What will it take to cause Vancouver's housing market to crash?
"Vancouver is so expensive!" "It’s not affordable!" "I’ll never be able to buy a home!"
We hear this a lot and we’re going to talk about what it's going to take to make the Vancouver housing market…..CRASH!
For people who already own a home, they’re happy with the Vancouver real estate market that continues going up and up and up. But for those who are struggling to purchase a place, they just want the whole housing market to crash! - as in crash like, 50-60% and when that happens, THEN you’ll be able to afford it.
I want to share with you my opinion under what scenarios, the Vancouver housing market will crash.
But before I get into that, let’s talk about what will NOT cause the housing market to crash, but you may think it will.
So there’s lots of talk about the stress test and tightening mortgage rules and how that’s going to lower the housing prices. Unfortunately, that’s not going to be enough. With the stress test that was implemented back in 2018, that played a huge impact. We did see prices fall because it took time for people to digest this big change. But now, prices are back up to what it was in 2018, if not higher. And then there was the recent change that happened in June. That didn’t make any impact at all because it only resulted in a reduced buying power of 5%. What I’m trying to say is, if you’re relying on the government to cause the real estate market to crash, then I really don’t think that’s going to happen anytime soon. Real estate is one of the biggest money makers for both the federal and provincial government. They have all the incentives to keep the market going higher and higher because it affects people’s net worth and which leads to more taxes we can afford to pay.
There’s also talk of inflation. THAT’s going to do it right? People are buying up properties with cheap mortgage rates and then rates are just going to skyrocket and all home owners will be suffering and be forced to sell. Guess what...the government knows this and will do whatever it can to avoid it. We’ve experienced something like this back in the 80s when interest rates were 10-15%. It was a huge failure by the government and they’ve learned their mistakes and chances are, it’s not going to happen again. And we see this happening….rates haven't been in double digits ever since, and the highest that I’ve seen is around 5-6%. And we’ve also seen lessons learned from the financial market crash being implemented during the COVID recession. Print money and keep everything afloat. Don’t get me wrong, interest rates are bound to go up eventually but the government will ensure it is controlled and well communicated. Also, remember, people are being qualified at a stress test of around 5% even though rates are much lower than that. So there is a huge buffer during the qualification stage to ensure rising rates won’t affect the housing market much.
So what will cause the Vancouver real estate market to crash?
Of course, the obvious things would be huge natural disasters like an earthquake but we’re not going to talk about that stuff.
We’ll be talking about economics and policies. What will truly cause the Vancouver real estate market to crash will NOT originate locally or federally. It’ll be something big that happens internationally that will cause people to panic and the stock market to crash. So, one recent example is COVID. No one expected it, no ones knows what it is...people panicked because businesses are affected and it felt like it was the end of the world. The Vancouver real estate market came to a halt, there were some, but short-lived “COVID deals.” The 2008 financial crisis was the one before that. People lost a lot of money and they needed to sell, even at a below market price, to keep cash again.
I don’t know when the next big thing is going to be, but that’s what it's going to take for the Vancouver real estate market to crash. You’ll notice that Vancouver is VERY resilient. I mean, during COVID times, the drop in price was minimal and prices are back way up again. I think what I’m trying to say is, if you’re depending on the government to act cowardly and intentionally make home prices fall, then I think that’s quite naive. The government doesn’t have that much incentive to cause that to happen. It may sound nice during a campaign run but even with the NDP in BC right now, they're treading very carefully to not disrupt the real estate market. They need the property transfer tax to fund programs in the province and it’s a large chunk of their tax revenue.
So, say a big international event happens and causes the real estate market to fall 50-60%, will you be able to capitalize on it? Chances are very slim. Remember COVID? That was the most recent and best opportunity to buy...what were you doing? Most likely, you were thinking whether or not you’ll still be able to keep your job, you’re looking at your investments and panicking because you were losing so much money so quickly….basically, the last thing you were thinking of is buying a home. So even if it does fall 50-60%, it’ll be very difficult to buy at that time because most likely we’d be in a recession and your finances will be greatly impacted.
So what can you do? Don’t rely on outside factors and governments to help you. Look at your own financial situation, get help from professionals, save up, and work hard to increase your income. It’s really not a secret or anything. It does require hard work and good financial discipline. And if you want to see where you’re at with planning for your home purchase, I’m happy to connect with you for a free consultation.
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