Depressed Sales Volume Remains the Story in September
Single Family Prices and Volume
91 single-family homes sold in September, 1 more than the 90 that sold in August, and 7 fewer than what sold in September of last year. The average home price was up 3.7% in September to $569,667 from August’s average of $549,622. However, September’s average was still 2% less than reported last September when the average home price was $582,115. The median sale price increased marginally from $537,500 in August to $539,000 in September. Again, this figure is down 2.3% from the same time frame last year when the median sale price was $551,700. 188 homes were listed in September, which was 12% more than the 168 homes listed in August, and almost 10% more than the 171 reported as being listed in September of 2018.
Insights: After 3 consecutive months on the decline, the average home price rebounded reasonably in September. However, on a year-over-year basis, we are still below where the average home price was for the same time period last year. 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 fall of 2019. While there was 1 more home sale than we had in August, by historical standards September is generally a fairly busy month in the market, as people return to routines as summer comes to a close. In comparison to last year, there were 7% fewer sales in September, but this doesn’t tell the whole story as the 98 sales in September of 2018 was down significantly from the 152 and 158 homes that sold in September of 2017 and 2016, respectively. In the past 12 months, there have been 17% fewer sales than in the preceding 12 months, which was itself down 13% from the 12 months before that. Single-family homes are not the only category feeling the slowdown...On a trailing-12 basis, acreage sales are down 29%, apartment sales are down 29%, patio homes are down 10%, townhomes are down 7%, half duplexes are down 31%, mobile homes are down 16%.
Last month we commented that volume was possibly starting to stabilize after following a general trend downwards for much of 2018 and early 2019. We may have spoken too soon, as once again volume is off by a noticeable amount, down 16% month-over-month, and 25% from August of last year. When you look at the total sales volume for the past 12 months in comparison to the preceding 12 months, volume is down 20%. Looking at year-to-date figures, so far in 2019, there have been 768 single-family home sales, which is down 12% from the 871 that sold from January 1 to August 31 of 2018. So with single-family down 20% 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% / -23%, patio homes are -14% / -21%, and townhomes are -11% / +2%. The category that is a bit surprising is lots, which are up 25% / 26%.
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 7 registered sales of homes over $800k in Nanaimo, including 2 over $1,000,000.
With 129 homes currently on the market priced at $800k plus, this would equate to more than 18 months of supply. While finding quality options priced competitively below $600k has remained challenging, 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 still 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 129 homes currently on the market priced above $800k and very few are selling each month, it would be reasonable to make the assumption that 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 September? Looking at the average price, Nanaimo, down 2% year-over-year, was the only decliner. Comox Valley and Cowichan Valley lead the way, both up 15%, followed by Campbell River where the average price jumped 12%, Port Alberni up 8% and Parksville/Qualicum up 7%.
Looking at volume, Nanaimo declining 7% didn’t see quite the volume slowdown that Campbell River and Port Alberni did, down 19% and 9%, respectively. However, Nanaimo fell short of the results in Parksville/Qualicum which saw volume spike 33% from last September. Comox Valley saw volume rise 4%, while the Cowichan Valley was up 2%. Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was up 8% while volume was down 1% from September 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 48% in September, down from 54% in August, and down 15.8% from September of 2018 when the ratio was 57%.
The average sell price/list price decreased to 96% in September down from 98% in August and from 97% in September of last year.
The average days on the market for the homes that did sell in September increased by 41.7% to 34 days from August’s 24 days, which is over 9.7% higher than September of last year when days on market averaged at 31.
As of the end of September, the number of active listings was 373, up just over 1% from August’s 368 active listings, and 2.5% from the same time last year when there were 364 active listings at month-end.
Insights: As you are likely well aware, statistics can be used to help support whichever point you are trying to make. For example a 3.7% increase in average sale price on its own...very positive. A decline of 2% from last September...not great, but not of huge concern. What is more concerning is that when we look beyond average pricing, for the first time this cycle 8 of 8 market indicators that we look at in this section deteriorated. While Nanaimo has fared quite well relative to other markets, these indicators coupled with the fact that we were the only major community north of Victoria on the island to see prices decline year-over-year, suggest that our reasonable fortune through what is hopefully the depths of the market slowdown in BC, has possibly started to catch up with us. With that said, 1 month’s results never tell the whole story and with the fluctuation month to month, we continue to believe that these inconsistent figures and volatility 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
9 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 August to September, 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 -17.93% in Brechin Hill, the bottom performer for the sixth month running, to 12.57% in Diver Lake. The top riser month-over-month was Upper Lantzville with South Jinglepot the second highest. Top performers year-over-year were Diver Lake, Hammond Bay, Cedar, and South Nanaimo. Looking at volume, 5 of the 18 sub-areas saw increases month-over-month with Upper Lantzville and Chase River coming in as the top risers, while only two neighbourhoods, (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. 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.
Single-family homes, apartment-style condos, townhouses, and lots were the categories that saw an increase in average sale price from August to September, with apartment-style condos, townhouses, and lots also experiencing increases from September of last year. Month-over-month increases in sales volume were only reported in single-family homes, townhouses, and lots, while patio homes, townhouses, and lots were the only categories 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, 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 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 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 largely determined 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 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 18 months 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.
Another category we are keeping our eyes on is apartment-style condos, where the market seems to have cooled quickly. If you read out 2019 Market Forecast, in particular, the “Supply” section, we highlighted some concerns we had with the volume of new construction of condo units scheduled to hit the market at what we feel is the tail end of this cycle. Some notable stats for apartment-style condos in September (in comparison to September of 2018) read as follows: New listings up 116%, active inventory up 229%, days on market for those that did sell up 81%, sales volume down 10%, list/sell ratio down to 20%. To say the least, this isn’t painting an overly rosy picture for the condo market in the foreseeable future, especially as the glut of condo inventory scheduled to hit the market over the next few years is just starting to be listed. In our opinion, the condo market is likely to get worse before it gets better. Not great for sellers… Certainly likely to create a decent opportunity for buyers.
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 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 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. 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 September 2019
Source: VIREB