AVERAGE SALE PRICE DOWN IN JULY, SALES VOLUME APPEARS TO BE STABILIZING
Single Family Prices and Volume
109 single-family homes sold in July, 3 less than the 112 sold in June, and the same number as reported as sold in July of last year. The average home price decreased by 4.5% in July to $554,240 from June’s average of $580,330, which is also just under 2% less than reported last July when the average home price was $565,388. The median sale price decreased by 2.6% to $560,000 in July from June’s $574,888 which is 3.7% higher than the same time frame last year when the median sale price was $539,900. 189 homes were listed in July, which was 1% less than the 191 homes listed in June, and 17.5% less than the 229 listed in July of 2018.
Insights: For the second month in a row the average sale price was down month-over-month, and for the 3rd time in 2019, the year-over-year results are also showing a negative figure. With an average sale price of $554,240, we are now back close to the figures the market experienced back nearly a year and a half ago in early 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.
Looking at volume, we have noticed that the declining figures appear as though they may be starting to stabilize. The combined sales volume for the past 3 months (May - July) is actually up 1 unit (357) from the 356 homes that transacted in the same period last year. In contrast, the first 4 months of the year (January - April) experienced a combined decrease in volume of more than 18% from the same period last year. Is it a coincidence that the last prices have been down the last couple months but sales volume seems to have bucked the declining trend downwards? It is likely too early to tell...however, if you have been following our commentary, you will likely be aware that our take is that sales volume is likely to normalize back towards historical averages when sellers start to get more realistic with their pricing expectations realizing a market shift is underway and price more in line with where demand is from buyers. While it’s too early to draw any conclusions, we’ll be keeping a close eye on price/volume action moving forward.
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. After a bit of a resurgence in April and May and following up on a step back down in June, so far there have only been 6 sales registered of homes over $800k in July. With 143 homes currently on the market priced at $800k plus, this would equate to nearly 2 years of supply. While there continues to be very little supply below $600k, 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 143 homes currently on the market priced above $800k and very few are selling each month 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.
So how did Nanaimo stack up against other Island communities north of Victoria for the month of July? Looking at the average price, Nanaimo down 2% year-over-year was only underperformed by Parksville/Qualicum, down 3%. Port Alberni and Campbell River which are historically more affordably priced had year over year increases of 11%. Cowichan Valley was up 10%, with the Comox Valley up 7%. What is interesting to note is that if you look back to 1 year ago, the 2 highest priced zones at that time have declined, while the 2 lowest priced zones are showing double-digit year-over-year returns. Based on these figures, the gap between lowest to highest priced communities has now closed from 94% to 69%. If we had to speculate on what is happening here, the perceived value at various price points is higher in the more affordable communities from out-of-town buyers choosing Vancouver Island as their retirement destination of choice. Looking at volume, Nanaimo (which was unchanged from a year ago), was outpaced by a 40% spike in volume in Port Alberni and a 39% increase in the Comox Valley. Campbell River was down 15%, while the Cowichan Valley and Parksville/Qualicum were down 8%. While the volume change figures may seem sizeable, it is important to remember that these are smaller communities, so a fairly small numerical change can result in a more pronounced percentage change. Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was up 4% while volume was up 3% 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 58% in July, which is up almost 21% from July of 2018 when the ratio was 48%.
The sell price/list price remained constant at 97% for a second month in July. At this point, we are not able to report on the movement from July 2018, as there appears to be an error in the data provided by the real estate board, which has not been corrected by the time of publication.
The average days on the market increased by 3 days to 33 in July, which is over 43% higher than July of last year when days on market averaged at 23.
As of the end of July, the number of active listings was 388, down 1% from June’s 392 active listings, and over 12% less than at the same time last year when there were 442 active listings at month-end.
Insights: When considering both month-over-month and year-over-year figures, 3 of the 7 market indicators we are able to report on this month in this section have improved, 3 have deteriorated, and 1 remains unchanged. These 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 June to July, with 10 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 -8.17% in Brechin Hill, the bottom performer for the fourth month running, to 15.38% in Hammond Bay for the second consecutive month. The top riser month-over-month was Diver Lake with Uplands the second highest. Top performers year-over-year were Hammond Bay, Diver Lake, South Nanaimo, Cedar, and Central Nanaimo. Looking at volume, 7 of the 18 sub-areas saw increases month-over-month with Pleasant Valley and the University District coming in as the top risers for a second month, while only three neighbourhoods, (North Jingle Pot, Pleasant Valley, and Departure Bay), saw increases year-over-year.
Insights: Difficult to draw any significant conclusions here. Some neighbourhoods are up, some are down, with seemingly no particular rhyme or reason. I’d suggest the results here are simply reflective of a market trending more towards balanced conditions.
Single-family waterfront homes, (on low volume), and apartment-style condos were the only categories that saw an increase in average sale price from June to July, while all categories with the exception of single-family homes experienced increases from July of last year. Month-over-month increases in sales volume were reported in all categories aside from single-family homes and year-over-year increases in all categories except apartment-style condos.
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. The impressive month-over-month and year-over-year increases in average condo (apartment-style) prices are not a huge surprise given affordability concerns that continue to have an impact, especially on the single-family market.
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. However, the key term here is “overall”, as, within the overall local market, we continue to see some fragmentation or noticeable variances among price brackets and categories. The general trend over the past number of months, when you zoom in on different price ranges for single-family homes, is that there has been some noticeable disparity amongst price ranges. Again, while we don’t like to generalize, you could look at the sub-$600k range as still being very much a seller’s market as long as the home is priced reasonably. The $600k - $800k range is more balanced, but trending towards a buyer’s market at the higher end of the range, while the $800k + range, with nearly 2 years of supply based on last month’s absorptions numbers, would be considered in buyer’s market territory.
The lower end of the market is still overheated, as affordability constraints of local buyers and a subdued supply of listings in this price range has created a competitive market in this price range. If you are a homeowner or investor thinking about selling your home priced below $600k - $650k, with the lack of suitable options for buyers and still strong demand, you have a great opportunity to sell into strength. 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’d 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 will likely 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. Looking at the past months’ absorption figures we see a noticeable trend, as implied months of supply in the $600 - 700k range is currently only 2.7 months, so again, not a lot of opportunities as we are trying to identify where buyers may be motivated for price concessions. In the $700 - $800k range, implied supply jumps noticeably to 16 months, $800k - $1,000,000 is also elevated at 15 months, while with 66 homes currently on the market over $1,000,000 in Nanaimo and only 1 registered sale in July in this price range, the implied supply is 66 months. As inventory levels rise with minimal absorption, there has to be a few motivated sellers out there getting increasingly anxious and who may be ripe for reasonable price concessions. 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 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.
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 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, 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, 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.
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 July 2019
Source: VIREB