housing
THERE ARE HUNDREDS, ALL TOLD: THEY’RE BUILT, BUT NOT SOLD
New but unsold inventory remains elevated in comparison to the beginning of 2018, but a longer look at history puts its potential downside risk to the presale market in perspective.
For those tracking real estate trends in Metro Vancouver, it’s old news that the region’s resale market bounced back in the second half of 2019, as we have now registered six consecutive months of year-over-year sales increases through the latter half of the year after 17 straight months of declines. But while buyer (and seller) confidence has reenergized resale activity, the region’s presale segment is still looking to find its footing. Part of this is due to the fact that buyers have been snapping up available resale inventory (which until recently had been relatively plentiful) and part of this relates to would-be buyer confidence in the trajectory of prices two, three, and four years down the road. In short, a presale purchaser needs to believe that the market value of the home she will receive when it completes in the future will be at least what she has paid for it today or else she won’t make the purchase. On the latter point, a surplus of completed but unsold new homes can create de facto competition for new presale product.
This is why the recent uptick in the size of the inventory of completed and unabsorbed condos across Metro Vancouver has caused some concern. As noted in the previous rennie landscape (Q3 2019), we do not see this phenomenon as a significant downside risk for the presale market, despite the number of completed and unabsorbed condos averaging 688 units over the past 16 months—a 160% jump over their average level over the preceding two-years. Why? Well, for two reasons. One, we were enjoying abnormally low levels of unsold inventory in the two-years ending in June 2018, and two, our current inventory remains dimished in the context of previous market cycles. Between January 2010 and June 2016, for example, there was at any given point in time an average of 1,672 condos built but unsold. This is not to say things can’t, and won’t, change; as such, we’ll be watching closely to see how this metric evolves over the coming months.
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