Market Update for Q2, 2023

The local MLS, Regional Multiple Listing Service has improved their reporting this year with an excellent display of data. I have been mentioning for quite some time that our market is red hot in the 110% of median and lower, and has cooled off considerably in the upper price ranges. There are some notable exceptions with Downtown Vancouver high end condos which seem to be doing just fine.

Year over year the median price is down 2.9% but based on the full set of data the MLS provides, the upper end market is lacking sales and thus the median is coming down. Remember that the median is simply the "middle" so when fewer expensive homes are sold the middle becomes a lower number. The actual asking price of a standard 3 bed 2 bath house is about the same as it was last year but this year the house is getting 1-2 offers whereas last year it was getting 3-6 offers and way over asking. That is also leading to the median drop. 

This data does not suggest the market is dropping as much as it suggests its rate of growth is slowing. There is a difference and it matters. People become nervous about buying a home if they think its value is a bout to drop. So far indicators support mild real estate appreciation over the next 12 months. Of course anything can happen in the economic cycle and projections are just that. But there is no alarm bells going off here. The slowdown is two-fold: first the abrupt rise in interest rates eliminated at least half of the buyers in the local market. Under different circumstances that would have crashed our local market. But the market was so tight on inventory that it just took some needed pressure off and it was actually a healthy adjustment. The second factor which is keeping inventory lower than it would normally be is that fact the homeowners are reluctant to give up their low interest loan to buy another home elsewhere. Many homeowners that might be ready to move up to a bigger home, or a place with some land, etc, are sitting on a 30 year note with 25 to go at 3% sometimes less. The move up will put them in a new loan at 6.5% or more. This is stifling inventory. Unfortunately the government acted too quickly and created a scenario where rates rose almost instantly rather than a gradual rise over the course of several months. A gradual rise would have been a much smoother transition from hot market to normal market. The quick rise basically slammed on the brakes.

So when looking at the data you see that sales are down, but new listings are down about the same amount, marketing time is up a little and median price is down slightly. With just 1.5 months of inventory this is still a sellers market and we won't see a neutral market until inventory gets up around 3-5 months. Once the inventory moves to six months or longer the market transitions to a buyers market.

It's easy for doomsayers to persist with sales numbers so much lower than last year but the real truth is that the only people really feeling a big difference in the market this year over last year are the people at the very entry level from last year who no longer qualify and real estate agents who are all fighting for a slice of a shrinking pie. Some agents may sing the songs of doom, but the market is actually still doing well despite the governments best efforts to crash it.

Looking forward to Q3 I'd say the chances of an increase in buyers is slim, but the chances of increased listings is 50/50. An increase in listings with no change in buyers will soften the Markey up a bit and make things a little easier on buyers without too much downward price pressure. Buyers should keep in mind that interest rates are not high right now they are average, we just came off a 10 year period with below average rates. It may feel like they are high but we are finally back to "normal" and I believe the nation will adjust to mortgage rates in the 6s.

The weather is nice, are more listings on the way?

This spring took a fair while to develop locally as winter like weather persisted well into April. But now it is sunny and warm and with that turn of season often comes a bunch of fresh new listings. We could use a hit to inventory to help buyers out who still face multiple offers on homes in and around the local median price. That is running just under $500,000 right now. 

Buyers are facing pretty typical interest rates when compared to the 50 year average. That long run of years and years at below average rates has no doubt spoiled things a bit now that we have settled into a more "normal" mortgage market. 

Buyers can also take advantage of some new mortgage products aimed at helping first time buyers get into the market with low to zero downpayment and sometimes a little government assistance. These programs can really help buyers get an opportunity in this still tight market.

Despite losing a huge portion of eligible buyers the stingy inventory has kept things favoring sellers a bit. A rush of new spring listings will likely level the field offer buyers some negotiating room. Buyers haven't had that in quite a while.

Be sure to contact me if you are interested in these new programs.

Spring Outlook

Spring is here, at least by the calendar if perhaps not by the weather. Traditionally there is an uptick in new listings this time of year. The local MLS showed just that last month. The real question is whether an uptick in buyers will follow. That is also a typical scenario. But we just came out of a long red-hot period in real estate that was driven by artificially low interest rates. These crazy low rates made it possible for lower income people to buy a house. Many of them jumped at the opportunity. 

It also made it downright easy for people who purchased starter homes a few years earlier to sell and move up to a larger home, sometimes without having a higher mortgage payment. Bigger house lower payment? Where do I sign? 

As rates began to creep up two things happened and it is a good thing that they both happened. The higher rates eliminated a number of buyers at the lower end of the income spectrum. Where they qualified to buy at 3% they no longer qualified at 6%. This took buyers out of the marketplace, which normally would lead to flat or declining prices. There was however, an additional effect of stifling the move up market. People are sitting on huge equity reserves but they are reluctant to give up the sub 3% loans they have. So as the buyers dried up the inventory also flattened out and that was a bit of a stalemate. 

The worst thing that could happen now is a massive rush of new inventory. People feel like there is a lot of buyers because there is so few homes in inventory, in reality there are very few buyers right now, it just so happens there is even less inventory. I would compare the market in 2018 to today as follows. In 2018 there was 10,000 buyers vying for 1,000 houses. Today there is 1,000 buyers vying for 100 houses. From the buyers perspective it feels the same, but for the market at large there are very few homes actually being sold. 

Hopefully we will see a slight uptick in inventory to ease the pressure off buyers, but not too much so as to cause a drop in prices. Only time will tell but this extra cool spring is not helping to get sellers off the fence. Usually it is the warm spring days that get the market awake and eager. We haven't had any warm spring days yet. Stay tuned.