Nanaimo Records Second Highest Single-Family Sales Volume in More Than 2 Years
The month of June saw BC move into Phase 3 of the province’s restart plan. Dating back to the early stages of 2020 before the COVID-19 related economic lockdown, there was reason for optimism in the Nanaimo real estate market. Some of the optimism certainly materialized in June, with a significant spike in sales volume, and early July conditions remain much the same. With the flurry of activity slightly reminiscent of 2016 - 2017 market conditions, there are Realtors out there who have a very bullish outlook on Nanaimo’s real estate market. As much as we hope they are right, that COVID-19 is now largely a distant memory and it is upwards and onwards, our outlook remains cautious, as it is our belief that the economic impact of the slowdown will ultimately be significantly greater than many are recognizing and that there is a reasonable likelihood that much of the economic pain is still to come, even more likely if the second wave materializes some time later this year. While none of us have a crystal ball, and outside of Ottawa, none of us have a money-printing machine to try to counteract natural economic forces, we certainly cannot make any concrete predictions about what is to come. However, we continue to believe that it is important to report on what has occurred in the market and put our best foot forward interpreting how market conditions may (and I caution “may”) shed some light on what may be to come as we collectively try to emerge from this unexpected event.
Single Family Price and Volume
131 single-family homes sold in June, up 87% from the 70 that sold in May, and 19% more than the 110 that sold in June of last year. The average sale price increased by 0.53% to $581,603 from $578,514 in May, which is down -0.11% from June of last year when the average sale price was $582,272*. The median sale price decreased by 1.8% from $565,000 in May to $555,000, which is 3.5% less than the same time frame last year when the median sale price was $574,888. 195 homes were listed in June, which was 22% more than the 160 homes listed in May, and 3% more than the 190 listed in June of 2019.
Insights: In the last 2 years, only May of 2019 saw a higher number of single-family homes sell than June of 2020. If you have been following our commentary, you may remember us commenting in months past that we don’t necessarily see sales volume rebounding immediately as restrictions lift, suggesting we subscribe to the theory that a well supported economic recovery will take some time. Looking at June’s sales figures alone and especially when comparing against the 55 sales in April, 70 sales in May, and even the 112 sales in June of last year, it appears we may have missed the mark on this call. While we hope this is the case, it is important to caution that 1 month doesn’t make a market. It is also important to mention that the 131 sales is 53 less than the 184 homes that sold in June of 2017, 73 less than the 204 that sold in June of 2016, and 36 less than the 167 that sold in June of 2015. While industry sentiment seems to be suggesting that conditions are similar to the boom times of 2015 - 2017, the sales figures suggest otherwise, as June sales volume was still more than 15% below the previous 5-year average figure of 155.
Another interesting observation is that while sales volume increased 87% from May, the average sale price was essentially flat, up .53%. Compared to last year, this was a .11% decrease, and June is a month that typically sees noticeable year-over-year increases on the heels of the momentum in the spring market. Looking back at the past number of years, June of 2016 was up 17.36% from June of 2015, June of 2017 was up 12.87% from the previous year, and June of 2018 and 2019 saw average year-over-year average price increases of 5.76% and 4.21%, respectively. If you want to throw some more water on the market recovery celebration, it is probably appropriate to mention that the median price actually dropped 1.7% from May, and was down 3.5% from last year, suggesting that while average prices are seeing minimal movement despite negative economic conditions stemming from the COVID shutdown, there may actually be a bit more downward pressure on pricing that can be readily observed strictly by relying on the average sale price, as for June at least, proportionately more homes were selling at higher price points, which was helping to keep the average sales price from dipping too deeply into negative territory.
Before moving on, I want to acknowledge that my household income (with 2 of us in the business) is largely tied to real estate market conditions, and therefore with full transparency, I have a vested interest in a positive market outlook. It is not our intention to be the dark cloud constantly reporting a negative outlook, but rather to provide an alternative perspective to that of the majority of realtors and industry pundits who may be happy to simply report that the market is on fire with volume up 87% and you have to act now to avoid disappointment.
So how exactly do market conditions project out moving forward? While there are so many variables at work here including the looming threat of a second wave of COVID that could lock down the economy this fall and winter, it is difficult to predict with any degree of confidence what is likely to materialize near term. Needless to say, if there is not a second wave of COVID, the market outlook is certainly much more positive than it would be if we do see a major rebound and subsequent lockdown.
There are so many unanswered questions about how the government would respond to a second wave. Certainly, they can’t continue to dole out billions and billions indefinitely. What if COVID isn’t under control in 1 year, 2 years, or beyond, do the support payments, wage subsidies, etc., continue? How can they? What about banks...The 6-month mortgage deferral period which is widely believed to have been taken advantage of by at least 15% of borrowers will end as we transition into fall, the time when many in the health care profession are fearing we could see a second wave of COVID. Will banks continue to offer extended deferrals? Unlikely… Evan Siddall, the head of CMHC has warned of “a looming mortgage “deferral cliff” this fall” when those still unemployed or still feeling the COVID impact on their household finances have to resume mortgage payments. How about those who have bought cars, RVs, boats, on 6-month no payment plans? There is a good percentage of Canadian households who are redlining it so tightly, that any additional payments are going to be a challenge to manage, and that is before you factor in impending job losses if there is a major second wave of COVID.
Assuming there is no second wave, the COVID slowdown has been the most negative economic event that many of us have ever lived through and while the “band-aid” solutions and government handouts have done a decent job of delaying the pain, it is our take that the full impacts have still not been realized, eg. If you have not had a mortgage payment for the past 3-months, your household financial picture may be temporarily more manageable than it was pre-COVID. At the time of writing 8.16 million applicants had submitted 18.67 million applications for CERB Benefits, suggesting a substantial percentage of the working population have had their incomes significantly impacted by the pandemic. At some stage, there will be a financial reckoning. It may not be next month or even next year, but all of this money the government has doled out is not government funds, it has been borrowed from the future earnings of taxpayers, which we suspect may include an attempt to ultimately eliminate or at least reduce the exemption on the gains from the sales of our principal residences. Stay tuned on this…
While there is no clear picture of what is to come, looking at factors impacting supply and demand is likely a good place to start in trying to formulate an idea of how pricing may be impacted. From a demand perspective, ask yourself, are we more likely to have more demand or less demand whenever the current situation ends? We are not talking about the desire to purchase, we are talking about demand from those qualified financially to purchase. From our perspective, the more jobs that are lost and businesses that see their temporary closures become permanent closures, the more people who eat into their down payment funds just to pay the bills, the more credit is utilized, all of this points to reduced buyer demand. If there are not enough buyers for the volume of homes for sale (which could very well increase substantially with so many intending to sell holding off), that is when we start to see motivated sellers start to drop their prices, and prices will ultimately adjust until they reach the point of equilibrium where demand equals supply. From the supply side, ask yourself the same question? Are we likely to have more supply or less supply a number of months from now? The difference between demand and supply is that despite intentions, demand can be eliminated beyond the control of the intended buyer due to factors such as job loss or a reduction of downpayment. The supply side is not affected in such a way. If a seller wants to sell, they can list their property. Fear of declining values in the future or reports of declining values (if this does occur) may prompt owners to list, increasing supply. Supply and demand considerations are certainly something we’ll be monitoring closely, and we will be doing so not just considering the overall market, but demand and supply at different price points, in different neighbourhoods, and for different categories of real estate.
On a more positive note, it is important to realize that Central Vancouver Island remains a retirement destination of choice for many Canadians from across the country, so from a demand perspective, this helps offset some of the lost demand from those who are unable to qualify for financing. With demographics what they are, this should help the area to weather the storm better than other regions in Canada, but to what extent remains largely unknown.
Other Island Communities - Single Family Price and Volume
So how did Nanaimo stack up against other Island communities north of Victoria for the month of June? Looking at the average price of a single-family home, both Nanaimo and Campbell River were essentially flat, while Port Alberni/West Coast saw the steepest decline at 16%. All other communities experienced increases: Cowichan Valley 8%, Parksville/Qualicum 12%, and Comox Valley up 16%.
Looking at sales volume in comparison to last June, only Campbell River and Cowichan Valley experienced declines in volume, -2% and -18% respectively, while all other areas saw increases: Nanaimo up 19%, Comox Valley 35%, Parksville/Qualicum 38%, and Port Alberni/West Coast experiencing the greatest increase at 68%.
Looking at the entire Vancouver Island Real Estate Board totals, the average sale price increased 4%, and sales volume overall increased by 18% from June of 2019.
Insights: The overall increase in sales volume and average sale price is certainly a positive sign.
Notably, the Parksville/Qualicum market had a strong showing, continuing to benefit from the strong demographic driven demand from baby boomers looking to retire in the area. Taking a drive through this area, you will notice that proportionately there is a much higher percentage of ground-oriented housing, suggesting builders in the past number of years have possibly done a better job of catering to the housing needs of the aging population as opposed to simply looking to maximize profits, which has to some extent occurred in surrounding communities. While it is costlier per sqft to build ground-oriented residences, taking the long view has really positioned savvy Oceanside developers to reap the rewards of increased demand and with it, the upward pressure on pricing, as this region continues to post the highest average sales prices north of Victoria on Vancouver Island.
Strength of the Trend
Factors we also look at when analyzing a market to validate its strength are the sell/list ratio; sell price; days to sell, and current inventory numbers:
The sell/list ratio increased to 67% in June, up from 44% in May, and from 58% in June of 2019.
The average sell price/list price was 98% in June, no change from May 2020 but up 1% from the same time frame last year.
The average days on the market for the homes that did sell in June was 29 days, up 11.5% from 26 days in May, but down 3% from June of last year when average days on market was 30.
As of the end of June, the number of active listings was 300, down 3.5% from May’s 311 active listings, and 23.5% lower than the same time last year when there were 392 active listings at month-end.
Insights: Of the 8 market indicators we look at in this section, 6 improved, 1 deteriorated, and 1 remained unchanged. While this certainly appears to be positive, it is important to remember that last month wasn't exactly a banner month, so while statistics improved, the baseline was fairly weak.
The sell/list ratio rising to 67% is quite bullish. We will be watching for follow-through here, especially if listing numbers remain lower than normal. June’s ending inventory of 300 homes on the market was lower than the end of June figures for any of the preceding 5 years. Continued strength in the sell/list ratio is an indicator that there may be upward pressure on pricing in certain price ranges. What is important to remember here is that these ratios cannot be taken as indicative of homes in all price ranges. For example, there were 24 homes listed in Nanaimo for over $1,000,000 in June, with only 1 sale. Further, there are currently 67 homes on the market in Nanaimo with 7-figure price tags. Clearly the sell/list ratio of 67% is not reflective of the million-plus price range. If you are considering listing your home, talk to a trusted Real Estate professional about market action in your price range before deciding to list, as it will vary significantly by price range.
The sell price to list price ticked up 1 point from last June, while holding steady from last month at 98%. Not much to comment on here, other than to say that this only factors in the homes that sold, not the 300 active listings on the market at month’s end that hadn’t yet sold. 98% is a solid number, but it is important to remember that it doesn’t factor in any price reductions that preceded the offer, as this figure is based on the last listed price before the offer.
By historical standards, average days on the market of 29 days is still quite respectable. While this does only factor in the homes that sold, it suggests that attractive offerings that are priced right are still selling quickly in many cases, especially at the lower end of the market. This is consistent with our team’s experience of continuing to be involved in a number of multiple offer situations for recently listed homes.
Despite the number of new listings in June exceeding the figures for the previous month and June of last year, June’s ending inventory was lower than both May’s and last June. This is likely the result of some pent up buyer demand as COVID restrictions began to list. It will be interesting to see where inventory numbers go from here. Will we see more listings as those who were holding off on listing due to COVID decide to take their homes to market? Will those fearing a second wave and seeing some market strength be pushing to get their homes listed before it is too late? Only time will tell, but it is important to acknowledge that inventory levels are a key factor in driving price action. Lots of demand and a limited number of listings sets the stage for upward pressure on pricing. Limited demand and lots of choice, as we are seeing in the $1,000,000 plus range, will eventually lead to downward pressure on pricing. Similar to our comments about the sell/list price varying by price range, inventory levels and therefore the number of options a buyer has in their price range does as well. With this being the case, it is important to really focus on the segment of the market you are looking to buy or sell into, to help determine if the timing is right.
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 May to June, with 13 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 -12.17% in North Jinglepot to 24.70% in Extension. The top risers month-over-month were Lower Lantzville, Upper Lantzville, and North Jingle Pot. Top performers year-over-year were Extension, Upper Lantzville, Lower Lantzville, and Cedar. Looking at volume, 9 of the 18 sub-areas saw increases month-over-month, with Brechin Hill and North Jingle Pot topping the charts at 33.33% and 31.58% respectively, while only 4 of the 18 sub-areas also saw increases year-over-year on a trailing-12 month basis, with the Chase River the top riser in this respect.
Insights: The only noticeable trend is that most of the top-performing sub-areas here for both price and volume are located towards the outskirts of town, where larger properties are more prominent. It is likely too early to suggest that increased demand for larger properties is resulting from more people exiting the urban life and social distancing considerations, but stay tuned, this will become a talking point in the industry in months to come.
Lots, townhouses, apartment-style condos, and single-family homes were the categories that saw an increase in average sale price from May to June, with single-family homes and single-family water homes (the latter on very low volume with only 1 sale recorded) the only categories to see increases year-over-year. Single-family water homes and townhouses were the only categories that did not report month-over-month increases in sales volume, with only single-family homes and apartment-style condos also posting year-over-year increases.
Insights: Not much to read into here. Some categories were up, some were down. Not surprisingly, volume was up for most categories over May, when sales levels were down significantly.
Opportunities
As the economy continues to emerge from the nightmare that was COVID-19, undoubtedly prospective Buyers and Sellers will have questions about what it means for them. Is now a good time to buy? Is now a good time to sell? The reality is there are no broad strokes answers to this, as any generalizations would be foolish. More so than ever, it is really dependent on what you are looking to buy or sell, where it is, what price range, etc. All of the data provided earlier in this report is based on amalgamated data provided by the real estate board for the single-family homes category in Nanaimo, and while it provides a general idea of how the market is performing, it certainly doesn’t tell the whole story. While we are looking at 1 category - single family, in a single geographic location - Nanaimo, you will see that there are huge variances in market conditions and market action in different price ranges. You could do a similar micro-analysis of neighbourhoods, communities, style of homes, age of homes, the list goes on and on. The important thing to note is that you can’t rely on the headlines or averages as a credible source to make decisions. You need to dig further. As we emerge from this economic shock, if you are considering listing or purchasing, please make sure you are working with a Realtor that has the knowledge and expertise to navigate the market and understands market conditions for the specific category of real estate you are looking to transact in.
On the buy side, as we mentioned earlier in this recap, market conditions at the higher end of the market remain at a near standstill. At the time of writing (July 7th), there were 67 homes on the market above $1,000,000 and only 1 registered sale so far for June. With new listings added to the mix in June, as inventory levels continue to climb, some “deals” are bound to be had, as sellers reduce their pricing to set position their homes ahead of the competition. Similarly, as inventory levels and days on the market continue to rise, motivated sellers are more likely increasingly becoming more and more open to negotiating. If you have been thinking about either upsizing in the local market or moving from the mainland in the coming years, and are targeting an acreage estate, larger executive home, or even your waterfront dream home, you may find with the minimal activity in the higher price range, that there is a window of time that may better position you to enter the higher end of the market, than what we are likely to see as the general economy further recovers from the COVID-19 driven economic slowdown, and this window closes.
Largely due to the demographics of the local population, for the past few months throughout the COVID-19 slowdown, we have continued to assert our position that homes under $600k and suited homes under $700k are well-positioned to weather the COVID-19 related storm much better than homes priced higher, where there is such a small percentage of our population that have the qualifying income to afford these higher-priced homes. These homes also appear to represent good value to lower mainland based buyers, who continue to add strength to the underlying demand. So far, our take has been pretty much spot on, as demand exceeding supply for quality homes under $600k and suited homes under $700k has resulted in competition and in some areas, upward pressure on pricing. While there is always the macro-market effect, where the overall real estate market on a larger scale, such as BC, or even Canada will be impacted by various factors such as monetary and fiscal policy, government intervention, etc., we continue to believe that values of homes at the mid to lower end of the market will not be impacted too significantly, if at all, by the current economic slowdown. Of course, this is subject to change as we continue to monitor the market. If COVID-19 comes back for a second and third wave and 2 years from now we are still looking at significant unemployment numbers and a weak economic picture, our outlook would likely be more cautious for this category.
So, for sellers, if you have a home under $600k or suited homes under $700k and you need to sell, you are in a good position to attract a buyer if you need to exit. At higher price points, if you have an exceptional offering and need to exit, you have a chance. Otherwise, if time is on your side and you are listing at the higher end of the market, you may be best served by waiting on the sidelines for more robust buyer demand in your price range. The challenge here is timing, as we don’t know how long it will take for conditions to improve. What we do know is historically markets are cyclical and there will likely be a better time to exit ahead, it could just be 2, 3, 5, 10 years out.
An important point here is that sellers need to factor in their next move to the equation. If you are looking to sell your $800,000, 3,000+ sqft. home to buy a ground-level, seniors oriented home in the $500k - $600k range, then you may want to consider pulling the trigger, as demographic driven demand for those types of homes from those across Canada choosing Central Vancouver Island as their retirement destination of choice may put significant upward pressure on prices for that type of home, which could negate any potential benefit of holding off on selling until market conditions are stronger at higher price points. Another scenario that we also think makes sense right now is for those looking to upsize. If you can sell your $600,000 home into strength, and purchase at a higher price point where market conditions are much softer, you may find significant additional value relative to the actual step-up in price, and get a great deal in the process. Again, there is likely a window here, that as the economy recovers may start to close for an upsizing market. As each individual or family’s circumstances are different, no matter what your scenario is, working with a realtor taking an advisory approach and focusing on lifestyle by design will go a long way in helping you determine the best way to achieve your real estate related goals.
For investors, with us, it always gets back to the numbers. Downside protection is every bit as important as speculating on appreciation. Values so far have not been significantly impacted, especially at the lower end of the market. With much uncertainty persisting, purchasing right now represents increased risk that you could find yourself in a situation in the coming months with a property that has a value lower than when you purchased it. This makes it more important than ever that any investments are cash flow positive and achieve an acceptable rate of return because if you acquire a negative cash flow property, your only guarantee in the short-run is the property will be costing you money. If you do come across an investment opportunity where the numbers do work well and you are a long-term investor and are comfortable assuming the risks that in the short term there is a reasonable probability that we could see the average home values fall, then maybe you don’t want to rule out a purchase this year. The reality, unfortunately, is that mass economic slowdowns create financial hardship, which inevitably at some stage will likely result in some good buying opportunities for those watching closely. We believe on the buy side, patience is likely going to be rewarded. Remember, much of your ultimate return is derived from your entry point, the price you were able to purchase at. Right now sub-$700k, most homes are still being listed at all-time highs. So, for most investors, stay safe, educate yourself on the local market, be patient, watch out for deals if and when they emerge, make sure you are running the numbers, and if the numbers work, be ready to act. In this regard, don’t be shy to reach out and get the conversation going with a good investment-focused realtor. They are here to help.
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, at least in a short-to-medium timeframe. As the impact of the COVID-19 related slowdown on the economy continues to unfold, right now we have reason to believe that the overall economy and macro-market conditions for real estate may be more likely on the way to a valley or stuck in the valley than on an upward ascent to the peak, but only time will tell. 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.
Above all else, continue to stay safe, we wish you and all those close to you the best of health and an enjoyable summer!
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 Stats June 2020
Source: VIREB
*In July 2019, VIREB published, and we subsequently reported at that time, that the average sell price/unit for a single-family home in Nanaimo in June 2019 was $580,330 however VIREB has since revised this figure and now reports an average sell price/unit of $582,272 for June 2019.
Disclaimer: The information presented is intended for general information purposes only and should not be construed as Real Estate advice. Each client's situation is unique and therefore we recommend consulting directly with your professional advisors (Realtor, Accountant, Lawyer, Investment Advisor, etc.) prior to making any real estate decisions. Not intended to induce breach of an existing agency agreement or solicit properties currently listed for sale or individuals currently under contract with a Brokerage.