Updated April 3, 2019
2018 appears to have been a turning point in the real estate market on the Island. Demand is dropping, however, new listings have been slow, thereby not significantly increasing the inventory (active listings).
The first quarter of 2019 saw this trend continue. While the rate of price increases has slowed, it is still 8% for the board area. Until the supply increases, there will be an upward pressure on price, though at a lower rate than the last couple of years. The Board inventory for March 2019 is 45.8% of the average for 2008 to 2014. See graph.
Two markets have experienced minor price reductions, Parksville/Qualicum and Port Alberni. The first time this has been seen in years. From December to March the average single family home price in Parksville/Qualicum reduced from $620,389 to $611,778 and Port Alberni moved from $355,816 to $353,227. Both markets are up over a 12 month period and I expect we will see this trend reverse as the market normally picks up in the second quarter and our inventory levels are still low.
Some changes in the Canadian economy have moderated the forecast for mortgage rate increases in 2019. See Mortgage Rate Forecast, March 2019 blog.
Comparatively, the VIREB (Vancouver Island Real Estate Board, the Malahat northward) area remains a good option for retirees moving to the west coast with prices much lower than the mainland and Victoria. People coming from off the Island and retirees represent about half the sales in the board area.
In February 2019, BCREA has revised its forecast for single family home prices in 2019 for the VIREB area to 3.2% (up from 1.1%). I believe that is a bit low due to low inventory levels and believe it will be in the 4-7% range. See Housing Forecast Update.
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While the number of units sold has dropped significantly in most markets and new listings are coming up, inventory (active listings) continues to lag, with the exception of Parksville/Qualicum which saw a 59% increase in active listings from March of 2018. This brought there inventory only up 55.3% of the 2008-2014 average from a very low 23% in March 2018. Price increases are lower than 2018 and likely will be lower still in 2019, however most markets will likely remain in a seller's market.
Please note these comments relate to single family homes in markets covered by the Vancouver Island Real Estate Board (VIREB), which covers all of the Island from the Malahat north. The Victoria Board covers Victoria, all of the Saanich Peninsula and west to Port Renfrew and is not covered in these comments. Some comments on the provincial real estate market are also included from time to time. The quick stats above cover major Real Estate Markets in the VIREB area.
For 2018, we have seen an increasing slow down in demand due to the mortgage stress test. The stress test in 2016 (for buyers with less than 20% down) only caused a blip in demand. The stress test, called B20 (for buyers with 20% or more down payment), introduced in January 2018, is appearing to have a more sustained impact. BCREA notes in its March 2019 Mortgage Update the drag on the economy created by these stress test. See Blog.
This slow down is continuing in 2019. Looking at the 12 months to March 2019, compared to the previous 12 months, units sold is down between 19-26%. Inventory is starting to recover in all markets expect the North Island market, though the inventory level for the Board area is still low at 45.8% of the 2008 to 2014 average. See graph.
For the Board area, comparing March 2019 to 2018, demand (homes sold) are down 23% and new listings are up 20%.
While the sell/list ratio is coming down in most markets compared to the previous year and especially from the obscenely high rates for spring of 2017 which were over 90% in some markets, it is still in seller’s market territory in almost all markets. For the board area it has moved from 76% last year to 64% in March. Usually 50-60% is considered a balance market. However, even with a rate of 54% in Nanaimo, due to low inventory I expect it to remain a soft seller's market. See next section for individual market information.
The sell/list ratio is the number of listings that have sold in a 12 month period. A 60% ratio means that 60% of the listings sold and 40% did not sell.
See What are Balanced, Buyer's and Seller's Markets for an explanation on sell/list ratio.
Q1 of 2019 saw good increases in active listings with Parksville/Qualicum posting a 59% increase. However, Campbell River remains sluggish at a 6% and the North Island dropped 10%. Until inventory increases significantly, there will continue to be strong upward pressure on prices.
As mentioned above, the sell/list ratio is coming down and demand is down in all markets between 19-30%, which is indicated in the March 2019 Comparison. This comparison shows the drop in new listings and demand (sold), as well as the drop in the sell/list ratio for each market. Parksville/Qualicum showed a drop in the 12 month average from $620,389 in December to $611,778 in March. Sales are down 22% and inventory is up 59% for single family homes in this market. Even with this increase, the inventory is only at 55.3% of the 2008-2014 average as the inventory level was 23% in March of 2018. Port Alberni also showed a small decline since December 2018. Both markets still show a price increase on a 12 month basis.
All markets remain in a seller's market position, though not as strong as 2018, prices are up 6-16% over the last 12 months. Other than Port Alberni, which is at 16%, the other markets are in the 6 to 12% range with the Board area being at 8%. I expect the minor price drop in Parksville/Qualicum and Port Alberni markets from December to March to reverse during the busier second quarter. Both markets are up 6% and 16% respectively over a 12 month period.
While some market have a sell/list ratio under 60%, which is an indicator of a balanced market, with the low inventory levels price increase remain in a seller market territory. A balanced market is when prices are just keeping pace with inflation, around 2%.
BCREA's Housing Forecast Update forecasts a 2.1% increase in residential sales province wide for 2019 to 80,000 units. This compares to high of 103,768 residential sales in 2017 and 78,345 in 2018. This is down from their November forecast of 12% increase in unit sales for 2019. The 10-year average is 84,800 units.
While the market has slowed with some markets in the province moving toward a balanced market, here on the island we remain in a sellers market largely due to the low inventory levels (active listings). Though demand has dropped, new listings has also fallen, though at a lessor rate. Our inventory remains below 50% of the 2007-2014 average (my comment from other stats, not mentioned in the report). Until inventory levels rise, either through more listings or continued decline in demand, there will remain an upward pressure in price.
For VIREB we had a 10% increase in single family home prices in 2018 (was 15% in 2017). My view is that we will move to a softer seller's market with price increase in the 4-7% range.
Highlights for the Vancouver Island and VIREB market (Malahat northward) include:
Some of the key points of the BC market as a whole include:
BCREA Mortgage Rate Forecast Update for March 2019 indicates a reversal from past activity of rate increases. From the summer of 2017 to October 2018 the Bank of Canada (BOC) raised its overnight rate 5 times to 1.75%. During that time BCREA was forecasting additional increases as the bank strives to bring rates to its estimated neutral level of between 2.5-3.5%.
"The once bright outlook for the Canadian economy darkened toward the end of 2018 amidst disruptions in Alberta oil production and a policy-induced slowdown in the Canadian housing market. This slowdown, along with global economic growth concerns prompted a dramatic revision in market expectations for future Bank of Canada rate tightening. As a result, key benchmarks for bank borrowing costs plummeted, reversing course after a year of steady increases." the update reported.
The Yield Curve measuring the yield of 3 month Treasury Bills and the 10 year Bond yield have inverted where the shorter Treasury Bills have a higher yield suggesting that bond investors are expecting an economic slowdown.
The table below has the forecasted rates through to the end of 2020.
Mortgage rates are influenced by two things:
An enjoyable outing on a boardwalk in Paradise Meadows near Mt. Washington.
Forecasting by its very nature is not an exact science. Obviously, we can let you know what has happened in the past and what the current situation is today. What will happen in the future can be a difficult thing to predict, hence why most forecasts are updated quarterly. Also, local situations need to be considered. For 2018 we saw dramatic differences here on the Island than on the mainland. On the Island we remained in a seller's market while much of the mainland moved to balanced markets, some with minor price reductions. Over the last four years the BC economy has out performed the Canadian economy.
Government changes late in 2016 and 2017 had a strong effect in the lower mainland and little effect here on the Island. The new mortgage stress test, which took effect January 1, 2018, plus rising interest rates, reduced demand in 2018. Though had less impact here on the Island.
Buying and selling real estate are major financial transactions the net impact of which is difficult to predict over the long term. It is advisable to closely examine your other reasons for making a change. It might be easier to focus on what is happening in your life rather than trying to predict what will happen in the world. And leave yourself some room in case things don’t go as anticipated. Ask yourself some “what if” questions. A conservative approach, some good soul searching, and research could possibly save you some stress down the road.
Ariel view of Courtenay with the Puntledge River flowing into the Comox bay.
Tip: Planning for things that do not happen is better than not planning for things that do happen.
Water Buffalo (Bubalus bubalis) are a new addition on the Comox Valley agricultural scene.
For economists and analysts a balanced market is when the supply (listings) of housing and the demand (sales) are in equilibrium. In other words the supply and demand are such that there is not any real pressures on price, up or down, compared to inflation. Home price increases are keeping pace with inflation (around 2%).
To predict and measure supply and demand in the market we use a sell/list indicator. This measures the number of homes that were listed in a year and compares how many of them sell. A sell/list ratio of 55% means that in a year 55% of the homes that were listed actually sold and 45% did not sell. A sell/list ratio between 50-60% usually results in a balanced market, below this is a buyer's market and above this is a seller's market. Please note that this is an indicator and sometimes markets don’t respond as predicted. What actually happens with price is the true test of the market's status, the sell/list indicator just helps us predict what is likely to happen.
The graph below looks at the number of units listed, the number of units sold, and the sell/list ratio. The left side plots the number of units and the right side plots the sell/list ratio as a percentage. The graph is for the years of 2000 to 2018.
This next graph compares the sell/list ratio to what actually occurred with prices. The left side plots the average home price (orange line) and the right is the sell/list ratio as a percentage (blue line). Again, it is for 2000 to 2018. It is a measure of how effective the sell/list ratio was at predicting changes in price. For the most part, it demonstrates that the sell/list ratio is a pretty good indicator. Only in 2009 did pricing and the ratio not react according to prediction. This is important as it demonstrates that supply and demand are only one component of the housing market. Sudden shifts in the economy or market confidence can have strong influences on the market. For the most part, the sell/list ratio is a good indicator on the pulse of the market.