Average Home Price Is Down Year-over-year for First Time in Years
Single Family Prices and Volume
71 single-family homes sold in February, 16 more than the 55 sold in January, but 14 less than the 85 that sold in the same timeframe last year. The average home price increased marginally by 0.32% in February to $546,662 from January’s average of $544,902, however, this figure is almost 1% lower than last February when the average home price was $551,961. The median sale price decreased almost 4% to $515,000 in February from January’s $535,000 and this is also 5.5% lower than the same time frame last year when the median sale price was $545,000. 120 homes were listed in February, which was actually 20% less than the number of homes listed in January, and just over 14% less than the 140 listed in February of 2018.
Insights: It is no surprise to see sales volume increase from January as the real estate market awakens from its winter slowdown. What is notable is that single-family sales volume for February was the lowest we have seen in Nanaimo for this month in 5 years. Taken together with January’s subdued sales volume, for the first 2 months of the year volume is down 28% over 2018’s figure. While the average price was essentially unchanged from January, what is interesting to note is that for the first time in a number of years, the year-over-year average home price decreased. No longer can the market report month-over-month decreases, and shine a spotlight on the year-over-year figures, stating “while we may be down this month, we are still up X% year-over-year,” claiming that the market is still generally trending upward and the reporting month may be just a temporary blip on a further upward climb. The decline in both month-over-month and year-over-year median home prices is more pronounced, suggesting that more homes sold at lower price points in February. The median figure is important in that it isn’t as affected by a few higher priced sales which can really pull up the average price. Looking at the decrease in listing volume, I’d suggest mother nature had more to do with this than market forces, as significant snowfall and cooler temperatures likely delayed some listings.
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 37% in January to 59% in February, although this is down from February of 2018 when the ratio was 74%.
February’s sell price/list price increased to 98% from January’s 96%, however, this figure is down from February 2018 when the sell price/list price was at 100%.
The average days on the market decreased more than 25.5% to 32 in February from 43 in January, but this is still 23% higher than February of last year when the average days on the market came in at 26.
As of the end of February, the number of active listings was 259, down 3% from January’s 268 active listings, however, inventory levels were 23% higher than at the same time last year.
Insights: January was not a great start to the year for the real estate market in Nanaimo. Of the
4 key indicators presented above that we looked at in January (on a month-over-month and year-over-year basis totaling 8 data points), all had deteriorated, some significantly. This month the prognosis is not so grim, as although the year-over-year figures were negative, all of the month-over-month figures improved. What we are seeing here over the past number of months is more of a choppy market, 1 month up, 1 month down type scenario. To me, this suggests that after a number of strong years in the market, we are seeing more of a consolidation pattern, with the market returning to more balanced conditions. While the market is taking a much-needed break after such a strong run, the results we are seeing are not suggesting that a market crash or significant correction is imminent. It is more a reflection of the fact that strong market action experienced over the last number of years was simply not sustainable. There also appears to be more nervousness in the air than we have had for a while in our market. While some of it may be warranted, in the digital world we live in, the media loves to use the shocking stats as “clickbait”, so please take the time to read what is behind the headlines. Given the uncertainty in the market, please stay tuned, as it will be important to closely monitor market conditions as we head into what is traditionally the busier spring months to get a better indication of the true state of the market.
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 January to February, with 16 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. This also explains why we reported in the previous section, that year-over-year, the average home price has decreased, and then report in this section that 16 of 18 neighbourhoods are up - it is simply different reporting periods, as the year-over-year figure from a year ago that we are comparing against this year’s trailing-12 figure also incorporates the previous 12 month’s results into the average. Moving on, these year-over-year average price changes range from -4.63% in Upper Lantzville to 16.64% in Pleasant Valley, and while Upper Lantzville has replaced South Jingle Pot in the low spot, Pleasant Valley has topped the chart since August 2018. The top riser month-over-month was Lower Lantzville with Brechin Hill the second highest. Top performers year-over-year were Pleasant Valley, Diver Lake, Extension, and Central Nanaimo. Looking at volume, 7 of the 18 sub-areas saw increases month-over-month with North Jingle Pot and Cedar the top risers, while North Jingle Pot and Diver Lake were the only neighbourhoods to experience increases both monthly and annually, with North’s Jingle Pot’s results likely stemming from new homes being built and sold in the area.
Insights: As alluded to above, the trailing 12-month figures are not telling the whole story, as these averages are still benefiting from the stronger months that were experienced at certain points throughout 2018. With a bit of a lag here on the trailing 12-month figures, we are starting to see more neighbourhoods reporting periods that show month-over-month average price decreases. The areas that are still showing strength are primarily the more affordable neighbourhoods, as a fair contingent of buyers have been priced out of the highest priced neighbourhoods.
On low volume, lots were the only category that saw a decrease in average sale price from January to February, while only apartments and townhomes saw increases year-over-year. In fact, looking at both month-over-month and year-over-year figures townhomes was the top riser in terms of averages price increases. Single-family homes and townhouses were the only categories to experience month-over-month increases in sales volume, with no categories seeing sales volume increases year-over-year.
Insights: These are affordability challenges on display, with apartment-style condos, townhouses, and patio homes all up month-over-month, and condos and townhomes up year-over-year. What do you do when you are priced out of the single-family home market? Sit on the sidelines and hope that prices come down, or alternatively, buy a townhome which offers many of the same benefits (without the maintenance requirements) at a more affordable price point.
Opportunities
From our perspective, we see the market increasingly moving towards more balanced market conditions. Pent-up buyer demand has dissipated, either being satisfied by increasing inventory levels, reduced based on government intervention (speculation tax, etc.), stricter lending requirements, higher interest rates, or investors recognizing that the opportunity to acquire cash flowing residential property in the area is now pretty much impossible.
For buyers, what this means is that discerning buyers who were patient through the heights of the market craziness will now have more selection. The continued decline in sales volume further supports this point as more properties are sitting on the market, so sellers needing to sell are going to be getting increasingly anxious and may be ripe for reasonable price concessions. If you are looking at homes above $800,000, you should be in an even better position to negotiate as the higher end of the market has slowed to a near crawl. In February only 5 homes sold above $800,000. When you consider that there are 102 homes currently on the market priced above $800,000, at this rate you have more than 20 month’s supply, and this is before the traditionally busier spring listing season. With that said, we see the $800k+ market likely getting worse before it gets better. 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. So with the expectation of increased supply, and constrained demand resulting in lower sales volumes for higher-priced homes, what happens from here? Either sellers are going to have to adjust their expectations and either price below the competition or be open to significant price concessions in order to sell. Ultimately, the probable outcome is that the gap closes between the price for the average home and homes at the higher end of the market, as demand should remain relatively strong at the lower end of the market as our population continues to increase, and people need somewhere to live. On that note, if you are looking at a more affordable price point (below $600,000) and waiting for prices to drop, in our view it is quite probable that it will never materialize. While the average home price in Nanaimo may decrease in the coming years, it is likely going to be a result of not as many homes selling at the higher end of the market, not homes at more affordable price levels decreasing in value. No matter your scenario, to maximize your potential savings, ensure when selecting a Realtor that they have the proven negotiating skills and market expertise to be able to put together a strong business case to support getting you the very best price in this shifting market.
If you have been following our market updates, you know that in this segment for the better part of the past few years our commentary has become quite repetitive…“ the opportunity is clearly on the sell side”. At this stage, we are fairly confident this ship has sailed unless you are fortunate enough to own a property that will be in high demand for downsizing baby boomers such as ranchers, patio homes, and lifestyle properties at a reasonable price level in close proximity to the ocean, marinas, or golf courses.
While sellers 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. There were sponsored social media ads in our market early in 2019 claiming “the Nanaimo market is just heating up.” Be cautious… watch the headlines...Make sure you get the full story…
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 2019
Source: VIREB