Average Sale Price Climbs to New High on Reduced Sales Volume
Single Family Prices and Volume
104 single-family homes sold in April, 9 more than the 95 sold in March, but 18 less than the 122 that were reported as sold in the same timeframe last year. The average home price increased by 7.3% in April to $586,595 from March’s average of $546,656 which is also 6% higher than reported last April when the average home price was $553,352. The median sale price increased almost 9.5% to $579,900 in April from March’s $530,000 which is 9% higher than the same time frame last year when the median sale price was $532,000. 184 homes were listed in April, which was 7% less than the 198 homes listed in March, and 18.6% less than the 226 listed in April of 2018.
Insights: A 7.3% spike month-over-month in the average home sale price catches your attention, even more so given the fairly soft overall market conditions we have experienced so far in 2019 in Nanaimo. If you have been following our commentary, you will know that while we are describing the “overall” market conditions as fairly soft, so far this year the lower end of the market has remained very competitive, while activity at the higher end of the market had basically come to a screeching halt. For the first time this year, the $800,000+ market started to show some signs of life in April, with 11 sales registered so far above $800,000, including 5 at $1,000,000 or more.
Looking at sales volume, while the number of sales increased from March, that was expected, as historically April volume outpaces March volume as we transition into the typically vibrant spring market. Looking at the year-over-year volume comparison, what is more notable, than the fact there were 18 fewer sales than in April of 2018, is that the 104 sales this year is 35 fewer sales than April of 2017, and 84 fewer sales than in April of 2016. Given that we are now in the midst of what is historically the busiest months of the year for real estate transactions, the continued noticeable decline in sales volume is really the leading story. For the first 4 months of 2019 there has now been 325 single family home sales, which represents an 18% decline from the subdued numbers we experienced for the first quarter of 2018, a 27% drop off from 2017, and a 40% decline from the cycle-high of 539 sales in the first 4 months of 2016.
So while most April market reviews are likely highlighting the fact that April’s average sale price was actually the highest average sales price for single-family homes ever achieved in Nanaimo (which it was), we would caution that with subdued sales volume and a more normalized number of homes selling in the $800,000+ range, these higher priced sales are having a more significant effect on pushing up the average sale price than would be the case if volume was more normalized. The reality is local buyers continued to face affordability constraints and there are just not enough homes at price levels to be absorbed by the market that local buyers can afford. In higher-priced neighbourhoods, sellers are likely still referencing what their neighbours sold for in 2017 or 2018 and using these figures to anchor their opinion of value. Until this changes, and it will at some stage if sellers want to sell their homes, sales volumes, especially at higher prices, are poised to stay relatively subdued.
So how did Nanaimo stack up against other Island communities north of Victoria for the month of April? Looking at average price, Nanaimo up 6% was eclipsed by Campbell River, which was the top performer, with the average sale price up 15% year-over-year, the Comox Valley up 9%, Parksville/Qualicum up 8%, and Port Alberni up 7%. Nanaimo’s increase did, however, outpace the Cowichan Valley’s 3%. With the exception of Port Alberni, which saw volume up 15%, all markets saw sales volume decline. Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was up 7% while volume was down 13% from April of 2018.
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 from 48% in March to 57% in April, which is also up from April of 2018 when the ratio was 54%.
For the third consecutive month, the sell price/list price came in at 98%, which is down from April 2018 when it was 99%.
The average days on the market decreased by 4 days to 29 in April, which is 53% higher than April of last year when days on market averaged at 19.
As of the end of April, the number of active listings was 336, up 7.7% from March’s 312 active listings, and just over 9% higher than at the same time last year when there were 308 active listings at month end.
Insights: When considering both month-over-month and year-over-year figures, 3 of 8 market indicators in this section improved, 4 deteriorated, and 1 remained constant. These figures and the month-to-month volatility we are seeing here is consistent with a market that continues to transition to more of a balanced overall market from the strong sellers’ market we had experienced for the past number of years. By and large, the numbers we are seeing by historical standards are still all quite respectable.
Top Performing Neighbourhoods & Categories
9 of the 18 sub-areas defined by the real estate board in Nanaimo saw an increase in the average selling price (trailing 12 months) from March to April, with 15 of the 18 also experiencing increased prices year-over-year. When looking at these neighbourhood figures, it is important to note that we use trailing 12-month figures to limit volatility caused by lower transaction volumes in some neighbourhoods, where a few high priced or low priced transactions could tremendously skew results. A trailing 12 figure will always be slower to react than simple month-over-month, so that is why the results here are not going to be as pronounced as the figures used in the stats we report above. Moving on, these year-over-year average price changes range from -10.66% in Brechin Hill to 15.61% in Pleasant Valley, topping the chart since August 2018. The top riser month-over-month was Cedar with South Jingle Pot the second highest. Top performers year-over-year were Pleasant Valley, Cedar, Diver Lake, Old City, Central Nanaimo, and the University District. Looking at volume, 6 of the 18 sub-areas saw increases month-over-month with Lower and Upper Lantzville the top risers, while only three neighbourhoods, (North Jingle Pot, Diver Lake, and Lower Lantzville), saw increases year-over-year.
Insights: We continue to see that the historically more affordable areas continue to experience the greatest year-over-year average home price appreciation, which is fairly typical at this stage in the cycle as many buyers have been priced out of the highest priced neighbourhoods.
Patio homes, single-family homes, apartment-style condos, and lots were the categories that saw an increase in average sale price from March to April, and from April of last year. Townhouses were down month-over-month, but still up 14.62% year-over-year. Single-family homes, patio homes, and townhouses reported month-over-month increases in sales volume, with only lots experiencing increases year-over-year.
Insights: If you have been following our commentary for a while, you will know that we are quite bullish on the market for patio homes given the demographic-driven demand. Over the past couple years we have seen patio homes consistently exhibit both strong price and volume action. After seeing the patio home category come in as the poorest performer in March, the category has rebounded back to the top of the categorical chart in April. As discussed above, single-family homes also had a strong showing, with the higher end of the market finally starting to show some signs of life here in 2019.
Opportunities
Sellers take note…the sub-$600k market is still overheated, as affordability constraints of local buyers and a subdued supply of listings in this price range has created a competitive market in this price range. If you are a homeowner or investor thinking about selling your home priced below $600 - $650k, this spring may represent your best opportunity over the next few years to do so. With inventory levels remaining elevated at higher price points, at some stage motivated sellers are going to adjust their pricing expectations to secure a sale. We’d anticipate that there will be somewhat of a ripple effect, where we are going to see more value at various price points than we are seeing now. While we don’t foresee average prices correcting much, if at all, in the coming year or two, what we do see is that dollars will likely stretch further and buyers will be able to buy nicer homes at more affordable prices than they can today. When you have 2,000 square foot 60s and 70s homes in marginal areas on the verge of needing $50,000 worth of work to replace all the majors (windows, roof, furnace, etc.) listed above $500,000, we don’t see that as sustainable, as Nanaimo household income levels simply won’t be able to support it. The only reason sellers are getting away with this so far this spring is that there is limited supply at this price and lots of buyers. When the homes that are not moving at higher prices start to be priced more competitively and become competition, these homes will eventually have to be priced more attractively to move. The other important factor is that if prices start to come down and the masses become fearful that prices could be declining, those fearful of a falling may list their homes to limit their downside risk. The result of this is increasing inventory, more choice for buyers and the weaker options at a given price point will need to adjust their pricing to remain competitive. In summary, if you are thinking about selling a home that may need a fair amount of work or that isn’t in the most ideal location, sell into strength - strong buyer demand and limited inventory, don’t wait until inventory levels pick up and buyers have more choice and room to negotiate, as is starting to happen at high price levels.
From our perspective, despite the one month spike in average single-family home sale price, overall we see the market increasingly moving towards more balanced market conditions. However, as we mentioned last month, this is the “broad strokes” take on the market. While April sales included a higher percentage at the higher end of the range, over the past 6 months, when you zoom in on different price ranges in the single-family market, there has been some noticeable disparity amongst price ranges. Again, while we don’t like to generalize, you could look at the sub-$600k range as still being very much a seller’s market as long as the home is priced reasonably. The $600k - $800k range is more balanced, but trending towards a buyer’s market at the higher end of the range, with the $800k + range very much a buyer’s market. At the time of writing, there are 129 active listings of homes priced beyond $800,000 in Nanaimo, so even with the elevated sales volume of 11 sales above $800,000 in April, we still have nearly a year’s supply of listings to be absorbed.
On that note, where do we see opportunities for buyers? Well, with increasing inventory levels for homes priced above $800k, there has to be a few motivated sellers out there getting increasingly anxious and who may be ripe for reasonable price concessions. For buyer’s looking at higher end homes, we’d caution you to take your time as seller sentiment is still optimistic that the current slowdown is still just a hiccup on a further trek upwards in pricing. Unfortunately, there is a decent contingent of industry players who continue to validate this outlook to their clients in this market, and the spike in average sale price in April will only seek to support this sentiment. Despite April’s improved market action at the higher end, when you start looking at what has caused the higher end of the market to stall out, our take is that this is going to get worse before it gets better, so some patience from buyers is likely going to be rewarded. So what has caused the higher-end market to stall out? Here is our take… On the demand side, the cooling lower mainland market and intensified media coverage of the slowdown is making lower mainland buyers fearful of buying, and the foreign buyers’ tax and speculation tax has nearly killed demand from foreign buyers. When you look at who was gobbling up the higher priced homes at the peak of this cycle, much of it was mainland and foreign buyers who had the income levels to finance or the cash required to purchase these higher priced properties. When you remove the out-of-town buyers, local buyers simply can’t support the current price levels. Looking at the supply side, contributing to what we feel will be some pain here is the fact that increasingly you have the largest block of our population (aging baby boomers) who are living in these $800,000+ homes and are looking to downsize in the coming years. This will likely only lead to an increase in the supply of homes priced towards the top end of the market, as Nanaimo income levels will not qualify buyers for financing to absorb the increased supply of homes coming on the market. Until we see substantial renewed demand from out-of-town buyers with deep pockets, this should result in even more choice and negotiating strength for buyers at the higher end of the market.
While sellers of higher-end homes may have missed the top of this market cycle, life circumstances will continue to drive sellers to list their homes. With more listings currently on the market and fewer buyers, it is all the more vital that the home is priced accurately and competitively to maximize exposure when interest is the highest. So if you are listing, selecting a Realtor with a strong marketing platform and an active approach to marketing your home is becoming increasingly important. While we went through a period for the last few years where a For Sale sign and an MLS listing were enough to entice buyers to write an offer (definitely not our approach), in this market that haphazard approach is simply not going to cut it.
For investors, on the buy side, patience is going to be rewarded. If you are considering an income property, you are likely best served by looking at other markets or waiting it out as there is no way you are going to cash flow on a leveraged purchase. Given what we have outlined above, we would not recommend speculating on further price appreciation with a negative cash flow property in this market. For multi-family investors, cap rates are at historic lows and therefore valuations at all-time highs. Factoring in the significant number of purpose-built rental apartment buildings currently in the development permitting or building permitting stage, the increased supply of rental units in the coming years is going to potentially put downward pressure on rental rates, and push up vacancy rates which are already starting to increase. While expectations are that further interest rate hikes are likely on hold for the foreseeable future, rates are still below historic norms, so it is likely that before too long we will continue the climb to a more normalized interest rate environment. When that happens, eventually cap rates will start to see a similar increase towards more normalized levels. Without the upward pressure on rents, this is setting the stage for decreasing values. We’ve not exactly described the ideal conditions for investment.
Remember, over time real estate generally appreciates. We just know there are peaks and valleys. Buy on the way to the peak and you are positioning yourself for success, buy on the way to the valley, not so much. It is our mandate to provide you with information that you can use to determine which side of the peak we are on, and ultimately to help you make informed decisions that you will not regret. On that note, a word of caution: Be very careful where you get your information on the real estate market. The reality is most who are providing an opinion (us included), have their income level influenced by the real estate market and therefore have a vested interest in keeping this juggernaut going. When we have one-month average price increases of 7.3%, statistics like this can be used to paint a picture that simply isn’t the reality.
For a consultation specific to your situation, or if you have any questions about market conditions, please contact us at info@jahelkagroup.com and we would be happy to help.
Check out the Nanaimo Market Statistics Here: Monthly Statistics April 2019
Source: VIREB