Victoria house prices were dropping for 8 months, after a brief recovery, is more to come?
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 35% compared to 2017. Metro Vancouver has seen condo sales drop even more and prices have dropped consistently since May 2018.
The price of a benchmark Victoria condo peaked at $498,300 in June 2018 when prices hit a cieling. A condo bought in October 2008 would have risen in value 60% over 10 years.
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. Only the wealthiest buyers are still in the market.
As things stand, the condo market is tilted in favour of sellers, with just under 3 months of inventory for sale. However supply is trending upward when compared to 2016 and 2017..
Purchases of condos started 2019 even lower than 2018 and they’re still trending low. 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.
While buyers of condos are scarce, the number of condos for sale in Victoria has just broke a record! So even though prices have been flat for the past 12 months, we expect condo prices will drop later in 2019. The benchmark price reported by the real estate board is shown below but the average Victoria condo sells for almost $30 thousand less.
Victoria house prices have slid about $30,000 since peaking in June. This isn’t much relative to the total sticker price but it is a lot of money. In March 2015, a benchmark Victoria house could be bought for $505,000, but since then prices have risen 40% to the current benchmark price which is well beyond the reach of many potential buyers.
Another measure of Victoria home prices, the Teranet-National Bank House Price Index™ recorded Victoria’s peak home prices value in September of 2018. The combination of various measures confirming a mid-2018 peak and a consistent downward price trend, leads us to believe that the Benchmark Price reported by the Victoria Real Estate Board will continue to trend downward in 2019.
The price slide is cause by a drop in the number of home purchases. The lack of buyers is partly a result of higher interest rates and mortgage rules, but it is also the result of prices outpacing people’s ability to pay and an apparent flight of foreign buyers to other cities like Ottawa and Montreal. It seems that foreign speculators want to buy low and sell high.
At Mortgage Sandbox, we use the Richmond, BC market as an indicator of foreign interest in BC real estate. In Richmond, house purchases have dropped more than 75% compared to 2016.
With fewer buyers and more sellers, homes are beginning to pile up on the market, supply has more than doubled since the Spring of 2016, and Victoria houses are trending toward a balanced market for the first time in a long time. If this trend continues then buyers and sellers will have equal negotiating power. If you are a buyer, you now have the option of negotiating and shouldn’t have to pay above the list price.
Most analysts expect Victoria prices to stay flat in 2019 or drop 1%. Considering we’ve seen a 3% drop in house prices in the 6 months since June, 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.