 like how am I gonna be able to afford this only making you know 60 or 70 grand a year?” And it is what it is but it’s the realistic fear thing.

Monica: So what do we think the Bank of Canada is going to do next? Let’s crystal ball it. I want to, I want to know what Danny Dumas thinks. 

Denny: The next meeting is when, May something? The next meeting is April 12. That’s correct. My guess is no change. My guess is the same result as last, as last week. I don’t think there is, I mean, that’s a short window. It’s only 30 days apart. My guess is they have made the decision to halt for now and see what happens and 30 days is not enough time to make a decision on that. 

So based on all potentially some fear of what is happening in the US right now. I guess is, no change to Spring market. Here we go. 

What else do we want to talk about in this one? Oh, we wanted to quickly touch on some new stuff that has happened in Greater Vancouver real estate or BC real estate this year. And how, how these policies are being utilized. Whether as a pro or con. So the one thing that I’d say, slightly surprised how much it’s being used as the cooling off period. 

And so with multiple offers come more aggressive offers. The more aggressive offers come lack of subjects or no subjects. And now guess what? The subject free offer doesn’t mean a subject free offer anymore, because there’s a three day window, three business day window so I’ve had one that actually was six days, which is hilarious. Selina Robinson, thank you so much for this. Six days that a seller is waiting in limbo, trying to find out if their property is actually sold or not. And when inventory is super low there’s nothing available and everything available is competitive. It is already an extremely difficult juggling act to try to buy and sell at the same time. So now when you have the six day window, it’s three business days but sometimes it can be six days if there’s holidays and weekends involved. Now they have to wait six days, it just like prolongs the stress and anxiety and challenge for these young families that are trying to do this crazy juggle.

Monica: Yeah, I’d say before this cooling off period and we sell quite a bit so this is some good data guys. Before the cooling off period, I never had a buyer ever expressed to me remorse for their purchase okay? I’ve never had them be like “You know, we probably shouldn’t have written that subject free offer” I have never had that, have you?

Denny: This is the analogy that I use. I’ve heard it before, but it’s so few and far between. Think about going to a restaurant, being like, I really feel like a burger tonight. I’m gonna order a burger. Halfway through the burger, calling the server over and saying you know what? I kind of feel like the steak tonight. I’m gonna, I’m gonna substitute for the steak, no penalty. Some back half a burger. Get a full steak. Trial the steak. It’s not my thing, but you ate three quarters of it. That’s okay, you didn’t finish. 

Now you get to, you know, like with a legal and binding contract. There should be some sort of responsibility. We’ve taken away their responsibility, which is like, I made the joke to a realtor the other day like, why do we have contracts in writing anymore? Why don’t we just like handshake deal, write on a napkin, high five at the end, walk away and be like…. reconsideration? What’s the point?

Monica: I think with this rescission period, I mean, for sellers, it, it puts them in a situation where they are uncertain. Like you said, it could be six days or something, it should be three. It should be, you know, definitely less than six days but it puts them in a difficult situation, if they’re trying to turn around and purchase something. We’ve already seen that locally. Somebody had put a house on the market. It was really popular, but they had to sell it subject free to make the purchase for the place that they wanted to buy work and they just couldn’t do it because of the rescission period. 

So, I have had one person use the rescission period and back out and pay the seller the penalty and say “Nope, I changed my mind. I don’t want to buy it”. It’s a certain type of personality and it’s a certain type of situation that could make this work. And I thought in this case, I was happy that we had the rescission period because he was able to get out of the purchase. He changed his mind, he didn’t want to buy it anymore. But in, in that one day, something in his life changed and the purchase didn’t make sense for him after quite literally a 24 hour period. So it worked for him. So for that reason, I think okay, cool. There, there’s a situation where the rescission period worked. I wonder how much that will happen. I wonder how often I mean, it’s only been, you know, three and a half months since that…

Denny: Two and a half yeah.

Monica: And that’s one situation. So…

Denny: The problem is when you give people the option, there’s a lot that will take advantage of it. Whether that is in sports with weird rules, like people are going to take advantage of what the rule says. So when you allow a consumer to back out of a legal and binding contract, just because for no reason that people are going to take advantage of it and people are going to use it to their benefit. So we’ve had experiences already with people who are using the rescission period, whether or not it is a good reason or not, people are using it. But we’ve also had consumers who are using it to renegotiate a contract, so they know they’re in the driver’s seat now, it is very clear that you have three days to do whatever the heck you want. And what’s the harm in calling the seller back and saying “You know, we’re kind of not feeling it anymore. We feel like we offered too much money. We’re want 10 grand off. Otherwise, we’re just gonna give you you know, a few pennies on the dollar and, and walk away.” And that is actually happening. Maybe it sounds like a bit of an exaggeration, but we’ve had it happen a couple of times already.

Monica: I’ve had, I’ve had people ask me, I’ve had other agents ask me what I thought about that, like their clients were wanted to do it. And it’s, it’s real. I mean, it’s not that much, you know, it’s you know, $1,500 on a, on a $550,000 purchase, right? So, that’s not, for a lot of people if they’re making that type of purchase. They the $1,500 to be in the driver’s seat for them, it’s worth it. It’s so crazy competitive, competitive market, and people will use rules to their advantage like you mentioned any way they can, like $1,500 is no big deal. Give me 10.

Denny:  I think the probably the biggest problem I have with it is that we’re solving a problem that didn’t really exist. So, like any good realtor when they’re going into multiple offers scenario, and their client is considering writing subject free, they’re preparing a ton for this offer. It’s not just like, show up one day, sign a blank contract, submit it and then discuss all property details and financing and all those things. All of these things happen before writing the offer. So now we’re just giving people an out of a legal contract.

Monica: I would say, I would say like in the case where my client used, exercised the rescission period. It wasn’t because there was anything wrong with the property. We’d already done all of our due diligence, we’ve read the documents, like we did everything for this property, he went in knowing 100% what he was purchasing. So him exercising the rescission period to pull out had absolutely nothing to do with the property. It had to do with him changing his mind. That was it.  So whereas it worked for him and I’m glad that he was able to get out of it. Was it fair to the seller that my guy changed his mind? And it was in multiples, so we’d beat somebody else out to get it.

Denny: What, if this rescission period stays around, what is a solution that we get away from people, purchasers, taking advantage of it? Is it a larger deposit? Is it like, you can’t renegotiate price? Is it like there has to be more stipulations.

Monica: I think the only thing that will really change it, is the fee has to be higher. The fee is really low, comparatively speaking. It doesn’t ,the $1,500 that we for example, with for us that we gave the seller, like do they care about that? Do they does that, like my, my client didn’t hear? Do they care? I don’t know. Right? That’s not enough.

Denny: The renegotiation thing is the thing that really bugs me. It just seems like, slimy. And the .25% is something that a buyer can, can rely on and even like talk to the seller about and like “We don’t care, we’ll lose the .25%,  you gotta give us 10k off.” And from a seller perspective, you’ve gone so far, you’ve spent all this effort getting your home ready for sale. You have vacated the home for a number of hours, for showings and open houses. You have gone through this stressful process of looking at offers and going through it with a realtor and finally picking one and feeling like you can breathe. Next day boom, we want 10K off.

Monica: The renegotiating thing is slimy. That should be not allowed. 

Denny: And yet here we are. Looking towards the Spring, what’s key to going to look like? Are we going to see more inventory? If our guess is that interest rates are gonna plateau for a little bit. Are more listings, going to hit market or are we going to be in this spiral of multiple offers and everything selling in a week?

Monica: Well, our open houses have been busy. Most of our open houses see 25 groups through on the first day or two of properties that are priced within market value. I think that just seeing that amount of buyers out right now this early in the season is a sign that there’s a big market ahead of us. 

We’ve seen multiple offers like we just mentioned so we know that there’s buyers that actually want to buy they’re not just tire kickers so I think and then I’ve, we’ve had sellers contact us after seeing more promising sales in their neighborhood or in their complex. So once people start to see those sales that would make sense for the move. And they start calling us saying okay, we’re ready to list based on this last sale. When we start seeing that yeah, I think the inventory is going to start increasing. But with the increasing inventory. I mean, I think that there’s people out there for it. I don’t think that that means properties are going to sit around. And I do think that the deals that everybody’s looking for, the deals that they could have gotten the last few months are behind us. So yeah, I think Q2is going to be normal Vancouver market conditions. 

What is normal Vancouver market conditions? It means the good property selling and multiple offers the decent properties selling the mediocre properties or properties with work coming up in the building that have been sitting will eventually start to sell too because that’s the, that’s the way of things so I think we’ll start to see yeah, normal market conditions in Q2.

Denny: Is there anywhere still that is opportunity? Or what is the opportunity? There’s always opportunity. What is the opportunity moving forward for the next three to six months?

Monica: I think the most opportunity that I see is, is in the more expensive properties. If you wanted to upsize and then that’s still part of your plans. I think upsizing right now is where the opportunity is. Those properties that we’re talking about, haven’t gone up in value at all. They, they did have a good dip, and now they’re selling consistently. 

So if you want to try to catch one of those before those start to improve in price. I would say that that’s where the opportunity is right now. Especially if you’re selling a townhouse or condo because those are hot right now. I think it’s a matter of time before the more high end or more expensive property start to increase in value. So that’s for me, that’s where it is. I have a few clients looking to upsize and they’re feeling like it’s kind of urgent because we can see property starting to go.

Denny: I think that’s it right there. The challenge in the fall for a lot of consumers was yes, I want to upsize. Yes, I see that there’s an opportunity here. Yes, I see that the gap between my townhome or condo and the single family home that I want to buy has narrowed, but I don’t see certainty that my condo or townhouse is going to sell quickly and these dates to line up and I can’t afford to hold tomorrow. Versus this spring, I’d say that gap will potentially start to separate a little more over time. But minimal it’s not like it’s going to go $150 to $100,000 in the next week or two. But I see that certainty available now for consumers that are looking to upsize that what they have currently, priced properly is going to sell very quickly. And we have a lot of data and a lot of experience in the last 30 days that there is a lot more certainty selling whatever you’re selling right now in order to make that upsize.

Monica: Upsizing and then yeah taking advantage. If you see somebody if you have wanted to sell in the last year and you start to see prices hit the point where it makes sense for you. Yeah, taking advantage of that in the spring is good because you, presumably we’ll have a little bit more to choose from, whereas waiting until you see prices hit where you want them to say in August won’t put you in the best position to have the best inventory available to you.

Denny: If you’re planning on upsizing this spring, I would say call us ASAP. The inventory is going to increase whether or not it will catch up to demand is to determine. But typically if you look at a real estate cycle, April. May, June sometime in July are the months where the most amount of inventory is available. So if you are thinking about the upsizing this year, call us.