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Average Home Prices Hold, Sales Volume Drops Significantly in April

 

Under Nanaimo

 

Written by on May 7th, 2020
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Average Home Prices Hold, Sales Volume Drops Significantly in April  

 

The COVID-19 pandemic continues to significantly impact the economy, our routines, and all that we knew as normal just a couple of short months ago. As the month of February drew to a close, there was reason for optimism in the Nanaimo real estate market. Given what unfolded in the weeks to follow and the uncertainty that persists about what will occur in the weeks and months to come as the economy begins to reopen, these are certainly unprecedented times, and market sentiment is certainly not where it was earlier this year. As the narrative and expectations for what is to come continue to evolve, making any sort of concrete predictions would be foolish. However, we continue to believe that it is important to report on what has occurred in the market and put our best foot forward interpreting how market conditions may (and I caution “may”) shed some light on what may be to come when the COVID-19 concerns begin to lift. 

Single Family Price and Volume

55 single-family homes sold in April, down 39% from the 90 that sold in March, and 47% less than the 104 that sold in April of last year. The average sale price increased slightly (0.21%), coming in at $593,503, up from $592,262 in March. April’s average sale price was also up by just over 1% from last April when the average sale price was $586,595. The median sale price increased by 0.53% from $565,000 in March to $568,000 in April, which is 2% less than the same time frame last year when the median sale price was $579,900. 97 homes were listed in April, which was 48% less than the 185 homes listed in March, and 47% less than the 184 listed in April of 2019.

Insights: After a surprisingly resilient March that witnessed the onset of the COVID-19 related social distance measures, April activity was hit much harder from a volume perspective. At the time of writing 7.59 million applicants had submitted 11.02 million applications for CERB Benefits, suggesting a substantial percentage of the working population have had their incomes significantly impacted by the pandemic. While the optimist may be quick to suggest that it is the social distancing measures in place that has slowed sales volume, the realist would be quick to point out that for most Canadians the purchase of a home isn’t possible with some form of financing, and mortgage qualification requires meeting minimum income requirements and down payment requirements. For those that have lost their job, their income has been reduced, or they have had to eat into their down payment to keep up with mounting bills, for many who had intended to purchase in the near future, it is no longer a possibility. As the weeks tick by and businesses that had mass “temporary”  layoffs adapt to operating lean and likely more efficiently, the likelihood of these layoffs becoming permanent only increases. Similarly, with each passing week, the probability of businesses that “temporarily” closed reopening only decreases. For those folks still working whose income is variable or whose hours have been reduced, you have to think that increased credit utilization to cover the bills is going to impact qualification amounts for those looking to buy in the months and years to come. For all those who subscribe to the “light switch” theory, eg., when the government lifts restrictions this market is going to take off due to all of the pent up demand, we see that as extremely unlikely. 

But what about prices you ask? So far, pricing seems to be holding up. In fact, we are up marginally both month-over-month and year-over-year. While this is correct, you have to look at the mechanics of pricing and the fact it is driven largely by interaction of buyer demand and seller supply. April saw sales volume fall 47% from April of last year. What is interesting to note is that the number of new listings in April also dropped 47% from April of last year. So what we are seeing in the early stages of the COVID-19 impact is less buyer demand, less seller supply, and prices relatively flat. 

So how does this project moving forward? While there are so many variables at work here, it is difficult to predict.  Looking at factors impacting supply and demand is likely a good place to start in trying to formulate an idea of how pricing may be impacted. From a demand perspective, ask yourself, are we more likely to have more demand or less demand whenever the current situation ends? Remember, all those extremely motivated and qualified to buy are doing so. From our perspective, the longer this drags out, the more jobs that are lost and businesses that see their temporary closures become permanent closures, the more people who eat into their down payment funds just to pay the bills, the more credit is utilized, all of this points to reduced buyer demand. If there are not enough buyers for the volume of homes for sale (which could very well increase substantially with so many intending to sell holding off), that is when we start to see motivated sellers start to drop their prices, and prices will ultimately adjust until they reach the point of equilibrium where demand equals supply. From the supply side, ask yourself the same question? Are we likely to have more supply or less supply a number of months from now? The difference between demand and supply is that despite intentions, demand can be eliminated beyond the control of the intended buyer due to factors such as job loss or a reduction of downpayment. The supply side is not affected in such a way. If a seller wants to sell, they can list their property. Fear of declining values in the future or reports of declining values (if this does occur) may prompt owners to list, increasing supply. Supply and demand considerations are certainly something we’ll be monitoring closely, and we will be doing so not just considering the overall market, but demand and supply at different price points, in different neighbourhoods, and for different categories of real estate.

So how did Nanaimo stack up against other Island communities north of Victoria for the month of April? Looking at the average price of a single-family home, Nanaimo up 1% year-over-year was eclipsed to the upside by Cowichan Valley and Parksville/Qualicum both up 5%, while Campbell River, Comox Valley, and Port Alberni/West Coast all saw reductions in the average single-family home price to the tune of -7%, -9%, and -11% respectively.

Looking at sales volume in comparison to last April, all communities experienced dramatic reductions in volume:  Cowichan Valley was down 43%, Nanaimo 47%, Campbell River 49%, Comox Valley 56%, and Parksville/Qualicum 69%, with Port Alberni/West Coast experiencing the steepest decline, down 72%.  

Looking at the entire Vancouver Island Real Estate Board totals, the average sale price was down 1%, and sales volume overall declined by 54% from April of 2019. 

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 57% in April, up from March’s 49%,  which was no change from April of last year.

The average sell price/list price was 97% in April which represents a 1% decrease from the 98% reported both last month and in the same time frame last year. 

The average days on the market for the homes that did sell in April was 24 days, down 17% from both last month and April of last year when the average days on market was 29.

As of the end of April, the number of active listings was 272, down 6% from March’s 288 active listings, and 19% lower than the same time last year when there were 336 active listings at month-end.

Insights: Of the 8 market indicators we look at in this section, 5 improved, 2 deteriorated, and 1 remained unchanged. 

The sell/list ratio at 57% up from March and consistent with last April’s figure is a positive sign, but as discussed above, both demand and supply so far have been reduced, and the market in April likely benefited significantly from the motivated buyers who may have sold or accepted a job transfer to the area pre-COVID-19, or otherwise needed to find a place with some degree of urgency. As we get deeper into the economic hibernation this urgent demand is increasingly being satisfied, and buyers without time constraints may be more likely to wait for more supply or to see prices decline in the coming months. With talk of some of the restrictions in BC possibly starting to be reduced later in May, a decent percentage of the sellers who had intended to list but held off on listing this spring may be looking to get their properties on the market. If this materializes, we would see reduced demand met with increasing supply, and the sell/list ratio in the coming months will be a good indicator of what is taking place.

The sell price/list price ratio stepping down 1 point to 97% on both a month-over-month and year-over-year basis will be another indicator that we watch closely in the weeks and months to come. Will fears of declining prices and/or motivated sellers lead to increasing price concessions? Only time will tell, but as time goes on, the probability that “deals” may start to emerge is only increasing. 

Average days on the market for homes that sold dropped when compared against last month’s and last year’s figures. While at first glance this may be surprising, really it shouldn’t be. We still have buyers that made decisions pre-COVID 19, such as selling their home or accepting a job transfer, that put them in a position of needing to find a place to live. The other important point to make here is that this statistic reflects homes that sold only. That is 55. The month ended with 272 homes on the market, all of which didn’t factor into this figure. 

Lastly, the 272 homes on the market at the end of the month is down from last month’s and last April’s ending inventory figure. However, while there were 64 fewer homes on the market than at the end of April 2019, there were also 87 fewer new listings. While currently there is less supply, there is also less demand. When the economy eventually starts to emerge from the COVID-19 crisis, it will be interesting to see where inventory numbers are and how they are trending. For buyers hoping for a “good deal”, you should be hoping for lots of new listings and lower buyer demand. For sellers hoping the impact on home values is minimal, you should be hoping that most who had intended to list hold off and that both supply and demand begin to increase at a relatively similar pace. This may be the more optimistic outlook, but given the innumerable variables here and unprecedented level of government intervention, you never know…

Top Performing Neighbourhoods & Categories

9 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 March to April, 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 -9.86% in North Jinglepot to 18.10% in Extension.  The top risers month-over-month were Extension, Lower Lantzville and Upper Lantzville.  Top performers year-over-year were Extension, Upper Lantzville, South Nanaimo, Hammond Bay, and Uplands. Looking at volume, only 2 of the 18 sub-areas saw increases month-over-month, Hammond Bay at 12.50% and Central Nanaimo at 1.10%, while 4 of the 18 sub-areas also saw increases year-over-year, with Hammond Bay also the top riser in this respect.

Insights: Difficult to draw any significant conclusions here. The Extension area leading the way with price increases both month-over-month and year-over-year may indicate that there are some buyers seeking larger properties. As a historically more affordable area, it also suggests that Extension may be benefiting from demand from those priced out of other neighbourhoods. Upper Lantzville was another top performer where larger properties are more common. Lantzville (Upper and Lower) is often high on the wishlist of buyers’ preferred areas, especially out-of-town buyers.  As expected given overall market figures, volume was down for the vast majority of sub-areas. 

Single-family homes and townhouses (on lower volume) were the only two categories that saw an increase in average sale price from March to April, while all categories, with the exception of apartment-style condos and lots, experienced increases in average sale prices year-over-year.   No categories reported month-over-month increases in sales volume, and only single-family water homes on low volume posted a year-over-year increase.

Insights: We reported above that single-family home volume was down 47% over last April. Other categories were hit much harder, so the low categorical volumes make it hard to rely upon these stats with confidence as an accurate representation of market conditions or performance by category. In case you are interested in the impact on the various categories,  compared to last April, sales volume was down 86% for patio homes, 83% for lots, 68% for condo apartments, and 59% for townhouses. 

Opportunities

Firstly, in light of the current COVID-19 pandemic, it is important to emphasize that if at all possible it is best for everyone to continue to do their part to help prevent the spread of COVID-19. What this continues to mean for most is that it is likely best to put their purchase or sale of real estate on hold until the authorities have confirmed that it is safe to resume more regular daily activities without the heightened risk of contracting or spreading COVID-19. With that being said, the Government of British Columbia has deemed real estate agent services a COVID-19 Essential Service, as for a small percentage of the population there is an urgent need to complete a real estate transaction. With this being the case, efforts are being made where possible to conduct business virtually, but for those who do insist on or require physical showings of properties, strict protocols remain in place following all regulatory guidelines to help minimize the risk of any adverse health implications for anyone involved. 

For the vast majority of buyers, if you were thinking about a spring purchase, now is a great time to really familiarize yourself with the local real estate market as using this time to educate yourself will help you quickly recognize a great offering when you see one when the time comes, when it is safe to get out and look at some properties. What are some ways someone could go about educating themself on the market? First, get familiar with the various neighbourhoods in town and the types of lifestyle benefits, conveniences, and amenities they offer. Determine where new construction is happening, and what these newer less familiar neighbourhoods have to offer. For the neighbourhoods that meet your lifestyle requirements, go online and see what homes are selling for in these neighbourhoods, and how they compare. From here you may have a neighbourhood or two that you want to keep a close eye on. By closely following new listings and sales that are happening, it will help you to better understand how far your dollar will stretch, and also help you quickly recognize when a solid offering hits the market that may be underpriced or offer significant value. 

If you haven’t already done so, now is also a great time to reach out to a trusted mortgage broker or your bank, as well as possibly your investment advisor to proactively get your finances in order to ensure you are in a position to act when the COVID-19 health concerns dissipate. While we realize most are experiencing some financial pain right now, engage your financial team early to have them be part of the solution and have you well-positioned to act when the timing is right. They will also be able to answer many of your questions, such as how a temporary layoff may impact your ability to obtain financing. 

If you haven’t already connected with a Realtor, now would also be a great time to do so. Typically at this time of year, Realtors are flat out trying to keep up with the demands of the spring market. This year Realtors have more time available and many are eager to assist with helping out however they can, making sure you are well informed and ready to act when more regular market conditions resume. Take your time in finding a well-respected Realtor with a proven track record who knows the market well and will put your interests first at all times. Once you have found a good option, get your Realtor working for you. As a Buyer, in most cases this costs you absolutely nothing, so why not take advantage of this assistance as early on as you can in your home search process. Start with an initial consultation which can be done remotely via video conferencing technologies or phone call, and take it from there…

For Sellers, is now a good time to sell? Really, that depends on your personal circumstances, what you are selling, and what you are looking to achieve. Consulting with a trusted Realtor, who can help you weigh the pros and cons would be an important early step. Above all else, make staying safe your number one priority. For those with vacant homes, if you must sell, now is a time where a vacant home may have an advantage over an occupied home, as naturally there are no health risks to the occupants and it is easier to coordinate showings. Whatever the case, if you are listing make sure your Realtor has a strategy to best position you to minimize the COVID-19 concerns for not only you and your family but for everyone else involved (Buyers, Realtors, Inspectors, etc.). This would include showing schedules and protocols intended to minimize the possible transmission of germs but also having a solid online marketing platform to showcase your home that will help minimize foot traffic. Now is not the time to list with your “For Sale Sign & Cell Phone Picture” Realtor.

For investors, with us, it always gets back to the numbers. Values so far have not been significantly impacted, so from an appreciation standpoint, considering there are headwinds and concerns about the economic path forward, purchasing right now represents increased risk that you could find yourself in a situation in the coming months with a property that has a value lower than when you purchased it. This makes it more important than ever that any investments are cash flow positive and achieve an acceptable rate of return because if you acquire a negative cash flow property, your only guarantee in the short-run is the property will be costing you money. With an increased probability of values declining, buying a property that is costing you money each month, and has a decent chance of losing value (at least short term) doesn’t seem like an overly prudent investment approach. However, if you do come across an investment where the numbers do work well and you are a long-term investor and are comfortable assuming the risks that in the short term there is a reasonable probability we will see average home values fall, then maybe you don’t want to rule out a purchase this spring as long as you are adhering to all of the protocols in place to protect your health and the health of others. The reality, unfortunately, is that mass economic slowdowns create financial hardship, which inevitably at some stage will likely result in some good buying opportunities. While we don’t have a crystal ball, it is our take that things are likely to get worse before they get better, especially if the COVID-19 concerns linger longer than expected, or we have a second wave heading into fall and winter as is increasingly being prepared for. We believe on the buy side, patience is likely going to be rewarded. Remember, much of your ultimate return is derived from your entry point, the price you were able to purchase at. Right now sub-$700k, most homes are still being listed at all-time highs. So, for most investors, stay safe, educate yourself on the local market, be patient, watch out for deals if and when they emerge, make sure you are running the numbers, and if the numbers work, be ready to act. In this regard, don’t feel shy to reach out and get the conversation going with a good investment-focused realtor. They are here to help.

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. Right now we have reason to believe we may be more likely on the way to a valley than the peak, but only time will tell.  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. 

Above all else, stay safe, do your part in flattening the curve, and we wish you and all those close to you the best of health!

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:  Market Stats April 2020

Source: VIREB

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.