October Market Conditions Continue to Reflect a More Balanced Market
Single Family Prices and Volume
97 single-family homes sold in October, 6 more than the 91 that sold in September, and 24 fewer than what sold in October of last year. The average home price was down just over 2% in October to $556,717 from September’s average of $569,667 and this figure was 0.43% lower than reported last October when the average home price was $559,149. The median sale price increased marginally from $539,000 in September to $539,500 in October, which is also almost 3% higher than the same time frame last year when the median sale price was $525,000. 145 homes were listed in October, which was 23% less than the 188 homes listed in September, and almost 28% less than the 201 reported as being listed in October of 2018.
Insights: The average home price continues to be fairly range-bound, a trend that has persisted since early 2018, coinciding with a time period when we started to really notice a decrease in sales volume. Over the past 20 months or so, this range-bound average price has fluctuated 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.
Low sales volume continues to be the major story heading into the last couple of months of 2019. October sales volume was down 20% over the same month last year, consistent with the 19% decrease in sales volume over the preceding 12 months, which in itself was down 6.2% from the 12 months before that. In other words, volume has been on the decline for the past couple of years. Single-family homes are not the only category feeling the slowdown...On a trailing-12 basis, acreage sales are down 24%, apartment sales are down 29%, patio homes are down 18%, townhomes are down 7%, half duplexes are down 20%, mobile homes are down 18%.
Something that is interesting to note is that while sales volume is down 20%, the number of homes listed was down just shy of 28% from the number of homes listed in October of last year. So while the pundits are quick to point out that the market has cooled due to government intervention (stress tests, speculation tax, foreign buyer tax), essentially implying that the slowdown is due to subdued demand, what about the supply side? As we’ve highlighted throughout this year, sales volume at the higher end of the market is quite light, so possibly a more reasonable explanation of the slowdown would be a combination of government intervention reducing both overall demand as well as the demand at higher price points based on the stress tests reducing qualifying amounts, meanwhile the supply side is experiencing an insufficient number of homes coming to market to meet the demands of the buyers that are still in the market at the price points that they are looking to buy. What has resulted is a market with both subdued demand and supply, whereby volume has dropped and average prices have stayed relatively flat for the better part of the past year and a half. As we have commented before, the Nanaimo area so far has fared quite well relative to other markets across the province and country since the beginning of 2016.
So with single-family down 19% and 12% on a trailing 12 month and year to date basis, respectively, you may be wondering how does this decreased volume compare to other categories of residential real estate? Here are the trailing 12 and year-to-date figures: Apartment style condo volume is -29% / -21%, patio homes are -19% / -23%, and townhomes are -7% / +2%. The category that is a bit surprising is lots, which are up 53% / 50%.
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. So far there are 9 registered sales of homes over $800k in Nanaimo, including 3 over $1,000,000.
With 111 homes currently on the market priced at $800k plus, this would equate to more than a year’s worth of supply. However, if you have been following our commentary throughout the year, you may remember us reporting months of supply figures significantly more than just over 12 months, so on its own that could be taken as a positive. I’d suggest the declining months of supply is more a reflection of people who have had their homes sitting idle on the market deciding to take their homes off the market to ride out the winter. In October 12 listings priced above $800,000 were cancelled, and 15 expired, which essentially explains why the active inventory number, and subsequently the implied months of supply figure, have dropped.
So how did Nanaimo stack up against other Island communities north of Victoria for the month of September? Looking at the average price, Nanaimo, down just slightly (0.43%) year-over-year, was eclipsed to the downside by the Cowichan Valley, down 3%, and Parksville/Qualicum down a more noticeable 12% from October of 2018. To the upside, Port Alberni/Westcoast led the way, up 15% over October of 2018, with the Comox Valley (up 10%) and Campbell River (up 7%), also showing some strength.
Looking at sales volume, Nanaimo declining 20% didn’t see quite the volume slowdown that Campbell River did, down 26%. Other markets seeing decreased volume in comparison to the same time period last year were Parksville/Qualicum down 9% and Port Alberni/West Coast down 5%. The Comox Valley saw sales volume rise by 17% over October 2018, while volume in the Cowichan Valley was up a more modest 6%.
Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was up 3% while volume was down 11% from October 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 increased to 67% in October up from 48% in September, and up almost 12% from October of 2018 when the ratio was 60%.
The average sell price/list price remained constant at 96% in October, down from 97% in October of last year.
The average days on the market for the homes that did sell in October increased by 6% to 36 days from September’s 34 days, which is 16% higher than October of last year when days on market averaged at 31.
As of the end of October, the number of active listings was 345, down 7.5% from September’s 373 active listings, but 3% higher than the same time last year when there were 335 active listings at month-end.
Insights: Consistent with more balanced market conditions, of the 8 market indicators we look at in this section, 3 were positive, 4 were negative, and one remained unchanged.
On its own, a sell/list price of 67% is more reflective of a seller’s market, however, the other stats don’t appear to support this sentiment. This figure is more reflective of the declining number of homes being listed relative to past years.
The average sell/list price has moved downward from the 99% - 100% we were seeing pretty consistently at the peak of this market cycle, however by historical standards 96% is still quite respectable. With an average days-on-market (DOM) of 36 days, the homes that are selling on average are taking longer to sell than they were a couple of years ago when averages dipped down into the teens, but again, by historical standards, 36 days is still quite solid.
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 September to October, with 8 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 -16.28% in Brechin Hill, the bottom performer for the seventh month running, to 13.79% in Hammond Bay. The top riser month-over-month was Extension with Lower Lantzville the second highest. Top performers year-over-year were Hammond Bay, Diver Lake, Cedar, and South Nanaimo. Looking at volume, 3 of the 18 sub-areas saw increases month-over-month with Extension coming in as the top riser, while only one neighbourhood, (Pleasant Valley), 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. As I had commented on last month, if I had to speculate on why the Brechin Hill neighbourhood has been underperforming, I would suggest it is a neighbourhood that attracts a lot of attention from out-of-town buyers given its close proximity to the seawall, downtown, ferries, and seaplane terminals, as well as offering some pretty exceptional views at an affordable price. With buyer demand from out-of-town buyers noticeably slower than it was in years past, there simply isn’t the upward pressure on pricing that we were seeing. Brechin Hill also features many older homes that were prime targets for investors looking for a fix-and-flip. With prices essentially flatlining, the risk of not being able to cover renovation costs, let alone make a profit, is simply too high. This raises an important point...Not all neighbourhoods and classes of real estate move up and down at the same rate throughout the cycle. If you are considering a purchase that extends beyond the lifestyle considerations of a principal residence, at this stage in the cycle working with a realtor that has a good pulse on neighbourhood profiles and historic market action is very important.
Waterfront homes (on low volume), patio homes, and townhouses were the categories that saw an increase in average sale price from September to October, with waterfront homes, townhouses, and lots also experiencing increases from October of last year. Month-over-month increases in sales volume were reported in single-family homes, waterfront homes (again on low volume), and apartment-style condos, while lots was the only category to experience year-over-year increases.
Insights: Again, not much for meaningful conclusions to be drawn as these figures continue to fluctuate from month to month, and categorically there are not really any trends or patterns we are observing, which we interpret as suggesting we are in more of a consolidation phase where the market is taking a breather after a steady run-up.
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.
While we don’t have a crystal ball, if you’ve been reading our commentary you will be familiar with our take 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.
This fall we have started to see more and more aggressive price reductions at the higher end of the market, and it appears as though there may be some good deals out there. For information purposes only, I will provide 5 examples, cautioning that these are not recommendations as I have not conducted any investigation or due diligence on these homes, but rather to say that based on the listing information alone, they fit the type of scenario I have been describing, and may warrant further investigation:
MLS # 462135 - 6601 Golden Eagle Way - $699,900 - Originally listed at $749,900
MLS # 460859 - 6-3560 Yellow Point Road - $749,000 - Originally listed at $899,900
MLS # 461997 - 2433 Garry Oak Drive - $879,000 - Originally listed at $955,000
MLS # 456563 - 102 Piper Cres - $1,098,000 - Originally listed at $1,450,000
MLS # 461537 - 5470 Bayshore Drive - $1,199,999 - Originally listed at $1,445,000
Should this trend continue, and depending on how long it lasts, we anticipate that there will be somewhat of a ripple effect, where we could 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 may stretch further and buyers will be able to buy nicer homes at more affordable prices than they can today.
The true unknown variable here that may lead to this not coming to pass is the unknown future buyer demand at the higher end of the market. We don’t see that the local population has the qualifying incomes to support the absorption of the listings for sale at the higher end of the market, and the volume increase we’d expect in the coming years as aging baby boomers look to downsize. Therefore, market conditions at the higher end of the market are largely dependent on demand from out-of-town buyers, and their demand is largely dependent on the confidence they have to purchase in our market, which is significantly influenced by the market conditions in their own local markets where they are reading the headlines in the newspaper and reported on the local news. The lower mainland market has been showing some signs of life, and continued strength will likely position those looking to exit mainland life with the opportunity to do so, as once again mainland sellers are finding buyers for their homes, which paves the way for them to buy into the Vancouver Island dream at cents on the dollar, relative to home prices in Vancouver.
On that note, where do we see opportunities for buyers? Well looking at single-family homes, for the time being for the few buyers out there looking at higher-end homes, we’d still caution you to take your time as the equivalent of just over a year’s worth of inventory provides you with plenty of choice and likely some negotiating room if you can find a realistic seller. While undoubtedly the higher end of the market will rebound and regain its upward ascent at some point, as touched on above, until buyers with deep enough pockets to afford the higher-priced homes start to absorb the excess inventory, short term market conditions at the higher end of the market are likely to remain relatively subdued. Until we are reporting otherwise, 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.
For sellers, while owners 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 an elevated supply of higher-priced 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 while you may be able to find the odd diamond in the rough, currently you are still 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, at this point in the market cycle, 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 likely 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, at least in a short-to-medium timeframe. 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 October 2019
Source: VIREB