January Provides Reasons For Optimism
Single Family Prices and Volume
89 single family homes sold in January, down 26% from the 120 sold in December, but up 59% from the 56 that sold in the same timeframe last year. The average home price decreased marginally, by just over 1% from December’s average of $529,724 to $522,608 which notably is only a 2% increase from last January. The median sale price slipped back under $500,000, coming in at $499,900, down 1% from December’s median price of $505,000, and down 3% from last January’s median sale price of $516,000. 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, however with rising interest rates and new mortgage qualification requirements, we stated that affordably is increasingly becoming an issue given average household incomes in Nanaimo. So what happened in January…
I. Sales volume was up 59% from last January - check.
II. The average home price and volume were lower, implying there is more activity at the lower end of the pricing spectrum, in other words, affordability challenges may be starting to emerge - check.
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 in January to 74%, down 41% from 125% in December, although up 32% from 56% in January of 2017. One note here, you may be looking at the 125% figure for December and be questioning how this is possible. Well, in December what happens is there is typically a very limited number of new listings heading into the holidays, so in addition to the December listings that sell, older listings dating back to September, October, November are also selling, leading to a higher number of sales than listings. This has been the case for the last 3 years in December (2015 at 116%, 2016 at 120%).
The sell price/list price increased to 99% in January, a 1% increase month-over-month, and year-over-year from 98% collectively. January’s figure is not suggesting every home is selling at 99% 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 decreased to 26 days, down from 31 in December, which is a 35% reduction on the 40 average days on the market from January of last year. We see this as an important indicator of strong buyer demand, with qualified buyers ready to pounce when the right home hits the market.
As of the end of January, the number of active listings is 181, down 5% from December, and 8% from inventory levels at the same time last year. Folks, this is the lowest number of active listings that we have had since at least January 2015 (when our group began tracking this statistic), which also in our opinion marked the start of this strong upward swing we have seen in the Nanaimo market. Limited supply and strong demand is a condition that sets the stage for strong price action. However, the unknown variable here is affordability for locals. We’d expect the sub $500k market to be the primary benefactor here.
Top Performing Neighbourhoods & Categories
10 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 December to January, 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 10.33% in Departure Bay to 27.13% in South Jinglepot. Top risers month-over-month were Departure Bay, Pleasant Valley, and Upper Lantzville. Top performers year-over-year were South Jinglepot, Cedar, Uplands, South Nanaimo, and Brechin Hill. Looking at volume, risers both monthly and annually included Lower & Upper Lantzville, Uplands, Old City, Cedar, Chase River, and Extension. You’ll notice that many of the average price and volume risers are found either in the outskirts of town or in the historically more affordable neighbourhoods, with early cycle gainers and traditionally most expensive neighbourhoods such as Hammond Bay and North Nanaimo having less price appreciation and lower volume. In fact, year-over-year, volume has been down in North Nanaimo for 11 months in a row. Why?... Affordability challenges are limiting demand, despite buyer preferences to be in this neighbourhood.
Lots were the top performing category in January, followed by townhouses and patio homes, while apartment style condos and single-family homes were down month-over-month, though still up year-over-year. On low volume, both patio homes and apartments showed very strong year-over-year price action. Downsizing baby boomers...you got it.
Opportunities
With active listings at cycle lows and strong buyer demand, we are undoubtedly still in a SELLER’s market.
For Buyers purchasing principal residences, one area that we continue to discuss is low-maintenance strata properties, particularly those ground-oriented options ideal for our aging population. For the better part of the last year patio homes have been amongst the category leaders, with 8 of the last 12 months showing year-over-year average price increases exceeding 25%. While you may think it is getting frothy now, the reality is this particular party is just getting started. While other areas of the market are being impacted by investors, international and interprovincial speculation, etc., patio home demand is demographically driven. In the next decade, no matter what happens in other categories, you will see a wave of baby boomers, (many of whom are underfunded for retirement) looking to simplify their lives and many cases top off their retirement nest egg by downsizing. However, there is currently a fixed supply of ground-oriented townhomes, limited development land, and limited demand from developers to venture into executive quality townhomes, because it is simply not as profitable as other development opportunities. What does this all mean...Even if we experience a correction, ranchers, patio homes, luxury condos and higher end townhomes with primarily main level living, are not going on sale. While we have had a run-up on prices recently, we see that there is still an opportunity to get in at a reasonable level now, despite how painful it is to look back 12 months and think about the prices you could have shored up your retirement home for.
Which leads us to the next section…If you are an empty nester living in your 3,000+ square foot home and have recently opened your property assessment and noticed the assessed value has nearly doubled over the past decade, now is a great opportunity to sell into a strong market. With affordability increasingly becoming a challenge, and tastes and preferences of the next generation shifting towards a more simplified living arrangement where bigger is not better, there are headwinds poised to limit demand and price action in the coming years for this category of housing, as there simply won’t be the demand at higher price levels. Remember, if you purchased your home for $400,000 in your peak earning years a decade or more ago, this home is now likely worth more than $800,000, average household income growth has not kept pace with housing appreciation and mortgage qualification has got significantly tougher. Those in a similar situation to you when you (possibly) maxed out your qualification to purchase at that price point, would now (possibly) qualify for less than you would have back then. The current $800,000 price point is only supported by demand at that level. If there is insufficient demand, prices start dropping.
So where are the opportunities for investors? Our preferred approach to real estate investing is to lead with a focus on cash-flow potential. In our view, opportunities to acquire cash-flowing properties in the residential market are extremely limited at this point in the cycle. For those investors who are game, looking at other asset classes could be an option.
Downtown Nanaimo is stale, poised for revitalization. Our downtown has the potential to be a world-class destination, however, a challenging political climate, excessive vacancy, concentrated ownership by those who have not spent money to keep their holdings modern, and in some cases a lack of vision for what is possible, has stunted growth over the past decade. While there are signs the tides are turning. New money is coming into Nanaimo, and developers are increasingly seizing opportunities. However, we are still early in this movement and commercial real estate remains affordable. There have been fantastic opportunities for land assemblies on key transportation routes in the past 12 months where you could purchase property at a valuation that would pay you a decent return to either wait for values to increase and sell into increasing developer demand in the future, or redevelop /re-fit aging properties to their highest and best use.
Another commercial opportunity which we are very familiar with (being the listing agents) is a 2,083 square foot space in Pacific Station, a mixed-use development which includes 50,000 square feet of professional office space. At the asking price, this particular space is a first phase unit, discounted to $272.68 per square foot. Comparatively, there is no other new commercial space currently available in Nanaimo for less than $330 per square foot. In fact, the phase 3 units in Pacific Station are selling with strong demand closer to $400 per square foot, and the future occupant of this phase 1 space is poised to equally benefit from the synergies of locating in North Nanaimo’s premier business community (with professional practices such as doctors, physiotherapists, chiropractors, architects, engineers, wealth managers, notaries, mortgage brokers, etc.), all in an easily accessible location with great visibility, and supported by the built-in consumer demand of the 76-unit residential component of the development. With no rental restrictions, leasing out the space could result in a very respectable return not available in the residential market, and as the commercial community rounds out, and construction of the last residential phase completes, any uncertainty inherent in earlier stages of the development will have been removed, increasing demand for commercial space, and ultimately real estate values.
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 January 2018
Source: VIREB