You may have heard recent media coverage concerning our local real estate market. In fact, the media has never been so interested in home sales stats. When the stats were published for August 2016, the pundits were all over the numbers. Unfortunately, they didn’t delve too deeply. In fact, most observers in the media missed the real point. I’d like to point out what the numbers really say.
Here are the highlights. First, the market for attached properties (townhomes and condos) was very strong in August. In most metro Vancouver markets, sales of attached homes remained very strong while inventory barely moved upwards. As a result, multiple offers on well priced attached homes continues to be a common occurrence. On the other hand, the detached market saw a dramatic move downwards. Sales of detached homes continued their early summer decline, while the inventory climbed significantly in all metro Vancouver markets. In fact, the all important “sales to active listings ratio” (available listings, divided by sales) for detached homes in places like Burnaby and Coquitlam has slipped from 62% and 90% respectively in February to 10% and 17% in August. The 15% foreign buyer tax announced in late July has had the effect of an ice bucket challenge with buyers busy moving to the sidelines to assess what the future may hold for prices. My expectation is for buyers to return in higher numbers in September and October to take advantage of a better selection of listings. In my view, demand for detached homes is still there, it’s just on the sidelines, waiting to see what happens. Its very likely that a portion of that demand, fuelled by offshore money, has gone away.
What about prices of detached homes, though? Will prices fall? Certainly the past 4 months have seen the highs taken out of home values. Moving forward, there will be sellers that have to sell and buyers that have to buy. These buyers and sellers will set the new normal in pricing. So what does that look like? Personally, I’ve been selling real estate long enough to have seen several up cycles and a few down cycles. Down cycles, in which prices fall, are interesting but not fun. Prices fall in these markets because supply outstrips demand by a large margin. As mentioned above, some sellers have to sell. Other sellers will sell if the price is right. The sellers that have to sell, will always have to adjust their asking prices downward in order to attract scarce buyers. This action, moves prices down.
Since I’ve been selling homes, down markets occurred from 1996-2001, 2008 to 2011 and 2012 to 2013. The longest and most painful was probably 1996-2001. Prices languished at historic lows for several years. I recall selling a home for $250,000 in 1999 that would have sold last April for about $1,750,000.
Sales to Active Listing Ratio June to August 2016
Sales to active listing ratio is the number of active listings for a specific month divided by the number of sales in that month. The sales to active listing ratio shows the “speed” of a market. The hotter the market, the higher the ratio.
Have a close look at the above ratios. In all three cities, the detached market has slowed dramatically. In fact while sales have dropped, active listings have risen substantially. As you can see, in the attached market, while ratios have fallen, they are still in the “sellers market” range. In the detached market, the ratios show that in August, the market was balanced, favouring neither sellers nor buyers.