Building Stratas vs. Bare Land StratasFew words in Real Estate elicit the kind of response you get when you utter the term “strata”. Dread, fear, confusion, suspicion, you name it. When
Nanaimo Market Report March 2021
Dated: March 30 2021
The spring housing market is full on as home prices continue to rise dramatically across the country. Nearly every market is seeing frantic demand as buyers, driven by the fear-of-missing-out (FOMO), push up prices faster and faster as a result.
This housing market is very good for our economy. Good like a sugar high. A sugar high engineered by Ottawa to avoid a deep recession through a policy of quantitative easing. Creating vast amounts of new Canadian new dollars and then selling them at a bargain rate to banks to promote lending. It has worked spectacularly well. Creating hyper asset inflation in the process. The feds have traded a deep recession for an unchained, super hot housing market. The opportunity cost is a big one; the end of affordability for many, possibly forever. We are becoming a nation of owners (haves) and renters (have nots). There's no turning back now.
The national average price for a detached home in February hit $678,091, up a whopping 25% from $542,484 just twelve months earlier. (Advanced economies tend to institute cooling measures when home prices rise higher than just 5% in a year). BC saw a 17% price gain province wide. And in Nanaimo the running 12 month average price of a detached home was $638,651. Up 12.62% from February 2020 when it was $567,064. In 2013 that same average home would have cost just $350,000.
Condos and Townhouses rose in price at a more tepid rate of 5.5% over the same period. They're now catching up fast as demand has really picked up as many priced out of houses shift direction to cheaper options.
Nanaimo and Affordability
Nanaimo, the last “affordable” west coast city, continues to experience an unfathomable number of Buyers competing for an extremely constrained housing supply. In February alone Nanaimo detached home sales surged a whopping 113% year-over-year against the backdrop of a 27% rise in listings. Condos saw explosive sales growth in February with 240% more units sold this February than last.
Bidding wars are commonplace all over the Nanaimo Parksville region. In February over 60% of detached homes sold in Nanaimo went for above the original asking price by an average of about 8.5%. In Vancouver over that same period, 43% of deals were over ask.
The Road Ahead
BMO senior economist Robert Kavcic recently referred to the Canadian housing market as being in a “melt-up” state.
A melt-up by definition is an unexpected and sharp rise in the price of an asset class, such as housing. Melt-ups are FOMO (Fear-of-Missing-Out) driven purchases; where prices rise faster and faster as more buyers bid up the price to get a home, fearing they’ll be priced out if they don't buy right now.
In a melt-up the demand that would have occurred in the future, and the resulting price gains, has been pulled back to now as years of price growth are compressed into mere months. Although there’s no one who can say how long this melt-up phenomenon will last, we do know that it occurs almost always before the final stage of a bubble.
In theory, those who sell now will benefit from that demand pulled forward while those who sell later will not. Since future demand was borrowed, it tends to leave a smaller pool for those that didn’t sell into the melt up. The lack of liquidity can lead to lower prices, especially if there’s pent-up supply.
The same emotion that kicked off the demand storm can also create a supply storm as sellers begin to experience FOMO -- switching from waiting to get a higher price to fearing they may get a lower price if they wait too long. As the fear that the market may be peaking spreads, more and more potential sellers come off the fence causing even more to do the same.
Seller FOMO can create a supply tsunami. And fast.
New Nanaimo Listings Surge 50% in February
After holding back from listing due to Covid concerns, and the fear of not being able to buy if they sell, on the fence sellers are now entering the market more and more. New listings in Canada rose 15% month to month in February amongst a growing list of markets where new listings outpaced sales. In Nanaimo new listings in February were up 50% from January.
Balance will Return, Eventually
All markets continually seek equilibrium. A balance between demand and supply. In real estate the ratio that tracks that balancing act is known as the Sales to New Listings Ration or SNLR. Regular readers may recall that I have mentioned it before.
A balanced market occurs when the ratio is between 40%-60%. Below 40% is a buyer’s market. Above 60% is a Seller’s market. The Nanaimo February SNLR rose a tad from January to 85% as compared to just 51% in February 2020. Nationally the ratio in February was 84%. But that is not the whole story. The national stat in February had actually dropped by a significant 7.2% from the month before. In January there were 10 markets at about 100%, in February just 3. Again the lower the number the more balance the market between buyers and sellers. That fast a drop may be telling us something. Something to watch for in the March data.
CREA Predicts Lower Prices By End Of Year.
The very conservative Canadian Real Estate Association’s 2021 forecast came out recently. They predict a year end national average home price actually lower than February’s average price.
The 2021 full year forecast is 1.88% lower than the average for February sales. The 2022 average is only 0.18% higher than February, showing virtually no growth. This is largely due to their expectation things will normalize and cool a little later this year as more inventory enters the market. A more balanced market.
In the end the market will eventually cool down and balance out as more homes go up for sale. If there’s enough new inventory prices may eventually cease their rise and begin to soften. We know this because years of data tells us that the market is cyclical. The one thing no one can predict is when balance might return to the market. The data shows us there has been the beginning of a turn in the market but only time will tell to what extent and how far it goes.
No One Can Time The Market
Stats and theory aside, no one can really time the market and my crystal ball broke a long time ago. In the end the market will do what it does regardless.
As Winston Churchill once said, “It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
Hi, I'm Jeff Wood, a vaguely funny REALTOR® who takes his duty to his clients very seriously. Myself not so much. Having owned 8 multi family properties all at one time I earned my real estate stipe....