The Real Estate Clock: What time is it in our Market? Homes are selling slowly...prices continue to trend downward
As mentioned in January's newsletter, last year we transitioned from one of the hottest real estate markets in history to one of the slowest. We have seen yet another interest rate increase last month and that has added to the significant declines in sales volume and prices we have been experiencing since last Spring. Forecasts are for those trends to continue through this Spring and possibly into later this year. Some forecast that declines could continue through 2025-but let's hope not! We have also seen implementation of various legal changes designed to assist renters and home buyers. Those changes came into effect January 2023.
While the market is still not great, January saw a lot of buyers coming out of the woodwork looking for homes. There were people out looking for homes who need to buy soon before their interest rate holds expire and they are pushed into a lower price point. In addition, every year we see people coming back from the holidays wanting to buy a new home (an expensive New Year's Resolution!). Last month we received offers on homes which had been for sale for many months without selling. We also received multiple offers AND subject free offers. We had not seen that type of activity for many months. Real estate is all about Supply and Demand (plus Emotion) and right now demand seems higher than supply which is working in favour of sellers who are not "waiting for Spring!"
As stated by Andrew Lis, the Real Estate Board of Great Vancouver's Director of Economics and Data Analytics, "Over the coming months, year-over-year comparisons will show larger price declines than we have been reporting up to now...." This is definitely a year where time is NOT a seller's friend and listing sooner rather than later is likely to lead to the highest sale prices.
January housing number
The numbers for January don't look great but as I mentioned, January did work in favour of a lot of sellers who have been trying to sell for months.
In January we saw:
-sales were down 51.8% from January 2022 (this is an overall average and we have seen upticks in sales of some types of homes)
-sales were down 21.1% from a month earlier, December 2022 (see above)
-sales were 42.9% lower than the 10-year average for January
-the number of homes listed for sale was DOWN 20.9% when compared with January 2022 (leaving buyers a lot less to choose from...good for sellers and likely contributing to why there were so many fewer sales compared to last year)
-the number of homes listed for sale was UP 173.4% when compared to a month earlier, December 2022
-there were 32.1% more homes on the market at the end of January 2023 than there were in January 2022
-detached home sales were down 52.6% from January 2022
Buyers' vs. Sellers' Market
Downward pressure on prices occurs when we are in a buyers' market. Buyers' markets occur when the sales to number of listings ratio is below 12%. For January 2023 we saw sales to active listings ratios of 10.2% for detached houses (definitely in Buyers' Market territory); 13.4% for townhomes (not quite as bad for sellers); and 16.7% for apartments (still pretty good for sellers although down almost 4% since December 2022). These numbers are of course averages and the areas, price points and type of home will impact the buyer demand for it and the extent to which either the buyer or the seller is in the stronger position.
What to expect in 2023 and applying "perspective" show a pretty positive picture
Despite the "in the field" experience of much better activity last month than we have seen in the last several months, when you look at the last 10 months sales and price numbers, obviously things are getting progressively worse for sellers and better for buyers and investors. However, if one puts our current market in perspective, most sellers are still doing very well on the tax free gains they can achieve if they sell their principal residences. It is impossible to accurately time the top or the bottom of the market; all we know is that the most recent peak has passed and the bottom is not likely here yet.
Recently I did a calculation for a client selling a condo showing that based on anticipated sale price, despite being MUCH lower than it would have been in Spring 2022, over the time the family owned the property, they made:
-a total TAX FREE gain of $1,025,000
-an annual TAX FREE gain of $32,031
-a monthly TAX FREE gain of $2,669
The property value has increased by 372%
For another client with a home in need of renovations, based on the price of a recently accepted offer, in the time they have owned the home, the numbers are:
-a total TAX FREE gain of $1,224,000
-an annual TAX FREE gain of $55,636
-a monthly TAX FREE gain of $4636
The property value has increased by 326%
So while both of these homes would have sold a lot higher last year, these are very significant gains, particularly when the gains are tax free on most principal residence sales. It is hard to make this kind of money in most jobs!
Takeaways continue to be:
-those who are upsizing should do very well now as the best values are in the higher price points. So even if you sell for less than expected, moving up you will be buying for even less-the gap is key.
-if you are downsizing, at this point your price has not gone down as much as it is likely to-so time probably is not your friend (i.e. if you plan to sell in the next 2-3 years, sooner is probably better if you are downsizing or cashing out). Either way, if you have
owned your home for a while, the numbers above show good news.
-for those doing a somewhat lateral move, if you are buying and selling in the same market, it usually all balances out.
-this is the best market for buyers of homes to live in or for investors that we have seen for a while.
As always, I am happy to discuss your individual circumstances. Everyone's location, type of home and personal situation needs to be considered for real estate planning. If you have friends or family struggling with what to do in this
market, please tell them to call me to discuss. Advice is free-you/they need not be currently buying or selling!
Happy February!