Nanaimo Market Remains Relatively Resilient in May
Single Family Prices and Volume
136 single-family homes sold in May, 32 more than the 104 sold in April, but 3 less than the 139 that were reported as sold in the same timeframe last year. The average home price increased by 1.15% in May to $593,326 from April’s average of $586,595 which is over 5% higher than reported last May when the average home price was $563,218. The median sale price decreased 0.84% to $575,000 in May from April’s $579,900 which is 3.6% higher than the same time frame last year when the median sale price was $555,000. 240 homes were listed in May, which was 30% more than the 184 homes listed in April, and 9.8% less than the 266 listed in May of 2018.
Insights: While volumes are down, so far this year the Nanaimo real estate market has continued to be remarkably resilient when compared to many other Canadian cities. The average sale price ticked up slightly from April and being up 5% year-over-year when many other markets are seeing price declines, is definitely a positive sign for homeowners in our region.
Earlier this year the theme seemed to be that the sub-$600k category continued to be quite competitive, while the higher end of the market (which we had defined as $800k+) in Nanaimo had experienced a noticeable slowdown with active listing numbers starting to climb fairly steadily. Last month we reported April’s numbers and suggested that the $800+ market had started to show some signs of life, and this developing trend followed through in May, with 14 more single-family home sales registered so far above $800,000, including 9 at $1,000,000 or more. Currently, with 128 active listings of homes over $800,000, there is just over 9 months supply based on last months figure of 14 homes absorbed. While this figure is still largely reflective of a buyer’s market, it is nowhere near the implied supply levels we had reported earlier this year, where we were talking years, not months. While this is certainly a positive development, it is important to point out that we often see homes purchased at higher price points by out-of-town buyers who have the financial resources available to do so. With that in mind, it is not a huge surprise that we have seen more higher priced sales the past couple of months as the weather has improved and out-of-town buyers are visiting the island with dual purpose agendas - to enjoy the local recreational opportunities and tourist activities, while also spending some time house hunting. It will be interesting to watch to see if this trend continues heading into summer and early fall. Nonetheless, the expectation at this stage given the macro-market struggles the real estate market is facing, is that higher end sales volume is likely to slow again once the tourist season slows down in the fall, as the local population at large simply doesn’t have the financial resources necessary to absorb the supply of higher-priced homes that are being listed as aging baby boomers / empty nesters bring their homes to the market.
Looking at sales volume, while the number of sales increased from April, that was expected, as historically May volume outpaces April volume as the traditionally vibrant spring market hits its stride. However, so far this year, sales volumes remain depressed from levels experienced earlier in this cycle. This year’s total of 461 single-family home sales for the first 5 months of the year was down 14% from the 536 in 2018, down 26% from the 624 in 2017, down 38% from the cycle high of 749 in 2016, and down 20% from the 577 sales during this period in 2015.
So what is driving the volume slowdown? In our opinion, there are a few factors at work here. The reality is local buyers continued to face affordability constraints and there are just not enough homes at price levels to be absorbed by the market that local buyers can afford. A second contributor to the slowdown is that in higher-priced neighbourhoods, sellers are likely still referencing what their neighbours sold for in 2017 or 2018 and using these figures to anchor their opinion of value, as opposed to recognizing that conditions are shifting and there is more choice for buyers at higher price points with less buyer demand, so pricing competitively is increasingly more important if there is motivation to sell. Thirdly, we are seeing less out-of-town buying for a few reasons. Slowdowns in other markets are resulting in some nervousness from buyers, price declines in other markets while our market has remained relatively resilient is closing the “value gap”, where buyers can no longer to the same extent cash out on their mainland property and buy a much more impressive home in the area and pocket the rest for a rainy day. Further, the foreign buyer and speculation taxes have both served to reduce out-of-town buyer demand. Taken together, it doesn’t appear that volumes will be significantly picking up any time soon.
So how did Nanaimo stack up against other Island communities north of Victoria for the month of May? Looking at the average price, Nanaimo up 5% was eclipsed by Port Alberni/West Coast up 12% and the Cowichan Valley up 7%. The average price in the Comox Valley was also up 5%, while Campbell River was up 1%, and Parksville/Qualicum experienced an average price decline of 3%. Volume wise, only Parksville / Qualicum (up 29%) and Port Alberni / West Coast (up 6%) experienced increases. Nanaimo down 2% was a fairly minor decrease relative to Campbell River (-10%), Comox Valley (-32%), and Cowichan Valley (-36%). Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was up 3% while volume was down 12% from May 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 remained at 57% in May, which is up 9.6% from May of 2018 when the ratio was 52%.
For the fourth consecutive month, the sell price/list price came in at 98%, which is down from May 2018 when it was 99%.
The average days on the market decreased by 5 days to 24 in May, which is 50% higher than May of last year when days on market averaged at 16.
As of the end of May, the number of active listings was 381, up 13.4% from April’s 336 active listings, and 6.4% higher than at the same time last year when there were 358 active listings at month end.
Insights: When considering both month-over-month and year-over-year figures, 2 of 8 market indicators in this section improved, 4 deteriorated, and 2 remained constant. 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 had 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
8 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 April to May, with 12 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 -10.43% in Brechin Hill, the bottom performer for the second month running, to 12.99% in Cedar replacing Pleasant Valley, the chart-topper since August 2018. The top riser month-over-month was Hammond Bay with South Nanaimo the second highest. Top performers year-over-year were Cedar, Pleasant Valley, Hammond Bay, South Nanaimo, and Diver Lake. Looking at volume, 7 of the 18 sub-areas saw increases month-over-month with Hammond Bay and the Old City coming in as the top risers, while only four neighbourhoods, (North Jingle Pot, Lower Lantzville, Upper Lantzville, and Diver Lake), 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, townhouses, single-family homes, and patio homes were the categories that saw an increase in average sale price from April to May, while all categories with the exception of lots experienced increases from May of last year. All categories reported month-over-month increases in sales volume, with only single-family waterfront, townhouses, and lots also experiencing increases year-over-year.
Insights: Waterfront single family homes and townhouses had very strong showings on both an average price and sales volume basis. Time of year always factors into waterfront sales activity, so not a huge surprise that one of the warmest, sunniest Mays on record showed strong in this category. Strength in the townhome market likely has a different driver. Affordability challenges that have priced many single-family buyers out of that market is likely propelling the townhouse market, which is seemingly viewed as the next best alternative to single-family living for those buyers.
Opportunities
From our perspective, we see overall, the market continuing to trend towards more balanced market conditions. However, the key term there is “overall” as, within the overall local market, we see some fragmentation or noticeable variances among price brackets and categories. While we commented earlier that sales volume has picked up a bit at the higher end of the market, the general trend over the past 6 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, with the $800k + range with approximately 9 months of supply based on last months absorptions numbers would be considered in buyer’s market territory.
Sellers take note…the sub-$600k 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. When you have 2,000 square foot 60s and 70s homes in marginal areas on the verge of needing $50,000 worth of work to replace all the majors (windows, roof, furnace, etc.) listed above $500,000, we don’t see that as sustainable, as Nanaimo household income levels simply won’t be able to support it. The only reason sellers are getting away with this so far this year is that there is limited supply at this price and lots of buyers. When the homes that are not moving at higher prices start to be priced more competitively (if they do) and become competition, these homes will eventually have to be priced more attractively to move. The other important factor is that if prices start to come down and the masses become fearful that prices could be declining, those fearful of a falling may list their homes to limit their downside risk. The result of this is increasing inventory, more choice for buyers and the weaker options at a given price point will need to adjust their pricing to remain competitive. In summary, if you are thinking about selling a home that may need a fair amount of work or that isn’t in the most ideal location, sell into strength - strong buyer demand and limited inventory, don’t wait until inventory levels pick up and buyers have more choice and room to negotiate, as is starting to happen at high price levels.
On that note, where do we see opportunities for buyers? Well, with 129 homes priced above $800k currently on the market, 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 is still optimistic that the current slowdown is still just a hiccup on a further trek upwards in pricing. Unfortunately, there is a decent contingent of industry players who continue to validate this outlook to their clients in this market, and the increase in average sale prices the last couple of months will only seek to support this sentiment. Despite the recent improved market action at the higher end, when you start looking at what has caused the higher end of the market to stall out, our take is that this is going to get worse before it gets better, so some patience from buyers is likely going to be rewarded. So you may be wondering what has caused the higher-end market to stall out? Here is our take… 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 the origin of buyers of 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, as Nanaimo income levels will not qualify buyers for financing to absorb the increased supply of homes coming on the market. Until we see substantial renewed demand from out-of-town buyers with deep pockets, this should result in even more choice and negotiating strength for buyers at the higher end of the market.
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, so it is likely 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. 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. When we once again reach all-time highs in Nanaimo for average single-family home sale prices, statistics like this can be used to paint a picture that simply isn’t the reality.
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 May 2019
Source: VIREB