Sales Volume and Average Prices Continue to Fall in August
Single Family Prices and Volume
90 single-family homes sold in August, 19 less than the 109 sold in July, and 20 fewer than reported as sold in August of last year. The average home price decreased by 0.8% in August to $549,622, from July’s average of $554,240, which is also 3% less than reported last August when the average home price was $566,795. The median sale price decreased by 4% to $537,500 in August from July’s $560,000, however it is still 1.6% higher than the same time frame last year when the median sale price was $529,000. 168 homes were listed in August, which was 11% less than the 189 homes listed in July, but 5.7% more than the 159 listed in August of 2018.
Insights: For the third month in a row the average sale price was down month-over-month, and once again the year-over-year results are also showing a negative figure. With an average sale price of $549,622, we are now back below the figures the market experienced in February of 2018. Since that time, the average price has been fairly range-bound, fluctuating between a low of $532,299 (November 2018) and a high of $593,326 (May 2019). It seems it is a few months up, a few months down, as the market has failed to gain any significant traction one way or another. This is consistent with the notion that we are trending towards a more balanced market, and the market is in a bit of a consolidation pattern after a few years of sustained upward pressure on pricing. Given what is occurring in other markets, Nanaimo has fared remarkably well.
Last month we commented that volume was possibly starting to stabilize after following a general trend downwards for much of 2018 and early 2019. We may have spoken too soon, as once again volume is off by a noticeable amount, down 16% month-over-month, and 25% from August of last year. When you look at the total sales volume for the past 12 months in comparison to the preceding 12 months, volume is down 20%. Looking at year-to-date figures, so far in 2019, there have been 768 single-family home sales, which is down 12% from the 871 that sold from January 1 to August 31 of 2018. So with single-family down 20% and 12% on a trailing 12 month and year to date basis, respectively, you may be wondering how does this decreased volume compare to other categories of residential real estate? Here are the trailing 12 and year-to-date figures: Apartment style condo volume is -29% / -23%, patio homes are -14% / -21%, and townhomes are -11% / +2%. The category that is a bit surprising is lots, which are up 25% / 26%.
With 126 homes currently on the market priced at $800k plus, this would equate to 14 months of supply. While finding quality options priced competitively below $600k has remained challenging, the higher end of the market is continuing to experience elevated inventory levels, which we continue to believe at some stage is going to result in downward pricing pressures at various price points. If this does eventually materialize, we believe the lower end of the market is relatively well supported based on buyer demand, so we don’t anticipate that buyers with budgets up to $500k are likely to see much better options in their price range. Above this price range, you would think that a trickle-down effect will likely occur to some extent. Considering that there are 126 homes currently on the market priced above $800k and very few are selling each month, so if sellers do eventually want to sell they will have to lower their prices to levels where buyers have the budgets to afford and desire to pay the price that is being asked. For example, if the homes priced around $800k have to drop to $750k for volumes to start to normalize, then you now have more supply at $750k for buyers to choose from. When that happens, the least attractive options in the $750k range have to adjust their prices downward to find their demand, and so on and so forth. At some stage, this should reach a point of equilibrium where buyer demand and seller supply are more in sync at various price points. When this happens and the excess supply has been absorbed, then the market should be poised for more sustainable price/volume movements than we are currently seeing.
Something we have been keeping a close eye on now for a number of months is the sales volume at the higher end of the market. So far there are 9 registered sales of homes over $800k in Nanaimo, including 3 over $1,000,000, and Nanaimo’s highest price sale of the year (eclipsing the previous high figure by more than $1,000,000) at $2,625,000 for a beautiful waterfront home ideally situated on Sabastion Beach in Lower Lantzville.
So how did Nanaimo stack up against other Island communities north of Victoria for the month of August? Looking at the average price, Nanaimo down 3% year-over-year was joined on the negative side of the ledger by Parksville/Qualicum down less than 1% from last year and Port Alberni, down 6% from August of last year. On the positive side, Campbell River and Cowichan Valley lead the way, posting year-over-year increases of 10%, while Comox was up 2%. It is interesting to note that Nanaimo’s average sale price of $549,622 is now below Parksville/Qualicum ($608,200), Comox Valley ($567,530), and the Cowichan Valley ($559,544).
Looking at volume, Nanaimo down 25% from August of 2018 was the biggest decliner. The Cowichan Valley was down 22%, Campbell River was down 15%, Parksville Qualicum was down 6%, Comox Valley up 1%, while Port Alberni volume was up 24%. Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was up 1% while volume was down 11% from July 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 decreased to 54% in August, down from 58% in July, and down 28% from August of 2018 when the ratio was 75%.
The average sell price/list price increased to 98% in August up from 97% in both July and August of last year.
The average days on the market for the homes that did sell in August decreased by 9 days from July to 24, which is over 29% lower than August of last year when days on market averaged at 34.
As of the end of August, the number of active listings was 368, down 5% from July’s 388 active listings, and 2.9% less than at the same time last year when there were 379 active listings at month-end.
Insights: Difficult to draw any significant conclusions here. Some neighbourhoods are up, some are down, with seemingly no particular rhyme or reason. If I had to speculate on why the Brechin Hill neighbourhood has been underperforming, I would suggest it is a neighbourhood that attracts a lot of attention from out-of-town buyers given its close proximity to the seawall, downtown, ferries and seaplane terminals, as well as offering some pretty exceptional views at an affordable price. With buyer demand from out-of-town buyers noticeably slower than it was in years past, there simply isn’t the upward pressure on pricing that we were seeing. Hammond Bay as the top performer for the third consecutive month is another interesting case. Historically, Hammond Bay has been one of the most desirable neighbourhoods in Nanaimo and that was evident earlier in this cycle when prices soared. However, it stands to reason that you could describe this area as almost having been a victim of its own success, where home prices essentially climbed out of reach of the vast majority of buyers, and while the area continued to post year-over-year average price gains consistently, the percentage increases started to trail those being registered in other, more affordable areas for a period of time. Interestingly, since January of 2016 when we started tracking, Hammond Bay has not had a year-over-year average price decline, one of only 5 of the 18 sub-areas (South Nanaimo, Chase River, Central Nanaimo, Diver Lake being the others) that can stake this claim. Hammond Bay’s return to prominence is indicative of the fact that as other neighbourhoods in less desirable areas saw their average prices continue to climb and the gap closed between the average prices in these neighbourhoods and Hammond Bay, Hammond Bay is once again being appreciated by the market for the lifestyle it affords and some of the most impressive ocean views the city has to offer.
Insights: When considering both month-over-month and year-over-year figures, 6 of the 8 market indicators have improved, with 2 of 8 deteriorating. While this is positive, when you factor in declining average prices and declining sales volume, it is becoming more and more of a challenging market to decipher. However, we continue to believe that these inconsistent 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 have experienced for the past number of years. By and large, the numbers we are seeing by historical standards are still quite respectable.
Top Performing Neighbourhoods & Categories
11 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 July to August, with 11 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 -12.92% in Brechin Hill, the bottom performer for the fifth month running, to 13.25% in Hammond Bay, the top performer for the third consecutive month. The top riser month-over-month was South Jinglepot with Diver Lake the second highest. Top performers year-over-year were Hammond Bay, Diver Lake, Cedar, South Nanaimo, and the University District. Looking at volume, 6 of the 18 sub-areas saw increases month-over-month with Chase River, Brechin Hill, and Lower Lantzville coming in as the top risers, while only two neighbourhoods, (Pleasant Valley and North Jinglepot), saw increases year-over-year.
Single-family waterfront homes, (on low volume), and patio homes were the only categories to see an increase in average sale price from July to August, while all categories, with the exception of single-family homes and townhomes, experienced increases from August of last year. Month-over-month increases in sales volume were only reported in apartment-style condos and lots, which were the only categories to experience year-over-year increases.
Insights: You can’t read much into the increase in the average price for waterfront homes as volume is simply too low to draw any meaningful conclusions. Aside from this, again not much for meaningful conclusions to be drawn as these figures continue to fluctuate from month to month, and categorically there are not really any trends or patterns we are observing, which we interpret as suggesting we are in more of a consolidation phase where the market is taking a breather after a steady run-up.
Opportunities
For the past number of months, there has been very little new to report in this section of our recap. From our perspective, we see overall, that so far in 2019 the market has continued to trend towards more balanced market conditions.
While we don’t have a crystal ball, we see that in the coming years if inventory levels remain elevated at higher price points, at some stage motivated sellers are going to adjust their pricing expectations to secure a sale. We 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 may stretch further and buyers will be able to buy nicer homes at more affordable prices than they can today.
On that note, where do we see opportunities for buyers? Well, we have noted that the lower end of the single-family market has remained relatively strong, so we don’t see a lot of opportunities here currently. For buyer’s looking at higher-end homes, we’d caution you to take your time as seller sentiment still seems overly optimistic that the current slowdown is still just a hiccup on a further trek upwards in pricing. While undoubtedly the higher end of the market will rebound and regain its upward ascent at some point, until buyers with deep enough pockets to afford the higher-priced homes start to absorb the excess inventory, market conditions at the higher end of the market are likely to remain relatively subdued for the foreseeable future. Until then, take your time and be selective, while looking for signs of a motivated seller and you just may find what proves in time to have been a great buy of a higher-end home.
For investors, on the buy side, patience is going to be rewarded. If you are considering an income property, our take is that currently 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, at this point in the market cycle, 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, it would be a reasonable assumption that at some point over the next few years 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.
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 an elevated supply of higher-priced 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 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: Market Statistics August 2019.
Source: VIREB