Single Family Prices and Volume
1699 single family homes were sold in 2016, up 19% from the 1425 sold in 2015. The average sale price for a single family home increased 14% to 447,336 from 391,313 a year earlier. The median sell price is relied upon as a secondary measure which will not be skewed by a few high priced homes selling at the top end of the market and 2016's median price was $415,000, up 12% from $369,900 in 2015.
Strength of the Trend
Factors we also look at when analyzing a market to validate its strength are sell/list ratio; sell price; days to sell, and current inventory numbers:
The sell/list ratio increased year-over-year to 79% from 67%, suggesting a higher percentage of homes listed are successfully finding a buyer. On the flip side, this figure still suggests that 21% of homes listed are not selling which in a market with such strong demand and low inventory, suggests some buyers are not being realistic with their pricing expectations or this figure would be higher.
The sell price/list price increased to 99% from 97%. This doesn't mean that all homes are going to sell for 99% of the list price, as those selling significantly above the asking price in multiple offer situations are offsetting those sitting on the market for long periods and selling below 99% of asking. What this suggests is that for buyers it is not deal hunting season. We are in a sellers market, and if as a buyer you are finding that everything "is overpriced", it's not. This is the current state of the market. Limited supply and lots of buyers means any attractive options are going to sell very close to, at or above asking. In the past it may have been normal to offer 5-10% below asking to leave some room for negotiating. Not in this market, you likely won't even get a response.
The average number of days on the market decreased 32% in 2016 to 28 days, down from 41 in 2015. This figure may be a bit misleading as the most attractive options throughout 2016 were consistently selling in less than a week. Where we see higher days on market is when homes are listed beyond their fair market value and have either waited months for the market to come to them or have ultimately had to price drop to secure a sale. With limited inventory and decreasing days on the market, buyers are having to react quickly, and therefore being pre-approved for financing prior to making an offer is all the more vital.
The number of active listings as the calendar turned over was 190, down 24% from December of 2015. What is interesting to note is that 2016 actually saw 17 more single family homes hit the market than in 2015. With all this talk about historically low inventory numbers, it is important to point out that the lower inventory numbers was more attributed to a higher percentage of homes being sold, than the number of listings being down.
Top Performing Neighbourhoods & Categories
In 2016, all 18 sub-areas defined by the real estate board in Nanaimo experienced a price increase, however the weight of the increase varied significantly depending on the sub area from 1% on the low end in Upper Lantzville to 23% on the high end in North Jingle Pot. Despite the headlines, not all neighbourhoods are moving in the same direction all the time. With real estate being location specific, it is vital to know what is going on in your area when determining whether the timing may be right to sell your home. For buyers, neighbourhoods will experience differing price action throughout the cycle. Again, it pays to know what is happening in each sub-area, to determine whether a purchase would be prudent.
There are 6 sub-areas that experienced average price increases of at least 20% - Chase River, Departure Bay, Hammond Bay, North Jingle Pot, North Nanaimo, and South Nanaimo.
However, price alone does not tell the story of a market as volume also has to be taken into consideration. Of the 18 sub-areas in Nanaimo, 14 experienced volume increases, with Brechin Hill, Extension, and South Nanaimo all experiencing volume spikes of at least 50%.
Waterfront homes were the top category in terms of average price increased for 2016, up 19%. Following this, lots came in second at 16%, followed by single family (14%), patio homes (12%), townhomes (8%) and lastly apartment-style condos (7%).
Forecast
Once again time to pull out the old crystal ball...Well not exactly...Here at the Jahelka Real Estate Group we have assembled what is likely the most formally educated, and arguably qualified team in our region to be able to interpret this market and make some sense of where it is going. While market timing is nearly impossible, there are signs and symptoms that do give us reasonable insight into the health of the market. I would equate this to going to a doctor for a check-up. They can't predict the number of days that you have left, but they can rely on their years of formal education to reasonably accurately determine if you are generally in good health. They will also use their training to identify major risks that could drastically shorten your life expectancy such as the discovery of a tumour or clogged major arteries, before setting out a prescribed set of actions to best deal with the situation. Working with an educated, experienced realtor is actually quite similar. You can choose to work with those qualified to competently guide you through the various real estate cycles you will encounter over the course of your life, or you can work with the guy you enjoy having a beer with who they just pulled off the scrap heap at the used car lot who will tell you "I don't know where the market is going, I don't have a crystal ball", "We are at the start of a 7 year cycle" or "You should buy now to avoid missing out", "I don't see this ever slowing down as Nanaimo has just been discovered." While we make light of it, these are all responses we have heard from licensed Realtors in the last 12 months, which has us concerned to say the least. Again, your choice...Realtors are being paid like Doctors in many cases, shouldn't they require some level of qualification or understanding of the market to earn your business?
Here's our take on what is to come:
Demand: Demand is strong with significant pent up demand from those who have been unable to secure a home due to low inventory. In the last 48 hours, our group has been involved in two multiple offer situations with offers thousands above the asking price. We see demand remaining strong through at least the spring market, and likely for at least the first half of this year.
When assessing demand and looking out longer term, it is important to consider that demand varies at different price levels. Although due for an update, the most recent census indicates an average household income in Nanaimo of $67,413. If this household carried $0 debt, they would qualify at best for a mortgage of $400,000. With the average single family home price already at $451,465 as of December 2016, you have to start to question how much more room to run there is at higher price points? Where is the demand going to come from? The largest block of our population is the baby boomers, many of whom are now empty nesters living in the 3,000+ square foot homes they bought in the $200,000 - $300,000 range a decade ago, that are now valued well beyond the grasp of the average household in Nanaimo based on income qualification. It is these boomers who will be looking to downsize in the coming years. However, selling requires buyers, buyers require financing, buyers will likely not be qualified to finance the amount of homes coming onto the market at higher price points. You know where this is going...
Supply: It's difficult to predict with certainty how the market will react to rising prices. While rising property assessments have many homeowners briefly considering "cashing-out", the reality is selling your primary residence requires finding somewhere to go. Given the demographics with many baby-boomers becoming empty nesters, it is likely we will see some looking to downsize in the coming years giving serious consideration to making a move this spring to capitalize on heightened values. We see inventory levels staying fairly consistent with 2016 numbers, with the potential for a marginal increase as greed keeps many sellers who should be considering listing on the sidelines in hopes of the market continuing to creep higher.
Looking out longer term, the coming years will likely see a significant supply of homes 3,000+ square feet hitting the market as empty nesters downsize to reduce expenses and housekeeping requirements to enjoy retirement. Increased supply without increasing demand at these price points puts downward pressure on pricing. Conversely, the supply of ground oriented patio homes, condos, and low maintenance detached single story homes is likely to be insufficient to meet the needs of the downsizers. As such, the gap is likely to close, with a premium being paid for housing options well suited for seniors, while larger family and executive homes while likely become more affordable relative to incomes in the coming years.
Interest Rates: Given macroeconomic conditions across the country, we see the prime lending rate being held constant for the balance of 2017.
Government Intervention: Here's the wild card. With the BC Liberals jockeying for position, they have already introduced the interest free loan for first time homebuyers. On the other side of the spectrum, the feds are considering further action to try to contain the inherent risks in our country's rising real estate market. Rumours abound on potential intervention with a minimum 10% downpayment apparently on the table for discussions. As we saw in Vancouver with the 15% foreign buyer tax, government intervention can have a significant immediate impact on real estate markets. Although trying to predict what is to come here would be foolish, given the political climate and market conditions, we just want to caution that market conditions can change very quickly as a result of government intervention.
Opportunities
The primary opportunity we see in 2017 is unquestionably on the sell side.
Current market conditions present an excellent opportunity for those looking to downsize in the coming years to lock-in their recent gains and secure an ideal retirement home before masses go into competition and bid up prices on patio homes and ranchers in the next decade.
Now is also a smart time for investors to take some money off the table in anticipation of a market correction in years to come or alternatively to move into other markets that appear to have more immediate upside potential. Without a substantial down payment, finding cash flowing residential properties is nearly impossible. It is our view that purchasing a negative cashflow property has only one certainty...You will lose money...While we don't know how long this will be the case as rents generally do rise over time, buying a home and speculating that prices will rise in the coming years is a flawed strategy when you could buy in other markets or asset classes (eg. commercial) and guarantee positive cash flow.
For buyers, as noted above we see opportunity for downsizers to potentially secure their retirement residence at decent price levels. Yes prices are up for all asset classes, but you are better to sell high on the higher priced property, and buy high on the lower priced property than sell lower, and buy lower down the road. For example if you sell a larger home for $600,000 and buy a townhome for $300,000, you have an additional $300,000 to fund your retirement. If the market corrects 10% across the board, you now sell for $540,000, buy for $270,000 and have only $270,000 remaining to fund your retirement. It is also important to note that given the demographics, the buy lower option may never come.
We are by no means suggesting that now is the time to sell for everyone, as individual circumstances differ, as do investment objectives, etc. Remember, we all need a place to live and over time real estate generally appreciates. We just know there are peaks and valleys and we have every reason to believe we are closer to the peak than the valley. For a consultation specific to your situation, please feel free to contact us anytime.
If you have any questions about market conditions or would like more details specific to your neighbourhood, please contact us at info@jahelkagroup.com and we would be happy to help.
Source: VIREB