2019 Nanaimo Market Recap & 2020 Look Ahead
Single Family Prices and Volume
1,123 single-family homes were sold in 2019, down 7.3% from the 1,212 sold in 2018, which in itself was down 24% from the 1,605 homes that sold in 2017. The average sale price for a single-family home increased by 1.65% to $566,023 from $556,820 a year earlier. While the average price did increase slightly, the pace of average price growth has decelerated from the previous 2 years when our market experienced average sale price increases of 7% and 16% respectively. The median sell price, (which we rely upon as a secondary measure to gauge price action as it isn’t skewed by a few high priced homes selling at the top end of the market), came in at $549,000 for 2019, up 2.7% from $534,500 in 2018.
Insights: While sales volume was down and average sale prices stabilized in 2019, so far the Nanaimo area has fared quite well given the macro market slow down the real estate sector has experienced since early 2018. Realistically, in comparison to the Lower Mainland which experienced a far more pronounced correction, if 2019 was the turning point, we would look at this as somewhat of a “best case” scenario, after the strong run-up in average sale prices from 2014 to 2018.
As Canada’s retirement destination of choice, and just a 15-minute float plane ride from one of the most desirable and liveable cities in the world, we have often viewed Central Vancouver Island as being somewhat insulated from the more volatile downswings that are experienced in other markets across the country. Dating back to the last market cycle where volume peaked in 2007 (1702) and average price peaked in 2018 ($365,173), the most significant year over year average price decrease (in other words “the correction”) was a 3.8% decrease which occurred in 2009. From here, the average price was essentially range-bound between $351,286 and $363,985 for an extended period into 2014, when this cycles’ pricing appreciation started to take off, with the market stepping up 5.24% from 2013’s average sale prices.
While our average price increases have remained positive, as mentioned above, sales volume has now decreased for the second year in a row, and 2019’s volume of 1,123 units was 11% below the 10-year average. With decreased buyer demand from the Lower Mainland where potential buyers in our area have been unable to unload their Mainland residences, as well as decreased foreign buying on the heels of the foreign buyer and speculation taxes, what may not be getting as much press is the fact that our 7% decrease in sales volume was outpaced by a 9% decrease in listing volume. When you consider the somewhat stagnant top end of the market (more on this later), the sales volume of entry-level to mid-market homes was undoubtedly slowed by the lack of suitable homes listed for sale at price points that buyers were ready to buy at. The root cause is two-fold as, in addition to the decrease in listing volume, this is another byproduct of a multi-year run-up in price, where sellers become accustomed to seeing their home values rise significantly each year, and lose sight of the fact that this isn’t always the case, consequently overpricing their listings and not succeeding with their attempts to sell at the prices buyers are willing to pay for their home.
If you have been following our commentary, you know that for much of 2019 we were tracking the higher end of the market, essentially represented by homes above $800k in our market. In total, there were 127 single-family home sales above $800,000 in 2019, which was down from 135 in 2018 and 168 in 2017, which represents nearly a quarter less volume in this range. However, we saw the numbers even more pronounced above $1,200,000 where 2019’s 20 sales is less than half of the 41 sales that occurred in 2017. Above $2,000,000, the declining volume is even more drastic. Over the past 3 years, the number of sales over $2,000,000 has dropped from 7 in 2017 to 3 in 2018, to just 1 in 2019. So why has volume slowed so much at the top of the market? In our opinion, market corrections in other markets, most impactfully the Lower Mainland, in addition to reduced demand from foreign buyers on the heels of the foreign buyer tax and speculation tax being introduced, has resulted in much lower demand at the higher end of the market from buyers who have the financial resources to buy at that price point.
Something else that is important to keep in mind when looking at the average home price figures is that one of the other consequences of reduced sale volume at the higher end of the market is that the average sale price figures do not benefit from these homes pulling up the average. So while the overall average only shows an increase of 1.65%, there was, in fact, a decent level of appreciation that would have certainly outpaced this figure for many homes towards the lower end of the market.
The reality is the income levels of the local population simply cannot support the higher price levels, as the rapid appreciation between 2014 and 2018 significantly outpaced household income growth during that time period. Taken together with the increased reliance on consumer credit, the vast majority of local buyers simply don’t have the borrowing capacity to finance a home purchase at the higher end of the market. While money remains cheap (low interest rates by historical standards), this certainly won’t offset the financial constraints faced by most local buyers.
Our market then becomes the tale of 2 markets – 1. The local working-age population often raising their families, and 2. The out-of-town buyer making a lifestyle choice to live on Vancouver Island and who perceives our market to be good value and who has the financial means to purchase at the higher end of the market. It is our take that what we have experienced in the last 2 years is a marked slowdown of category 2 buyer demand. Meanwhile, category 1 has plodded along. Families grow, people get promotions or receive an inheritance and they want to upsize, conversely, the aging baby boomers who have become empty nesters are downsizing, so the market has remained relatively stable on this basis. What has been removed is heightened demand that outpaces supply from buyers with the capacity to pay, leading to competitive, often multiple-offer situations, that result in sustained upward pressure on pricing.
So if we are right, and as we have often mentioned in the past that “Vancouver is the straw that stirs the drink in the BC real estate market”, then current and anticipated 2020 market conditions in Vancouver are important to look at. The Real Estate Board of Greater Vancouver reported residential sales (detached, attached, and apartments) volume is up 3% over 2018 volume, but still down 29.6% from 2017 levels. Depending on the category, average prices were down in the 2-4% range. However, this doesn’t tell the whole story as a very slow start to the year led to a more robust second half of the year. In fact, December sales figures were up 88% from 2018, which was also 9.5% above the 10-year average. While we are quick to point out 1 month doesn’t make a market, this comes on the heels of an improving fall market and gives reason for some optimism following a temporary, but quite bleak, period for the Lower Mainland market.
Globalization and more specifically foreign buying is another factor we have referenced. Immigration numbers to Canada remain strong and the urbanization of both China and India, both home to over a billion, amongst other developing nations, has resulted in increasing demand from those looking to build a life in Canada. Technology and social media have also raised the profile of many small towns in Canada and has made it increasingly easy to purchase property sight unseen from abroad. With the world as our market, you have to realize that there is a limited supply of Oceanfront communities on the Westcoast of Canada. After Greater Vancouver and Victoria, Nanaimo is the 3rd largest city and by far the most affordably priced of the top 3, so for a foreign buyer moving from a major centre and thinking Port Alberni may be a bit too rural (not enough shopping, entertainment, restaurant choice, high-end housing), Nanaimo likely represents somewhat of a happy medium, and an overall good value package-offering. With an aging population and a shortage of workers to fill job roles and contribute to the tax base, immigration policy is likely to remain relatively liberal over the foreseeable future. This again sets the stage, outside of any major unforeseen macro events cratering the overall market, (eg. 2001, 2008), for a fairly optimistic medium-to-long-term future outlook on Central Vancouver Island.
A final consideration is technology, social media and social sharing, which we believe accelerated the run-up in prices over the last cycle, accelerated the downturn in major markets in Vancouver, and is likely to accelerate the next market cycle and the level of hype-driven speculation that goes along with it. There are more social media platforms and far more users of these platforms than in 2014 when the last upswing took off. While the market remained relatively subdued for 5 years following the cooling of the last market cycle, technology is likely to accelerate the cyclical swings we have come to expect, especially to the upside as industry pundits typically have a vested interest in a robust real estate market.
Strength of the Trend
Some of the factors we also look at when analyzing a market to validate its strength are sell/list ratio; sell price/list price; days to sell, and current inventory numbers:
The sell/list ratio increased year-over-year to 58% from 57%, the sell price/list price decreased to 97% from 99%, the average number of days it took a home on the market to sell increased in 2019 to 33 days, up from 25 in 2018, and the number of active listings as the calendar turned over was 205, 51 less than the 256 on the market at the end of 2018. With the end of the calendar year occurring in the midst of the holiday season and winter weather conditions that often deter seller’s from having their homes on the market, it is important to look at the inventory from another angle to get a better idea of how much choice buyers had throughout the year. With that in mind, the average month’s number of active listings at the end of the month was 325, up 2% from the average of 318 in 2018, suggesting that on average, overall buyers had marginally more homes to choose from in 2019 than in 2018.
Insights: There is nothing presented in this section that suggests anything other than that the market in 2019 trended more towards a balanced market, but by historical standards was still relatively strong. A sell/list ratio of 58% is closer to a seller’s market than a buyer’s market. A 97% sell price/list price is still very respectable. While 2016-2018 saw this figure at 99%, 97% is still a point above the 10-year average of 96% and demonstrates that sellers may be getting a bit more realistic with their expectations when negotiating the sale of their home. While the days on market (DOM) figure did creep up to 33 days, again, by historical standards, this is still quite a positive sign, as it is still well below the 10-year average of 41 days. Looking at the current number of active listings at the end of December in comparison to the figure a year prior may also be a bit deceiving, as there was a spike in ending inventory levels at the end of that year from what we had seen in a couple of year-ends before that. This could be partially attributed to the fact that the 122 sales in the last 2 months of 2019 were 27% lower than the combined sales volume for November and December of that year. Looking back a few years, 2017 ended with 191 homes on the market, 2016 ended with 190, and December of 2015 ended with 252 homes on the market.
What is important to note is that the sales volume for November and December of 2019 significantly outpaced the 2018 numbers. When you consider that for much of the year, especially in the early months, we had monthly sales volumes showing fairly noticeable declines from 2018 numbers, the strong end to the year is certainly a positive sign for the early 2020 market. Without drawing any serious conclusions, you do have to wonder if the recovering Lower Mainland market contributed to the sales volume at the end of the year in our market. We will certainly be keeping a close eye on sales volume figures and inventory levels in the early months of 2020, as any follow through here with increased sales volume on the back of increased demand without an increase in the number of new listings from the reduced listing volume we had in 2020 could set the stage for a competitive spring market with a resumption in the upward pressure of pricing.
In 2019, 12 of the 18 sub-areas defined by the real estate board in Nanaimo experienced a price increase, however, the weight of the increase varied significantly depending on the sub-area. Of these, 2 experienced double-digit average price increases, namely top performer South Jinglepot at 13.77%, followed by Upper Lantzville at 10.97%, with the remainder of the risers posting single-digit gains. North Jingle Pot led the way to the downside with the average sale price declining 12.3%. Brechin Hill down 9.38% also experienced a noticeable step-down.
However, price alone does not tell the story of a market as volume also has to be taken into consideration. Of the 18 sub-areas in Nanaimo, only 5 experienced volume increases, Departure Bay, South Jinglepot, Cedar, University District, and Pleasant Valley. On the opposite end of the spectrum, the 5 areas that saw the most pronounced drop in sales volume were Lower Lantzville, Extension, Old City, Chase River, and Hammond Bay.
Insights: When looking at the two neighbourhoods that saw the greatest increase in average sales price, digging a little deeper you soon discover that in 2018, South Jinglepot was actually the worst-performing subarea in Nanaimo, with an average price decrease of 8.9% from 2017 levels. Similarly, Upper Lantzville was the second-worst performing market in 2018 on this basis, posting a 0.14% increase from 2017, so it is not a huge surprise these 2 areas are showing a bit of a rebound.
Another interesting observation is that North Nanaimo, Departure Bay, Old City, and Lower Lantzville, which joined Brechin Hill and North Jingle Pot as the neighbourhoods where average prices decreased in 2019, are all neighbourhoods that in our experience were highly desirable to out-of-town buyers, and may have been a bit overheated. Not suggesting this will repeat, but if you look at the bottom 2 performers in 2018, by average sales price increase, they were the top 2 performers in 2019. Further, a resurgence of out-of-town buying could also support a rebound in these areas. We’ll have to take a wait and see approach on this though.
Something that is important to remember when looking at real estate markets, is 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….
Townhouses were the top-performing category with the average townhouse sale price increasing 11% in 2019. Apartment-style condos and single-family homes also experienced average price increases in 2019 of 4.18% and 1.65% respectively. Waterfront homes (down 8.69%) was the weakest performer by category, followed by patio homes down 2.93%, and lots, which saw average prices decrease by 0.73%.
From a volume perspective, lots up 35.48%, waterfront homes up 22.58%, and townhomes (2.43%) were up from 2018 sales figures, with patio homes (-20.22%), apartment-style condos (-15.15%), and single-family homes (-7.34%) all with decreased sales volume.
Insights: In the midst of a market slowdown linked in large part to affordability concerns, it is no surprise to see townhomes as the top performer in 2019. If you can’t afford a single-family home, what is your next best option? Often a townhome, as it is the most similar. Take it a step further, when you can’t afford a townhome, what do you purchase? That’s right, for many it will be an apartment-style condo, which was the number 2 performer on an average price increase basis. Conversely, with the affordability concerns that constrained further market appreciation and slowed demand, it is no surprise to see average waterfront homes prices in negative territory for 2019. Patio homes saw average prices decrease slightly which may be partially attributed to subdued demand from out-of-town retirees seeking single-family living, as well as the fact that local downsizers may be having challenges unloading their 3,000+ sqft. homes at the higher end of the market, which was discussed earlier in this report.
Looking at volume, the major gainers (lots and waterfront homes) were 2 of the top 3 underperformers in 2018, and the improved 2019 figures for both categories were still well below the volume figures experienced during the rising market from 2015-2017 and well below their 5-year average volume, so in other words, while improved, they just weren’t hit as hard as they were in the first year of this “slowdown” in 2018.
Looking Ahead – 2020
Once again time to pull out the old crystal ball…Well not exactly…From day 1 the Jahelka Real Estate Group has prioritized delivering value-added content, a true advisory approach in a largely transaction-driven business, where we make use of our formal education, training, and experience working with hundreds of buyers and sellers of real estate, to produce information and interpretation of the market to help keep you fully informed as a buyer, seller, investor or observer of the real estate market in the Harbour City. In our technology-driven society, anyone can report statistics, however, it is in the interpretation of these statistics and understanding how they may impact your personal circumstances, goals, and objectives, that define a true advisory approach to the provision of real estate services.
With that said, market timing is nearly impossible, however, there are signs, symptoms, and trends and indicators that we monitor on an ongoing basis to provide reasonable insight into the health of the market.
Aside from monitoring our local market which we report on monthly, here are a few other factors we are watching closely in 2020:
1. Lower Mainland Market: Lower mainland market activity is vitally important in our province. Consumer confidence in the real estate industry is largely influenced by the mass market media and the stories and statistics being highlighted, that often originate from local conditions in Vancouver. Market action in the Lower Mainland also impacts the perceived value of Central Vancouver Island. When prices rise rapidly in the Lower Mainland, not only do prices in our area seem increasingly affordable, but it presents an interesting value proposition, whereby families can cash in their real estate equity and find a similar or better quality home on the Island for a much more affordable price without a mortgage, in the process setting aside hundreds of thousands, possibly even millions, for investment elsewhere or for a rainy day, all the while enjoying the incredible, low-stress lifestyle Central Vancouver Island affords. The slowdown over the last couple of years has undoubtedly delayed the move to the Island for many empty nesters, as they have been simply unable to sell their Lower Mainland homes to make the move. For 2020, here are the implications for our market:
- Improved Lower Mainland sales volume and average prices: An improved Lower Mainland market should result in increasing buyer demand, and this demand could be reasonably expected to occur at higher price points, where high-end homes appear to be great value in comparison to what is available at the same price on the Lower Mainland. While it could take some time to work through the existing supply of homes listed at the higher end of the market, once this happens (unless there is a huge surge in new high priced listings, which could happen as the baby boomers look to mass exit the 3,000+ sqft ocean view homes) we would expect prices to start their upward ascent. Lifestyle properties (in close proximity to the ocean, marinas, golf courses, etc.) certainly benefit from out-of-town buying, as do ground-oriented, low maintenance strata properties and ranchers, that are certainly appealing to the aging demographic targeting Vancouver Island as their retirement destination of choice.
- Similar Lower Mainland sales volume and average prices: All else being equal, we would expect more of the same in our market…That is, more balanced market conditions, more competition at the lower end of the market from the local population higher and possibly increasing inventory levels above $800,000. If this is the case, a third consecutive year with subdued market activity at the higher end of the market could lead to some downward pressure on pricing as sellers who have been unsuccessful in selling thus far, may have to adjust their pricing downwards to find their buyers.
- Worsening Lower Mainland sales volume and average prices: Buyer traffic from the Lower Mainland has not stopped over the past 2 years, it has just slowed. As much as anything it is the psychology of the Vancouver buyer that impacted our market, as they were much more comfortable in a multiple-offer situation than the local population. Further deterioration in the Lower Mainland market will erode confidence and ultimately reduce the level of buyer demand in our area.
2. Foreign buying: During 2016 and 2017, the years with the highest sales volume figures and average price increases in our area over the past decade, there was significant demand from out-of-town buyers, especially in some of the higher-priced neighbourhoods (eg. North Nanaimo, Hammond Bay). The introduction of the Foreign Buyer tax in our area in early 2018 coupled with eroded confidence in the BC Real Estate market, served to dissipate demand from Foreign buyers over the past two years. With globalization, digital exposure, and inward migration only increasing, at some stage the concern and market drag from the Foreign tax will be a thing of the past and more or less considered the cost of doing business that will be absorbed by buyers to enjoy the quality of life that only Canada’s west coast provides. The question is when? The world’s most populous developing nations are producing more and more millionaires with the means to afford the high-end real estate on Vancouver Island. This will be a story over the coming decades. International wealth and demand in our area will almost certainly threaten the local buyers’ purchasing power, which is largely constrained by their income. However, for 2020, we see the potential implications for our market as follows:
- Foreign Buyer Demand Increases: Overall upward pressure on average pricing, increased absorption of the higher-end properties.
- Similar Foreign Buyer Demand: Minimal impact on the market.
- Foreign Buyer Demand Decreases: Reduced demand would slightly lower sales volume overall, and the higher end of the market that benefits from foreign buying would see inventory levels rise. Increasing supply without equivalently increasing demand will negatively impact values at the high end of the market.
3. Government Intervention: The Federal and Provincial governments implemented measures to cool the housing market, and cool it they did. The B-20 stress tests have negatively impacted purchasing power for the local population who are already challenged by income levels in our largely retail-driven local economy. The foreign buyer and speculation tax also had a negative impact. We don’t need to go much further with this, any additional cooling measures will do just that, whereas a more accommodative policy will help the market. The government understands (or at least should understand) that the real estate/construction industry is the number 1 economic driver in many communities across Canada, with real estate values also having a significant impact on net worth and consumer confidence. We’d be surprised to see any further cooling measures, but some favorable adjustments to the stress tests have been lobbied aggressively, so there is a chance we could see these measures relaxed. If they are, our local population will certainly benefit from the increased purchasing power, which should lead to increased demand at the lower to mid-market range, ultimately resulting in a positive impact on average sale prices.
4. Interest rates: BCREA predicted in its Mortgage Rate Forecast that the prime rate will hold steady throughout 2020 and the average 5-year discounted rate will increase minimally (6 basis points) in the second quarter, then hold steady for the balance of the year. Outside of any major unexpected events or economic challenges, we don’t see much change with interest rates throughout 2020. However, predictions are just that…predictions. Last year nearly all major bank economists were predicting 2-3 rate hikes. We didn’t see it, and fixed rates dropped significantly, so always use predictions cautiously when making decisions. The reality is money remains cheap, certainly cheaper than at the same time last year, and this is a positive for the real estate market.
5. The Canadian economy: There seems to be increasing concern about the overall health of the Canadian economy. There aren’t enough qualified workers to take the jobs of the retiring baby boomers, our labour costs for the extraction of natural resources is cost-prohibitive, pension liabilities are increasing, economic activity is largely concentrated around real estate/construction, and household debt levels remain elevated, partially the result of consumers using their home equity like an ATM to buy the life they see showcased by influencers on Instagram and Facebook. Resource extraction had been a strength for Canada since Confederation. Increasingly, the world is shifting from a resource-driven economy to a knowledge-driven economy and I would argue that Canada, for the most part, is failing to keep pace in this regard. While there are some emerging tech hubs (Vancouver, Southern Ontario), small-town Canada is not playing a role. Instead, many communities, such as Nanaimo, are currently more retail/serviced-based relying on inward migration and increased use of consumer credit on the back of elevated real estate prices to keep the economy alive. We’ve already seen a huge reduction in the impact of the resource sector, and looking at consumer trends (Do any Christmas shopping on Amazon?), retail is next. What is going to keep these small economies going? With increasing globalization, it is just as easy to hire a graphic designer or web developer in India, who may be better qualified and cost less, than it would be to hire one locally. Without the requisite skills to compete, and an aging population to support, the Canadian economy is facing some headwinds in the coming decades relative to other more progressive, populous markets. Eventually, these concerns will rear their ugly head. Will it be 2020? Tough to predict. However, deteriorating economic conditions if this does occur in 2020 will undoubtedly negatively impact buyer demand, purchasing power, and ultimately the real estate market.
These are just some of the factors we will be watching in 2020 as we analyze and interpret the market for the benefit of our client base. Regurgitating the real estate board stats simply doesn’t lead to well-supported advice, and how to best play it for your specific real estate goals. With that said, and since you may be wondering, if we had to make a prediction on what we’ll be reporting in our 2020 recap, it would go like this:
- Single-family average sale price: Increase (+)
- Single-family median sale price: Increase (+)
- Single-family sales volume: Increase (+)
- Single-family sell/list ratio: Increase (+)
- Single-family average sell price/list price: 97-98%
- Days to Sell: Decrease (-)
- Top Performing Neighbourhoods: North Nanaimo, Lower Lantzville, Brechin Hill
- Top Performing Categories: Patio homes and single-family homes
Be sure to catch our monthly market recaps for commentary on changing market conditions and the implications for buyers, sellers, and investors in our market.
Working with an educated, experienced Realtor who is able to navigate you through the inevitable ups and downs of the market over time has never been more important, ensuring you are fully informed and well-positioned to minimize your downside risk while being well-positioned to benefit when opportunities present themselves. If you are contemplating making a move in the year ahead, in a market where you have nearly 400 realtors to choose from, you have a lot of choice.
As we continue on in somewhat uncertain times, more so than in years past, this choice will matter. An interesting nuance with our industry is that by and large, most realtors/brokerages charge a similar rate of commission for their services. This just isn’t the case in most other professional service industries. Imagine a scenario where you could hire the top lawyer in town to represent you in a legal case or you could hire his most junior associate who is on his first day on the job, for the same cost. There wouldn’t even be a question about who you would go with. For many, real estate will be the largest asset they ever hold, so the stakes are high. You deserve to stay informed, and whether you work with us or not, as the market continues to change, please align yourself with trusted advisors who will put your interests first at all times, and bring with them the qualifications, proven results, and a solid understanding of the market required to best position you for success.
Please never hesitate to reach out and please feel free to use us as a resource as you work towards your real estate goals.
All the best for 2020!
Source: VIREB, REBGV, BCREA