Average Price Holds Over $600k, While Sales Volume Remains Light
Single Family Prices and Volume
66 single-family homes sold in February, up 53% from the 43 that sold in January, and 5 less than the 71 that sold in February of last year. The average sale price of $600,648 dipped slightly from January’s average of $603,720, however, this figure was still up nearly 10% from last February, when the average sale price came in at $546,662. The median sale price increased by 1% from $579,000 in January to $585,000 in February, which is 14% higher than the same time frame last year when the median sale price was $515,000. 128 homes were listed in February, which was 22% more than the 105 homes listed in January, and 7% more than the 120 listed in February of 2019.
Insights: The average sale price of $600,648 represents the second-highest monthly average sale price for a single-family home in Nanaimo’s history. While the average did pull back slightly, this comes on the heels of three consecutive months of increasing average prices, and the jump in median price, up 14% over February of 2019’s median, also supports that it is not just a few seven-figure sales at the top end of the market really skewing the results. Looking at average price increases alone, so far 2020 is off to a solid start.
Looking at sales volume, the 66 homes sold was lower than February’s volume figures in any of the preceding 5 years. While there were more new listings this February than last, with 243 active listings at the end of the month, this figure is still relatively low by historical standards, as the average number of active listings at the end of the month over the past 5 years has been 314. What this implies is the lower sales volume can likely be partially attributed to buyers having less choice at the price points they are qualified to purchase at. Further, when you see the average price now slightly above $600k, the market is continuing to price out buyers. Currently just over a third of the homes on the market are priced below the average sale price, yet for the homes registered as sold so far in 2020, nearly two-thirds sold below the average sale price. What this suggests is that there continues to be fairly strong demand at the lower end of the market, while inventory levels remain elevated at higher price points where there is limited demand, largely as a result of income levels of the local population containing the purchasing power of these buyers.
With that said, if you’ve been following our commentary, you will know that 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 for February, there are 6 registered sales of homes over $800k in Nanaimo, with 1 over $1,000,000. With 100 homes currently on the market priced at $800k plus, and 54 of these over $1,000,000, there is certainly no shortage of supply at the higher end of the market. Our take is that continued improvement in the Lower Mainland market should help with absorption at higher price levels, but to what extent is hard to say. At some stage, more SOLD signs will drive more listings, as we still have the looming mass-downsize for those empty nesters who are looking to trade in their 3,000+ square foot family homes for the convenience of a lower maintenance option to allow them to enjoy their golden years. It will be interesting to see how this all plays out as local buyers simply don’t have the qualifying incomes to be able to purchase these larger homes at current price levels. We see the volume of out-of-town buyers (both domestic and international) with the qualifying income to buy these homes as a significant variable that will impact the mid to high end of the market over the next decade. As many domestic buyers are targeting Central Vancouver Island as their retirement destination of choice, the likelihood that they are looking to buy a 20-year old, 3,000+ square foot home that is functionally and aesthetically in need of a 6-figure update, just because the home has a decent ocean view I would suggest may not be an overly likely scenario to play out. What I see as potentially the best chance for mass absorption of these larger, now aging homes wrapping from North Nanaimo around to Departure Bay on the view corridor is increasing foreign buying on the back of mass media exposure for Vancouver Island. Families, and in some cultures, multi-generational families require space, and these cookie-cutter spec homes built to capitalize on the ocean views when building costs were much lower, budget permitting provides a solid option.
So how did Nanaimo stack up against other Island communities north of Victoria for the month of February? Looking at the average price, Nanaimo up 10% year-over-year was eclipsed to the upside by Campbell River, which was up 13%. Parksville/Qualicum was up 9%, and the Cowichan Valley and Port Alberni/West Coast were both up 3%. The Comox Valley was the lone decliner, down 4% from last February.
Looking at sales volume in comparison to last February, Port Alberni/West Coast was up 53%, Parksville/Qualicum was up 50%, Cowichan Valley was up 43% and Comox Valley was up 3 %. Nanaimo down 6% and Campbell River down 19% were the only decliners.
Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was up 6%, while sales volume overall rose 15% from February of 2019.
With improving market conditions on the Lower Mainland and price increases in both Nanaimo and Parksville/Qualicum, we continue to keep a close eye on Central Vancouver Island conditions as we head into the spring market. We believe a strengthening Lower Mainland market should be a catalyst for resurgent demand from empty-nesters looking to retire on the Island.
February’s volume increase of 50% and average sale price increase of 9% over last February in Parksville/Qualicum, the epicentre of retirement destinations, is certainly a positive early indicator in this regard.
Strength of the Trend
Factors we also look at when analyzing a market to validate its strength are the sell/list ratio; sell price; days to sell, and current inventory numbers:
The sell/list ratio increased to 52% in February from 41% in January but was down 12% from February of last year when it was 59%.
The average sell price/list price was 98% in February, up 1% from last month and no change from last year.
The average days on the market for the homes that did sell in February decreased by 26% to 34 days from January’s 46 days, which is slightly higher than February of last year when days on market averaged at 32.
As of the end of February, the number of active listings was 243, up 13% from January’s 215 active listings, and 6% lower than the same time last year when there were 259 active listings at month-end.
Insights: Of the 8 market indicators we look at in this section, 4 improved, 3 deteriorated, and 1 remained unchanged.
The sell/list ratio at 52% is still relatively strong, however, it is important to remember that there is still limited activity at the top end of the market, and as an average, this slow-moving higher-priced inventory is serving to pull down the overall sell/list ratio. This is why it is important as both a buyer and seller to be informed on what is going on in your price bracket and not rely on overall market averages as indicators of what you can expect. When you have 100 active listings currently priced above $800,000 and only 6 sales in February at this price level, which followed the 2 in January, these figures suggest if you are listing a home at the top of the market, your chances of securing a sale may not be great. However, if you relied on a 52% sell/list ratio to help forecast how likely a sale would be, this figure would tell a different story.
Overall, none of the results in this section are overly surprising or telling. The market is showing some signs of moderate strength, such as the sell price/list price ratio at 98% and average days on market at 34%, but activity is still largely constrained from a volume perspective by the lack of supply of new homes being listed at prices buyers are able to afford.
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 January to February, with 12 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 -13.04% in Lower Lantzville to 14.19% in Upper Lantzville. The top risers month-over-month were Cedar, Upper Lantzville, and Chase River. Top performers year-over-year were Upper Lantzville, Cedar, South Nanaimo, Hammond Bay, and South Jingle Pot. Looking at volume, 7 of the 18 sub-areas saw increases month-over-month with Hammond Bay coming in as the top riser, while 6 of the 18 sub-areas, Departure Bay, Brechin Hill, Cedar, South Jingle Pot, Pleasant Valley, and Upper Lantzville, also saw increases year-over-year.
Insights: Difficult to draw any significant conclusions here. Looking at top average price risers month-over-month, the one parallel that can be drawn is the top 3 are all on the outskirts of this zone and typically offer larger lot sizes, however, we never put too much weight into a single month’s results, as these results could be simply coincidental. Aside from this, some neighbourhoods are up, some are down, with seemingly no particular rhyme or reason. 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.
Apartment-style condos, townhouses, and lots were the only categories that saw an increase in average sale price from January to February, with single-family waterfront homes (on extremely low volume) and apartment-style condos the only two categories to experience a decrease from February of last year. Townhomes and patio homes both posted year-over-year gains above 15%. Month-over-month increases in sales volume were reported in single-family homes, patio homes, townhouses, and lots, with the latter two being the only categories to experience year-over-year increases.
Insights: It is not completely unexpected to see the average prices increasing significantly for both townhouses and patio homes given the affordability challenges pricing buyers out of the single-family market and turning to townhouses as the next best alternative, and the demographic driven shift in housing demand towards more ground-oriented housing that we are witnessing with the aging population, driving demand and price action for patio homes. With continued resurgent demand from out-of-town buyers targeting Central Vancouver Island as their retirement destination of choice and a lack of quality ground-oriented, low maintenance residences within our city limits, this category seems poised for further strength. That is unless buyers take a drive up to the Parksville/Qualicum area which, in our opinion, has done a much better job overall of building their housing supply to cater to the needs of the aging population.
Opportunities
For the better part of the last 2+ years, we have witnessed the market trending towards more balanced conditions than we experienced in the preceding 3 years (2015-2017). Nearing the end of 2019 there were some initial signs that the market may be starting to show some signs of life. January and February results have supported the notion that there is reason to be optimistic about improving market conditions in 2020, and the results coming out of the Lower Mainland for January (Sales volume up 44.9% overall from February of 2019, with a 20.7% decrease in active listings) are also positive signs for our market, as those buyers who have not been able to sell in the past couple of challenging years across the pond appear to now have a more likely probability of selling their homes, paving the way for a move to our region.
Without strong demand from Lower Mainland Buyers, as well as cooled foreign buyer demand on the heels of the foreign buyer tax introduced in 2018, the single-family home market in Nanaimo has seen an increasing divergence, essentially becoming the tale of 2 markets where we don’t have enough quality homes at affordable prices to satisfy the demand at lower price points, and we have an oversupply in the $800k+ category.
What does this mean for buyers? Well, as long as inventory levels remain elevated at higher price points, at some stage motivated sellers are going to adjust their pricing expectations to secure a sale. As Days on Market (DOM) add up for a listing, with each passing day, the likelihood of price reductions or concessions increases if the sellers have some motivation. If you are in the market for and looking in the $800k+ range, some patience, as well as diligence in trying to find signs of motivation (price drops, vacant homes, etc.), could go a long way in securing a solid purchase as price levels fall below where they may have been 2 years ago at the peak of the frothiness.
For sellers, given the lack of quality homes below $700k, if you are thinking about listing, as long as you are priced correctly, you should be well-positioned to sell into fairly strong demand, especially with the right marketing plan maximizing exposure. If, and that is a big if, we do see increasing Lower Mainland and foreign buyer demand at higher price points, then the spring of 2020 may represent the best opportunity since 2017 to sell a quality home at the higher end of the market. However, given the supply, homes will need to be priced accurately and competitively to be best positioned against the competition.
For investors, on the buy side, patience is going to be rewarded. If you are considering an income property, our take is that if you can find an opportunity where the numbers work, eg. positive cash flow, it is worth exploring. If your strategy is to gamble on increasing values, you may be taking on unnecessary risk exposure entering the market at this time if it is a negative cash flow property, as, despite some early signs the market may be improving, the reality is the only guarantee you will have is that you will be paying money out each month until rent levels rise. Again, patience monitoring the market for signs of a sustained uptrend could help you avoid a “false start” scenario. While we understand over time real estate generally appreciates, timing plays a significant role in investment returns, so just be cautious and make sure you are working with a qualified realtor who understands investment real estate and can give you the information you need (both positive and negative) to make smart decisions. Sometimes your best offense is a good defense.
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.
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Check out the Nanaimo Market Statistics Here: Market Statistics February 2020
Source: VIREB, REBGV
Disclaimer: The information presented is intended for general information purposes only and should not be construed as Real Estate advice. Each client's situation is unique and therefore we recommend consulting directly with your professional advisors (Realtor, Accountant, Lawyer, Investment Advisor, etc.) prior to making any real estate decisions. Not intended to induce breach of an existing agency agreement or solicit properties currently listed for sale or individuals currently under contract with a Brokerage.