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RE/MAX of Nanaimo

Market Trends 2010

Low inventory levels set stage for heated Spring market in most major Canadian centres, says RE/MAX

Active listings down in 81 per cent of markets in January

 

Lack of inventory will be the greatest challenge facing housing markets across the country this Spring, according to a report released by RE/MAX.

 

The RE/MAX Market Trends Report 2010, which examined real estate trends and developments in 16 markets across the country, found that unusually strong activity during one of the traditionally quietest months of the year has led to a sharp decline in active listings in 81 per cent of markets surveyed. The threat of higher interest rates, tighter lending criteria, and in British Columbia and Ontario, the introduction of the new Harmonized Sales Tax (HST) have clearly served to kick-start real estate activity from coast-to-coast, prompting an unprecedented influx of purchasers. As a result, 87.5 per cent of markets posted an increase in sales in January. Average price appreciated in 81 per cent of markets surveyed.

 

Affordability is the catalyst for the vast majority of purchasers in today’s housing market. While homeownership is still within reach in many major centres, levels are slipping. There is a growing sense, on both sides of the fence, that the time to act is now.

 

Markets experiencing the tightest inventory levels include Toronto (- 41 per cent); Kitchener-Waterloo (-33 per cent); Ottawa (- 30 per cent); Victoria (- 30 per cent); Greater Vancouver (- 27 per cent); Halifax- Dartmouth (- 19 per cent); London-St. Thomas (- 18 per cent); Regina (- 16 per cent); and Winnipeg (- 13 per cent). Conditions were still balanced, but starting to tighten in Calgary, Edmonton and Saskatoon, particularly in the single-family detached category.

 

The highest year-over-year sales gains were reported in Greater Vancouver (152 per cent), Kelowna (121 per cent), Greater Toronto (87 per cent), Victoria (69 per cent), Hamilton-Burlington (58 per cent), London-St. Thomas (55 per cent) and Calgary (47 per cent). Western Canadian cities dominated the list of centres with the highest increases in price appreciation. These included Victoria at 25.5 per cent, Kelowna at 22 per cent, Greater Vancouver at 19.5 per cent, and Winnipeg at 17 per cent. St. John’s (23 per cent) and Toronto (19 per cent) were also among the frontrunners for price growth.

 

There have never been so many motivating factors in play at once. We’re in for a heated Spring market that will, in all probability, spill over into the summer months as the window of opportunity draws to a close. The supply of homes listed for sale has been drastically reduced, housing values are once again on the upswing, and banks and governments are moving in unison toward stricter lending policies.

 

While buyers are taking advantage of favourable conditions, sellers too are reaping the rewards. Competing bids are a factor in the marketplace once again, with well-priced listings—especially at the entry-level price point—experiencing multiple offers. Properties priced at fair-market value will likely sell quickly for top dollar. The overall pressure on sales and price is significant across the board – and it’s not likely to subside unless more inventory comes on-stream.

 

The level of frustration is growing, as pent-up demand builds. For every successful offer, there are those that will walk away empty-handed. They’re thrust back into the buyer pool and the process starts all over again. Some buyers are upping the ante, while others are considering alternate housing options. Still, purchasers remain cautious in their bids, with most careful not to max out debt service ratios.

 

Recent revisions to lending criteria will add fuel to the fire in the short term. Buyers considering a variable rate mortgage will step up their plans for homeownership in the next month or so just to get in under the wire. In the longer term, buyers will adjust, but move forward. Compromise has long been a reality—particularly in the larger centres. This simply means they may go smaller or further in their pursuits.

 

It’s been a 180 degree turnaround from this time last year. It’s clear that real estate from coast to coast has roared back to life and markets are once again firing on all cylinders. The vast majority of markets are now recovered and fully-evolved, with all segments working in tandem. At the luxury price point, activity was brisk in seventy-three per cent of centres surveyed, with momentum ramping up in the remainder. Opportunity exists in some areas, but the question is for how much longer?

 


 

Greater Vancouver

The heated activity of late 2009 spilled over into Greater Vancouver’s real estate market in January, with 1,923 homes changing hands—up 152 per cent over last year. While inventory showed some improvement, it still posted a 26 per cent deficit over January 2009 at 10,218 listings. That fact, combined with very healthy demand out of the gate, has created ideal conditions for bidding wars and upward pressure on pricing. While the market was dominated by first-time buyers during much of 2009, the move-up segment has re-emerged, driving sales from $600,000 to $1 million.

 

With all segments working in tandem, multiple offers are now occurring with frequency across the board. Buyers are aggressive, more than willing to compete. Yet, despite the increased level of competition, most are demonstrating caution, given the economic realities of the still-too-fresh recession and tenuous recovery currently underway. While there are some exceptions, most homes are selling at list price and under.

 

Existing fundamentals do point to further price growth in the months ahead, especially if the disparity between supply and demand continues to exist. The simple truth remains that for every deal closed in Greater Vancouver, approximately two to fi ve unsuccessful purchasers jump back into the fold. The benchmark value of detached homes increased 19.5 per cent to $788,499, while condominiums increased 15 per cent to $385,487, when compared to January 2009. The benchmark price for all residential property types combined is up 17 per cent to $573,241—nearly one per cent higher than the all-time market peak in May 2008. Th e looming Harmonized Sales Tax (HST) and threat of interest rate hikes later in the year has added fuel to Vancouver’s already robust real estate market in 2010. Rising confidence is also a considerable factor.

 

Purchasers are more secure in their belief that the worst of the recession is over and the prospects going forward are brighter. Given the framework that’s taken shape, the momentum is expected to continue unabated through the second quarter. Little relief is expected in terms of supply in the short-term. Rising prices may entice potential sellers in coming months, helping to ease the inventory crunch closer to mid-year.

 

Victoria

Rising consumer confidence levels have buoyed home buying activity in Victoria this year, with sales up 69 per cent in January. Four hundred and eighteen homes have changed hands to date, compared with 247 in 2009—on par with very healthy pre-recession levels. Inventory is an issue, with listings down 24 per cent year-over-year. The entry-level is particularly heated, with multiple offers commonplace on single-family homes priced from $450,000 to $600,000. Those with a legal in-law suite, offering income potential, are ‘flying off the shelves.’

 

Tight conditions are placing upward pressure on prices, with the average value of a single family home now at $640,000, up from $510,000 in Victoria Market Trends Report 2010 R 10 January 2009. All segments of the market are work- Kelowna ing in tandem, with strong activity filtering up to the luxury price points. Those that held off in 2009 are jumping back into the market with enthusiasm. In fact, 15 sales over $1 million were recorded in January, with two sales surpassing the $2 million threshold. First-time buyers, however, remain the driving force, with value top of mind. Sales in the condominium segment are moving at a healthy clip, with prices on the ascent.

 

The average unit now commands $310,000 versus $260,000 one year previous. Tighter lending criteria, the prospect of higher interest rates and the introduction of the Harmonized Sales Tax (HST) are spurring purchasers to act sooner rather than later. Buyers are motivated, but the heightened sense of urgency reminiscent of 2006- 2007 is notably absent. A robust housing market is expected throughout 2010. Th e supply of homes listed for sale remains the single most significant variable that will influence the direction of the market in coming months. Spring usually brings more listings on stream, which would swing the pendulum back into balanced territory, easing pressure on prices. If an adequate amount of product fails to materialize, seller’s market conditions will persist in the lower to mid-price points.

 

Kelowna

Sales of existing homes more than doubled in Kelowna in January, demonstrating that demand has now returned to healthy, traditional levels. Two hundred and fifty two homes changed hands so far this year, up from 114 units in 2009. Prices remain off their peak, but have climbed considerably, with the city’s average now hovering at $414,787—up 22 per cent from a year ago. The average price of a single-family home has risen 17.5 per cent to $484,065. Upper-end home sales have been a factor propping up average price, with strong demand for luxury waterfront properties. A good selection of listings is available across the board, contributing to balanced market conditions.

 

Overall, moderate gains in home values are expected in 2010. Th e condominium market may be the exception. Emerging oversupply could temper—or potentially stall—price growth. Condominiums posted a four per cent average price increase in January to $242,718. Properties continue to command close to the ask price when listed at fair market value. All segments of the market are now active, with move-up buyers gaining an increasing presence. First-time buyers account for the bulk of activity. Consumer confidence is on the upswing. The looming Harmonized Sales Tax (HST) is expected to be a catalyst boosting demand, now and in the second half of 2010, as higher new construction prices may place pressure on the resale market. The economic picture in Kelowna is improving.

 

The Spring hiring season will be underway shortly, which should also help to ease the unemployment rate and enable eager purchasers.