May's Results Highlight an Increasing Tale of 2 Markets  

 

Single Family Prices and Volume

139 single family homes sold in May, up almost 14% from the 122 sold in April, but down by just under 22% from the 178 that sold in the same timeframe last year. The average home price increased marginally from April’s average of $553,352 to $563,218 although this is 7% higher than last May when the average home price was $526,234  The median sale price also increased by 4% in May to $555,000 from April’s $537,500, which is over 15.5% higher than last May’s median sale price of $480,000. 266 homes were listed in May representing an almost 18% increase over April, and an almost 4% increase over the 256 listed in May of 2017. While the average price increased nearly 1.8% in May, this comes on the heels of 3 months of relatively flat price action, as the past quarter has seen only a 2% increase. While it would be reasonable to suggest a 2% quarterly increase equates to an 8% plus annual return, which is still quite impressive, it is important to remember we are in the midst of the spring market which is generally when a significant percentage of the annual appreciation occurs due to strong market activity. Looking back over the previous 3 years, the February to May period saw annual average price increases of 8.96%, 8.77%, and 6.10%, respectively.

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 in May, coming in at 52%, down from 54% in April and down almost 26% from 70% in May of 2017. With the spring market typically bringing strong buyer demand, it is worth noting that taken together, the sell/list ratio for April and May is well below the level in the last couple of years, at 62%/70% in April/May 2017, and 79%/76% in  April/May 2016. Echoing our comments from last month in this slot, while Realtors continue to lament that there is just not enough inventory, it appears there may be more to the story than that. It is actually more of a case of there not being enough inventory at various price levels to meet the buyer demand at those price levels. Put another way, too many sellers are listing properties with unrealistic price expectations, beyond the prices that buyers are willing to pay. In May there were 266 homes listed in Nanaimo, while the last 30 days has brought 79 single family home price reductions, 129 across all categories, and this does not include listings that were cancelled and re-entered at lower prices. Translation, the market spoke and (at least) 79 times homes were overpriced. At the other end of the spectrum, there are sellers who understand the value of pricing accurately and competitively and are being rewarded with quick sales, in many cases with multiple offers and well above the asking price. While demand at higher price points has also been impacted by rising interest rates, stricter mortgage qualifying requirements, and the implementation of the foreign buyers tax and speculation tax, the divergence in pricing strategy has never been so evident and with the sell/list ratio hovering just north of 50%, at some point the remaining unrealistic sellers will need to react to a lack of demand at their price levels and adjust their pricing accordingly.

The sell price/list price remained constant at 99% in May which is not suggesting every home is selling at 99% of the asking price as it is just an average, with some selling well below asking, and the most attractively priced offerings going into multiple offer situations and selling above the list price in many cases. For a general frame of reference, typically anything 96-97% and above reflects fairly strong market conditions.

The average days on the market decreased to 16 days from 19 in April, which mirrors the number of days on the market from May of last year. Further to the comments in the paragraph above, this figure only factors in the homes that were priced accurately and competitively and that are selling, with many properties continuing to be listed at unsupported price levels in anticipation of further price advances that the market has grown accustomed to over the past 3 years.  While it is important for sellers not to leave money on the table, more often than not, the best chance to maximize your return is to price accurately thus maximizing buyer interest when the home initially hits the market. Price too high and you will limit your number of potential buyers, and your chances of a strong initial offer or even a bidding war leading to a sale above the asking price.

As of the end of May, the number of active listings was 358, up over 16% from April, and over 20.5%  from inventory levels at the same time last year. While these are not major increases, if this trend continues, it should be a positive for buyers, as more inventory means more choice and hopefully less competition. While a lack of supply has been a key factor in the rapid price increases we have witnessed earlier in this market cycle, with a sell/list ratio just above 50% and inventory levels continuing to rise, it would be reasonable to expect to see more balanced market conditions in the coming months.

Top Performing Neighbourhoods & Categories

12 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 all 18 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 annual increases range from 6.86% in Pleasant Valley to 23.54% in Brechin Hill. Top risers month-over-month were Chase River, Upper Lantzville, Pleasant Valley, and University District.  Top performers year-over-year were Brechin Hill, Uplands, Diver Lake, Extension, and University District. Looking at volume, risers both monthly and annually included Brechin Hill, South Nanaimo, Extension, North Jinglepot, and Diver Lake, with the exception of North Jinglepot, historically more affordable areas,  which is no surprise with affordability increasingly being a challenge.

All categories saw an increase in average sale price from April to May, with lots topping the bill on low volume, as well as year-over-year with the exception of Single Family Waterfront properties, which on low volume experienced a decrease in average sale price.  Townhomes lead the way in volume increase in May, followed by single-family homes, while year-over-year, all categories except for patio homes experienced a decrease in sales volume, which is no surprise given the demand for ground-oriented residences that is only increasing on the back of downsizing baby boomers increasingly settling in for their retirement years.

Only Found Here

At first glance, market information seems somewhat contradictory. The average price for a single-family home reached an all-time high in May, the number of days on market for sold properties is extremely low at 16, the average sale price is 99% of the list price… all bullish indicators. However, with the sell/list ratio hovering just above 50%, something doesn’t appear to be right. This month we took a look at the current supply of active listings, breaking down the various price levels where properties are listed, as well as where homes are selling, with some interesting findings:

- Under $300,000: 2.56% of May Sales, 1.27% of current listing inventory, 87.95% sell/list, 39.67 average days on market

- $300,000 - $399,999: 11.97% of May Sales, 4.02% of current listing inventory, 99.25% sell/list, 14.21 average days on market

- $400,000 - $499,999: 22.22% of May Sales, 14.16% of current listing inventory, 100.04% sell/list, 12.69 average days on market

- $500,000 - $599,999: 32.48% of May Sales, 18.39% of current listing inventory, 100.21% sell/list, 17.07 average days on market

- $600,000 - $699,999: 11.97% of May Sales, 18.60% of current listing inventory, 99.58% sell/list, 17.93 average days on market

- $700,000 - $799,999: 8.55% of May Sales, 9.73% of current listing inventory, 99.16% sell/list, 15.70 average days on market

- $800,000 - $999,999: 7.69% of May Sales, 16.70% of current listing inventory, 97.29% sell/list, 33.56 average days on market

- $1,000,000 +: 2.56% of May Sales, 17.12% of current listing inventory, 98.14% sell/list, 13.33 average days on market

What this means: This is really the tale of 2 markets…

Under $600,000, the percentage of May sales outpaces the current percentage of listings in that price category, days on the market are low by historical standards (with the exception of under $300,000) and the sell to list ratio is strong (again, with the exception of the sales under $300,000, which are likely properties with significant issues).  

Above $600,000, the current percentage of listings exceeds the percentage of May sales in these price categories, and the sell to list ratio starts to creep up. Particularly noteworthy is the $800,000 to $999,999 category with 7.69% of sales, but 16.70% of active listings, and even more pronounced, the +$1,000,000 category, currently representing 17.12% of active listings, but with merely 2.56% of sales occurring in this category.

So what is happening here? Increasing affordability challenges on the back of new mortgage qualification requirements and rising interest rates are playing a factor, undoubtedly limiting demand at higher price points. Additionally, foreign buyer demand has been strong the past few years, especially in the $600,000 + categories. The foreign buyers’ tax and speculation tax are definitely having a significant impact on the demand for $600,000+ properties, as the local population with a median income of $62,822 based on the last census, simply can’t even come close to affording and absorbing the volume of listings priced in this range. Over the next few years, interest rates are likely to rise and increasingly downsizing empty nesters are going to be looking to sell their 3,000+ square foot homes, creating a likely scenario of oversupply, and limited demand.

Dating back to the 2017 Forecast, and again echoed in our 2018 Forecast, we have been repeatedly highlighting how higher price points will be oversupplied in the coming years, while affordability challenges and buyer preferences will limit demand. While buyers may wish to buy $800,000 ocean view homes, if they only have the ability to finance a $400,000 purchase, their $800,000 dreams are just that, dreams. The market needs support at various price levels. Otherwise, sellers will need to price reduce, and the domino effect will likely push price levels back down towards where supply and demand are more balanced.

Opportunities

In May 2018, there were 12 sales above $800,000, significantly less than the 23 that occurred in May of 2017. More pronounced, May 2018 had 3 homes transact over $1,000,000, less than a third of the 10 that occurred in May of 2017. With rising interest rates, more stringent mortgage qualifications, and the introduction of the foreign buyer tax in Nanaimo, there is simply less demand for homes at higher price points. So what does all this mean for buyers? Well, if you are looking above the $800,000 mark, it is less likely that you will be in competition, and as the days on the market increase, the likelihood of being able to find a motivated seller and being able to negotiate a “decent” deal should be greater.

On the flip side, if you are looking to unload your home in the $800,000+ range, you will be selling into a much different market than just 1 year ago. It’s not to say that a quick sale will not happen, but it is all the more vital that the home is priced accurately and competitively to maximize exposure when interest is the highest. If you have been trying to time a market top to list (which in our view is nearly impossible and highly risky), in our opinion you have likely missed your opportunity, so you may want to take this opportunity to get your home listed, hopefully ahead of a further erosion of demand at higher price levels. Below $600,000 demand remains relatively solid, however, there is no guarantee that these market conditions will persist for any sustained period of time. The reality is, people need to buy homes, so we’d expect demand to remain relatively solid below $600,000 for the foreseeable future.

With that said, investors (especially in the sub-$600k range) may want to capitalize on the remaining spring market to take some money off the table in anticipation of cooling market conditions or even a market correction in years to come. Taking the opportunity to lock in your gains and diversify into other asset classes or move into other markets that appear to have more upside potential may not be a bad idea.

We are by no means suggesting that now is the time to sell for everyone, as individual circumstances differ, as do investment objectives, etc. Remember, we all need a place to live and over time real estate generally appreciates. We just know there are peaks and valleys and we have reason to believe we are closer to the peak than the valley.

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 2018

Source: VIREB