Metro Vancouver House and Condo apartment prices have both been dropping in recent months but that’s strongly influenced by declines in luxury real estate.
Victoria house prices have recently dropped will they drop further like Vancouver?
Across Canada the number of homes sold has dropped significantly and prices have generally flattened out. Vancouver house buyers have bought half as many homes in 2018 as they did in 2016. Victoria appears to be performing better than Vancouver but not as well as Toronto.
Condo prices have remained buoyant even though sales are down 26% compared to 2017. Metro Vancouver has seen condo sales drop a whopping 33% and prices have been dropping since May. The price of a benchmark Victoria condo peaked at $498,300 in June this summer and prices have been flat ever since. A condo bought in October 2008 would have risen in value 60% over the 10 years to the end of 2018.
Tight supply appears to be the key driver holding prices up in the face of higher interest rates and new mortgage rules that have reduced affordability. The net effect is that only the wealthiest buyers are still in the market. If there were more supply, then everyone would have a chance to buy a home.
As things stand, the condo market is tilted in favour of sellers, with only 4 months of inventory for sale. However supply is trending upward and may be balanced by Spring of 2019.
Sales of condos rallied a bit in October but they’re still trending well below the prior two years. In other words, prices are staying up but fewer people are interested in buying at these high prices.
People buying condos intending to rent them to students are taking on some risk since the BC Government is planning to fund construction of more subsidized student housing on university campuses like the University of Victoria. The risk is somewhat mitigated because those student residences will take several years to be built.
Victoria house prices have also held steady since peaking in June. In comparison, City of Vancouver house prices have dropped by $150,000. In November 2008, a benchmark Victoria house could be bought for $515,000, but since then prices have risen 40% to the current benchmark price of $751,700; beyond the reach of many potential buyers.
Another measure of Victoria home prices, the Teranet-National Bank House Price Index™ has recorded Victoria’s peak home prices value in September of 2018. This leads us to believe that the Benchmark Price reported by the Victoria Real Estate Board will continue to trend downward in 2019.
The slowdown in the market is partly caused by higher interest rates and mortgage rules, but it is also the result of prices outpacing people’s ability to pay.
As a result, homes are beginning to pile up on the market, supply has doubled since the Spring, and Victoria appears to be headed toward a balanced market for single family houses. If this trend continues, it is possible that by February 2019 buyers will be able to negotiate prices down and ask for concessions.
Most analysts expect Victoria prices to stay flat in 2019 or drop 1%. Considering the trend in Vancouver, we at Mortgage Sandbox expect Victoria prices to drop 1% to 5% in 2019. Interest rates are expected to continue to rise through to 2020 and that will pinch home buying budgets. Only the risk of a recession would stop rates from rising but a recession would also put downward pressure on home prices. Essentially we’re caught between a rock and a hard place.
In the real estate industry, there are metrics used to indicate when buyers and sellers have more negotiating power. As a rule-of-thumb, less than 5 months of inventory (i.e., homes for sale) means it is a “Sellers Market” and the seller has the upper hand in a price negotiation. When there’s more than 9 months of inventory for sale, it’s a “Buyers Market” and buyers have more negotiating power. The theory is that buyers know that it could take over 9 months to sell the home, so the seller should probably drop the price to make sure the buyer in front of them purchases the home, or they could potentially be having open houses for 9 more months.
There is still a lot of uncertainty in real estate these days. The markets for both houses and condos in Victoria are trending toward a balanced position where buyers and sellers can negotiate on an equal footing. If you are going to try to time the market, then this is a time for sellers to pull the trigger since it appears conditions are set to soften further. For buyers, it seems prudent to wait and see.
If your family is growing and you need a larger space, simply a place to call your own, or you believe timing the market is pointless, then take advantage of these tips to reduce your risk.
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