January Market Conditions Show Further Signs of Weakness
Single Family Prices and Volume
55 single-family homes sold in January, 9 more than the 46 sold in December, however more notably 38% less than the 89 that sold in the same timeframe last year. The average home price decreased by just over 5% in January to $544,902 from December’s average of $574,955, which is 4% higher than last January when the average home price was $522,608. The median sale price decreased 6% to $535,000 in January from December’s $569,900 although this is 7% higher than the same time frame last year when the median sale price was $499,900. 150 homes were listed in January representing a substantial increase over the 59 listed in December, and almost 24% more than the 121 listed in January of 2018.
Insights: While a month-over-month average sale price decrease of more than 5% may seem alarming, it is important to note that this figure is being determined based on the lowest (December 2018) and second lowest (January 2019) number of single-family sales in a month dating back four years. On low volume, there can be more volatility, and the 5% decrease comes on the heels of an 8% increase in average sale price from November to December of last year, so given the time of year and the low sales volume, I’m not reading into these wild swings as much on their own, but rather looking at other measures as well as evolving patterns to see if there is follow-through signifying a more concrete trend. On that note, what is becoming concerning is the decrease in sales volume. Year-over-year, January sales volume was down 38%, following a 61% decrease in December, and a 34% decrease in November. When sales volume decreases so significantly we look at contributing factors to see if we can identify what is behind the decrease. Naturally, one of the first considerations is the number of new listings and active listings, as we are attempting to determine if there is just a lack of available options for the buyers currently looking to purchase. With the number of new listings 254% higher than December and 24% higher than last December, it certainly wasn’t a lack of new listings keeping sales volume down. Looking at inventory numbers, January’s ending inventory of 269 was 48% higher than we had at the end of January last year and 37% higher than January’s ending inventory in 2017. So what does all this mean? It was not a supply side issue. There is simply not enough serious buyer demand for homes at the prices sellers are asking for their properties. So what does this mean? In order to see sales volume increase, something has to give. Based on the time of year, buyer interest is likely to increase as we head into spring, which is traditionally the busiest time of year for the real estate market. However, as we have highlighted in the past, despite the hopes, dreams, and intentions of buyers, income levels in Nanaimo simply do not support current real estate values when you look at mortgage qualification amounts. In other words, buyer demand at various price points is constrained by the maximum mortgage qualification amount the buyer’s household income would support. With the B-20 stress tests implemented last year, buyers with growing families looking to upsize into a second or third home are simply struggling to qualify to purchase these higher valued homes, and therefore activity at higher price points has slowed to a crawl. In January, there were only 4 sales for homes above $800,000, and the month finished with 99 listings priced above $800,000, equating to a more than 2 year supply. What we are seeing here is the ramifications of the cooling lower mainland market and intensified media coverage of the slowdown making lower mainland buyers fearful of buying, as well as the foreign buyers tax and speculation tax nearly killing 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. Say what you want, when you remove the out-of-town buyers, local buyers simply can’t support the current price levels. So with sales volume so low, what happens from here? Either sellers are going to have to adjust their expectations and price their homes at levels supported by buyer demand or sales volume is likely to remain depressed for the foreseeable future.
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 by 52.5% to 37% in January, which is a 50% reduction from January of 2018 when the ratio was 74%.
January’s sell price/list price decreased to 96% from December’s 97%, which is down just over 3% from January 2018 when the sell price/list price was at 99%.
The average days on the market increased almost 23% to 43 in January from 35 in December, and over 65% from January of last year when the average days on the market came in at 26.
As of the end of January, the number of active listings was 268, up over 4% from December’s 256 active listings, and over 48% higher than inventory levels at the same time last year.
Insights: We have looked at 4 key indicators here, both on a month-over-month, and year-over-year basis, so taken together there are 8 data points. 8 of 8 have deteriorated, some significantly. The sell/list ratio of 37% is the lowest we have seen dating back to January of 2015 when we started tracking these figures monthly. While this figure is indicative of a buyer’s market, we need more than a single month at this level to say this conclusively. The average sell price/list price of 96% is the lowest we have had since November of 2015, and the average days on market is the highest we have seen since February of 2016. However, more importantly, what you have to look at is the untold story, all the properties sitting stale on the market and not selling. In a scenario where they did sell, you’d have to wonder how far below the asking price they would need to sell, and if they have been sitting for a long time, how these sales would further negatively impact the sell/list price ratio and average days on the market.
To state the obvious, the market isn’t off to a great start in 2019. While a single month doesn’t tell the whole story, the fall market wasn’t overly strong with noticeable cause for concern. With that being said, 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 magnitude of this slowdown.
Top Performing Neighbourhoods & Categories
12 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 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. This also explains why we have average prices down month-over-month by more than 5%, yet we are reporting two-thirds of neighbourhoods seeing increasing average sales prices. It is simply different reporting periods. Moving on, these year-over-year average price changes range from -4.49% in South Jingle Pot to 18.48% in Pleasant Valley, with both neighbourhoods holding these same spots since August 2018, although ironically, the top riser month-over-month was South Jingle Pot with Extension the second highest. Top performers year-over-year were Pleasant Valley, Old City, Diver Lake, Central Nanaimo, and Departure Bay. Looking at volume, the only month-over-month risers were Departure Bay and Diver Lake, with Diver Lake being the only neighbourhood to experience increases both monthly and annually, possibly due to the still relatively affordable homes in the area that are very centrally located in the city.
Insights: The trailing 12-month figures are not telling the whole story, as these averages are still benefiting from the stronger months that were experienced in the first half of 2018. With a bit of a lag here on the trailing 12-month figures, we are starting to see more neighbourhoods each reporting period showing 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 an increase in average sale price from December to January, with single-family homes, single-family (waterfront), and apartments seeing increases year-over-year. Single-family (waterfront) and townhouses were the only categories to experience month-over-month and year-over-year increases in sales volume.
Insights: Really not much to add here. With the lower volume sales, you can’t read too much into a single month’s performance. There were only 4 lot sales and these sales pushed the average up more based on the location of the specific lots than overall market conditions.
Opportunities
In a best case scenario, we believe the market is 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. With the sell to list price dropping to a multi-year low of 96% and inventory levels climbing, there once again may be some room for negotiation. The drop 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 fairly reasonable price concessions. 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 many months 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 ranchers, patio homes, and lifestyle properties 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. Just our take…
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 are sponsored social media ads in our market right now 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 January 2019
Source: VIREB