Over the past few months, bargaining power in residential property transactions throughout the Greater Victoria area has rather clearly shifted in favour of buyers.
Looking for proof? One needs only examine real estate statistics, as published by the Victoria Real Estate Board. In July and August, while the total number of listings increased to around 5,000, sales numbered just over a tepid 500 units throughout the region. At the current rate of sales, this represents a 10-month supply of inventory in our local market — a 15-year record, I believe.
As can be expected, the increasing imbalance between supply and demand is showing up in a lower price trend across all types of residences. While average prices have fluctuated up and down dramatically, the primary cause has been the varying numbers of very high-end homes that sell from month-to-month. More indicative of price trends is the median price. For a single-family dwelling in Greater Victoria for example, the 2010 median price was $562,000. By July and August of this year it was down to $541,000, a decline of 3.7 per cent.
A few months of slower sales and rising inventories is not a definitive indicator of long-term price softening. But sellers would be foolish to ignore these early warning signs. It’s important to note that this early downward trend has emerged even as five-year fixed-mortgage rates are available for as low as 3.44 per cent.
Eventually the North American economy will pick up steam. Mortgage rates will rise. When they do, we can expect more downward pressure on buyer demand.
Despite these indicators, some organizations, including the B.C. Real Estate Association, continue to predict prices “inching up” in 2012. Don’t count on it.
I continue to believe that although we are not destined for a major drop in prices, a modest downward correction is highly likely. Investing in residential real estate today should not be done with the expectation of significant capital gains over the next three to five years.
If you are a buyer, there’s much product to choose from, and little urgency to close an early deal. If you are the seller, be sure to price at the market level — or the only one visiting your home while it’s listed may be your realtor to suggest a price reduction, and perhaps your curious neighbours. Aside from realistic pricing, proper staging of your home and an aggressive marketing plan become more important than ever.
The saving grace for sellers is that more than 500 buyers are looking to purchase a home every month. And they are buying. Despite the dismal summer statistics, of the sales that occurred during that period, I know of two in the past month which sold within a week, and within a whisker of their near $800,000 asking prices. The sellers’ secret? Very realistic pricing and an excellent marketing program, well-executed.
Owning residential real estate in our very appealing corner of Canada cannot help but be a good investment in the long term. The current challenge for sellers is in the shorter term. For those needing to sell their home, ignoring these rather clear market signals will likely lead to lack of success and great frustration.
Remember the facts. No more than about one-tenth of all those listing their home will succeed in selling within any one month. Some 90 per cent will remain without an offer, many not selling even after many months on the market. Price accordingly.
A retired corporate executive, enjoying post-retirement as a financial consultant, Peter Dolezal is the author of three books. His most recent, The Smart Canadian Wealth-Builder, is now available at Tanner’s Books, and in other bookstores.