UPWARD PRESSURE ON PRICING CONTINUES WITH TRENDS SUGGESTING PRICES AT THE LOWER END OF THE MARKET ARE INCREASING… 

Single Family Prices and Volume

114 single family homes were sold in October, 3 less than were sold in the same time frame last year, and 28% less than were sold last month, contrasting with last October which actually saw a 7% volume increase from September. Despite the substantial decrease in homes sold in October, the average sale price for a single family home remained comparatively stable at $473,203 compared to $476,691 in September. However, it is worth noting that this is still up almost 23% from the October 2015 average of $385,099.  That said, the movement in the average price isn’t the only determining factor in assessing the strength of a market. The median sell price is relied upon as a secondary measure which will not be skewed by a few high priced homes selling at the top end of the market and October’s median price was $450,000, which is a 7% increase month-over-month and almost 24% above last year’s figure. It is interesting to note that the variance between the median and average sale price of $23,203 is the closest it has been so far for 2016, suggesting that prices at the lower end of the market are increasing.

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 month-over-month by over 11%, and year-over-year by 6%, from 87% in September 2016 and 82% in October 2015 to 77% in October of this year. 77% is still a very respectable number, suggesting market conditions remain relatively strong. 

The sell price/list price actually increased by 1% to 99% in October after sitting at 98% for the previous 2 months; this is up 4 points from 95% in October of last year. This figure suggests there is still sustained upward pressure on pricing. 

The average number of days on the market continued to decline, down to 20 days from 24 in September.  This represents an almost 17% decline month-over-month and a 57% decline year-over-year with the average home on the market for 46 days in October 2015, suggesting that attractive offerings continue to sell far quicker than seen over the past number of years and explaining why  buyers still need to act quickly to avoid missing choice opportunities. 

There was no change in current inventory numbers - still at 233 active listings in October, but down almost 39% from October of last year  which explains why buyers continue to struggle to find suitable properties. Lack of inventory is one of the primary drivers of the upward pressure on pricing as buyers compete for a limited supply of properties. 

Top Performing Neighbourhoods & Categories

In October, of the 18 sub-areas defined by the real estate board in Nanaimo, 44% saw an increase in the average selling price between September and October, and 89%, or 16 of the 18 saw increased prices year-over-year. Despite the headlines, not all neighbourhoods are moving in the same direction all the time. With real estate being location specific, it is vital to know what is going on in your area when determining whether the timing may be right to sell your home. For buyers, neighbourhoods will experience differing price action throughout the cycle. Again, it pays to know what is happening in each sub-area, to determine whether a purchase would be prudent.

For single family homes, Hammond Bay, Brechin Hill and Extension were the top performers.

Patio homes were undoubtedly the top performer categorically, and the only housing category that saw positive month-over-month results both in terms of price and volume, up over 20% and 200% respectively in October. However, it should be noted that  all categories with the exception of apartment style condos saw a year-over-year increase in average sale price.

Opportunities 

With upward pressure on pricing remaining strong, driven by solid demand and limited supply, we view purchases in the Nanaimo market for investment purposes at this point in the market cycle as speculative. Without a very low-ratio mortgage, finding cash flowing residential investment properties are nearly impossible. In other words, if you are buying a rental property in Nanaimo in October 2016, the only guarantee you have is that you are going to lose money every month, basically crossing your fingers that the market is going to continue upwards despite no underlying economic support for it to do so. Factor in recent government intervention in lending, which will result in buyers qualifying for significantly less on their mortgages, and the outlook is not overly optimistic. This is not to say we don’t have another 6 months, 1 year, even 2 years left in the current run. Timing is what is most challenging to predict. The outcome is not…

The reality is the markets will peak, and they will turn downwards. Real estate markets are cyclical, and this move is inevitable, it’s just a matter of when. What we always tell investor clients who are thinking of selling is to pick a number and stick to it, because if the market turns and you get caught, there is a good chance you will ride it down, in hopes of one day getting back to the number that you happily would have sold at in the first place. If this section sounds like a near repeat of last month’s market update, it’s because it is. We want to hammer this point home...Despite what the average Realtor will tell you (who is also feeding their family based on real estate commission cheques), we are not at the start of a 7 year cycle...

So if it is not abundantly clear by this point in this section, we see opportunities on the sell side, leveraging low inventory numbers and rising prices to maximize recent gains. While investors often try to maximize their portfolio growth by timing the top, the better approach is often a more defensive strategy, whereby you look to lock in reasonable gains and protect your downside risk exposure. We are by no means suggesting that now is the time to sell for everyone, as individual circumstances differ, as do investment objectives, etc. What we are saying is that if you are risk averse, and seeing an investment property value down $50,000 - $100,000 from its current value would cause you to lose sleep at night, the fall market may present you with a good opportunity to get out with a very respectable return. For a consultation specific to your situation, please feel free to contact us anytime.

If you have any questions about market conditions or would like more details specific to your neighbourhood, please contact us at info@jahelkagroup.com and we would be happy to help.

Check out the Nanaimo Market Statistics Here

Source: VIREB