Market Appears to be Trending Towards More Balanced Conditions

 

Single Family Prices and Volume

121 single family homes sold in October, 23 more than the 98 sold in September and 6% less than the 129 that sold in the same timeframe last year. The average home price decreased by almost 4% in October to $559,149 from September’s average of $582,115, however, this is still over 8% higher than last October when the average home price was $516,354. The median sale price decreased by almost 5%, down to $525,000 from September’s $551,700, but this is still almost 12% higher than last October’s median sale price of $469,000. 201 homes were listed in October representing an increase of more than 17.5% from the 171 listed in September, and a 6% increase on the 189 listed in October of 2017.

Insights: While the average and median prices are down, it is important to consider that September experienced a noticeable dip in sales volume, which, based on the median price reaching an all-time high in September, suggests that fewer homes were selling at the lower end of the market, so the homes that were selling at higher price points were having a larger pull on the average price than otherwise would have been the case. With that said, October’s figures are relatively in line with what the market has been experiencing dating back to February of this year. While listing volume is up, year-over-year it is not overly pronounced, and is falling in line with the general trend towards more normalized listing volume after a couple of years of subdued listing volume. Translation: no major concerns on these figures alone.

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 60% in October, up from a ratio of 57% in September of this year but down by almost 12% from October of 2017 when the ratio was 68%.

For the third month running, October’s sell price/list price remained at 97%, down just over 2% from October 2017 when the sell price/list price was at 99%.

The average days on the market remained at 31 for a second month, which is 24% higher than the average of 25 days on the market in October of last year.

As of the end of October, the number of active listings was 335, down by almost 8% from the 364 active listings in September, but over 11% higher than inventory levels at the same time last year.

Insights: Looking at each of these figures, all have deteriorated from last October. However, in the context of a market cycle, all remain stable, with no signs of impending doom. The fact is market conditions experienced in 2016 & 2017 were unsustainable. What we are experiencing here appears to be more of a normalization or a gradual return to more balanced market conditions.

Top Performing Neighbourhoods & Categories

11 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 16 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 -5.63% in Lower Lantzville to 24.30% in Pleasant Valley, with both areas holding these same spots for a second month running. Top risers month-over-month were Cedar and Old City. Top performers year-over-year were Pleasant Valley, Old City, Uplands, Departure Bay, Brechin Hill, and Central Nanaimo. Looking at volume, the only risers both monthly and annually were Lower Lantzville, Upper Lantzville, and Diver Lake.

Insights: Looking at the various sub-areas and market action, we are looking to identify trends and patterns. However, this month there doesn’t appear to be any prominent patterns, as some neighbourhoods are up, and some are down on both volume and price. This would also support the fact that we are trending towards more normalized conditions. While the figures for each neighbourhood are not included in this report, what we can say is that while there is still a large spread on year-over-year price action from lowest -5.63% in Lower Lantzville to 24.30% in Pleasant Valley, figures overall are not as pronounced as we are seeing more single digit and lower double-digit year over year price increases than earlier in the cycle upswing. Of course, this makes sense with the average home price up just over 8% year over year, which is coming on the heels of a 16% average price increase in 2017, and 14% in 2016. Again, consistent with the figures above, we are simply seeing a market boom decelerating and a return to more balanced market conditions.

Apartment-style condos, patio homes, and townhomes were the only categories that saw an increase in average sale price from September to October; and these same categories, with the addition of single-family homes, also saw increases year-over-year. All categories, except waterfront homes, experienced month-over-month increases in sales volume, though only lots and patio homes (both on relatively low volume) reported increases year-over-year.

Insights: With rising interest rates, stricter lending guidelines, and affordability continuing to impact the market, it is no surprise at this stage in the cycle that the more affordable categories (condos, patio homes, and townhomes) are still experiencing both month-over-month and year-over-year price increases.

Not mentioned above, but notable is the lot category, and more specifically the volume of lot sales. In the trailing 6 months (May - October), there have only been 12 residential lot sales. This is slightly more than a quarter of the 46 that sold in the same period for 2012, and the 91 that sold in the same period for 2016, when the transaction volume reached its high point for this cycle. When investigating why this may be the case, naturally one of the first questions is regarding the supply of lots. Has there been a shortage? Not exactly...there are currently 107 residential lots for sale in Nanaimo, or based on the past 6 month’s market activity, 53.5 months worth of supply. While it likely won’t take four and a half years to eat through the current lot supply, it does highlight the fact that builders are not actively seeking out new opportunities, likely trying to get their existing lots built on and to market to reduce the risk of being caught if the market continues to moderate or heads towards a more drastic correction. As builders, at least the good ones, are generally on top of market conditions, the volume of lot sales is generally a pretty good indicator of where we are in the market cycle. As such, these figures on their own would imply market activity has peaked for this cycle and we are on the downswing. The question is will it be more of a soft landing as conditions gradually return to more of a balanced market, or will it be a more aggressive correction. So far, it appears we are in more of a gradual return to more balanced conditions. For the sake of homeowners and the general economy, let’s hope it stays this way.

Opportunities

At the risk of sounding like a broken record, we believe the market is moving towards more balanced market conditions. Inventory levels have been increasing and pent-up buyer demand has dissipated, either being satisfied by increasing inventory levels, reduced based on government intervention (speculation tax, etc.), stricter lending requirements, higher interest rates, or investors recognizing that the opportunity to acquire cash flowing residential property in the area is now pretty much impossible.
What this means is that discerning buyers who were patient through the heights of the market craziness will now have more selection. With a sell to list price for the last few months averaging at 97%, there once again may be some room for negotiation. Remember this when selecting a Realtor and ensure they have the proven negotiating skills and market expertise to be able to recognize that the market is shifting and that a strong business case must be put together to support getting you the very best price.

For sellers, if you have been trying to time a market top to list (which is nearly impossible and highly risky), in our opinion you have likely missed your opportunity. With that said, the average price is now only 4% below the all-time high, and the list/sell ratio of 60% is still implying that we are marginally in “seller’s market” territory, so you may want to take this opportunity to get your home listed, hopefully ahead of a further erosion of demand, especially at higher price levels. However, if you do need to sell 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. 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, 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. Just our take…

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. Be cautious… watch the headlines. Is the market up 8% in October (year-over-year) or down 4% (month-over-month)? Same market, 2 different stats... Make sure you get the full story...

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 for October 2018

Source: VIREB