February Average and Median Prices Set All-Time Highs

Single Family Prices and Volume

85 single family homes sold in February, down over 4.5% from the 89 sold in January, and over 12% from the 97 that sold in the same timeframe last year. The average home price increased, however, by almost 6% from January’s average of $522,608 to $551,961 and more than 11% from last February when the average home price was $495,997. The median sale price has also increased to an all-time high of $545,000 which is a 9% increase over January’s $499,900 and a 17% increase from last February’s median sale price of $465,000. If you have been following our commentary, including our 2018 forecast, you will be familiar with our expectations that we should see strong demand in to the spring market to satisfy pent-up 2017 demand, with supply levels ultimately determining how long it will take to satisfy it, which in turn, directly corresponds to the amount of upward pressure on pricing we see from buyers. Put simply, many buyers competing for very few listings results in competition and aggressive price wars. The average and median price increases we saw from January to February are significant. One of the primary drivers...lack of listings...in fact, there were 22% or 40 fewer homes listed this February than we saw listed during the same timeframe last year.

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:

Interestingly, the sell/list ratio continued to decrease in February coming in at 61%, down over 17% from 74% in January, although up 13% from 54% in February of 2017. A possible explanation for this is that Seller’s are increasingly listing prices with unrealistic expectations. While accurately priced properties are selling quickly, in many cases in multiple offers and well above the asking price, those who continue to test the market at unsupported price levels are not having the same success.

The sell price/list price increased to 100% in February, a 1% increase month-over-month, and year-over-year from 99% collectively. February’s figure is not suggesting every home is selling at 100% of the asking price as it is just an average, with some selling well below asking, and the most attractively priced offerings going into multiple offer situations and selling above the list price in many cases. For a general frame of reference, typically anything 96-97% and above reflects strong market conditions.

The average days on the market increased to 30 days, up from 26 in January, which is also an 11% increase on the 27 average days on the market from February of last year. Further to the comments in the paragraph above, overpriced homes are going to sit on the market for longer. While you don’t want to leave money on the table in a rising market, there is a fine line, as more often than not, the best chance to maximize your return is to price reasonably to maximize your interest when the home initially hits the market. Price too high and you will limit your number of potential buyers, and chances at a competitive offer.

As of the end of February, the number of active listings is 210, up 16% from January, but down over 12% from inventory levels at the same time last year. By historical standards, listings numbers remain very low. In our view, the current market cycle began its strong upward ascent in 2015, and to provide some context around listing numbers and how they have been steadily declined, the past 4 February’s have ended with 382 (2015), 289 (2016), 240 (2017), and down to 210 (2018). As we have explained, limited supply and strong demand is a condition that sets the stage for strong price action. A 6% average and 9% median month-over-month price increase provides ample evidence of this type of market action taking place.

Top Performing Neighbourhoods & Categories

14 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 January to February, with all 18 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 annual increases range from 9.04% in North Nanaimo to 23.24% in Upper Lantzville. Top risers month-over-month were the Old City, Chase River, and Central Nanaimo. Top performers year-over-year were Upper Lantzville, South Jinglepot, Uplands, University District, and Central Nanaimo. Looking at volume, risers both monthly and annually included Hammond Bay, Upper Lantzville, Old City, and Extension. What is interesting to note is that this is probably the most diverse, wide-ranging assortment of price and volume top performers that we have experienced over the course of this market cycle.  Initially, we had in-demand areas such as North Nanaimo, Hammond Bay, and Departure Bay continually outperforming, then as affordability increasingly became a challenge in these areas, areas that were historically more affordable began to outperform. Most recently, the general trend has been a prominence of neighbourhoods on the outskirts of the city experiencing strong price action. This past month, throw a few darts at a map, as there doesn’t seem to be any rhyme or reason.

Apartment style condos were the top performing category in February, followed by patio homes, and single-family homes, while townhouses and lots were down month-over-month, though still up year-over-year. On low volume, apartments showed very strong year-over-year price action. With affordability increasingly becoming a challenge and new lending qualification guidelines coming into effect this past January, it is no surprise that condos (as one of the historically most affordable categories), is seeing strong price action from those priced out of purchasing other property categories at higher price points.

Opportunities

With the number of active listings still near cycle lows and strong buyer demand, we are undoubtedly still in a SELLER’s market.

Without a crystal ball, timing the market top is nearly impossible. What we do know is that we’ve had significant price appreciation for the last number of years, that we believe is reaching a point that is no longer sustainable due to affordability concerns. In our 2018 Forecast, we discussed how based on CMHC’s Affordability Calculator, the average household income in Nanaimo would qualify for a mortgage of $284,237. The qualifying rate and mortgage rates have increased since we ran this scenario. Therefore the qualification amount would be reduced, while the average home price in February increased to $551,961. We see this divergence concerning, and the expectation is interest rates will continue to rise over the next few years, which will continue to constrain mortgage qualification amounts.

With that said, depending on your investment strategy, this spring may present a good opportunity for investors to take some money off the table in anticipation of cooling market conditions or even a market correction in years to come. Taking the opportunity to lock in your gains and diversify into other asset classes or move into other markets that appear to have more upside potential may not be a bad idea. Right now in Nanaimo, finding cash flowing residential properties is nearly impossible. If you follow our commentary, you should be well aware of our position that a negative cash flow property has only one certainty...It will cost you money. While we don’t know for how long as rent does generally rise over time, buying a home and speculating that prices will rise is a flawed strategy when you consider the alternative, that you could buy in other markets or asset classes (eg. commercial) and guarantee positive cash flow. In fact, these other markets may even be at a point in their market cycle where the chance for appreciation is stronger.

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 reason to believe we are closer to the peak than the valley.

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 February 2018

Source: VIREB