What does the current Victoria real estate market look like?
As part of our monthly Market Insight Series, I am excited to continue to bring you regular insights into the Victoria and Vancouver Island market trends, so you can make better buying and selling decisions. Below I will jump into the most important market numbers to look into, I will provide glossary term definitions, and will conclude with resources if you want to further research current trends and stats. If you want to see what the Market Insight for the previous month was, click here.
*Our mortgage rates have been broadened by adding smaller lenders in addition to the major Canadian banks
As we approach the end of 2022, we are starting to get a better sense of what the Canadian real estate market will look like going into 2023.
The Bank of Canada has now completed its final rate hike of the year by adding an additional 50 basis points, pushing the overnight rate up to 4.25%. If this is followed by a pause as predicted by a majority of economists, it could mean that the end is in sight for quantitative tightening, which could lead to growing certainty for buyers and sellers on where the real estate market is going. As mentioned previously, this will continue to be driven by the direction of Canadian inflation rates. If inflation continues to decline, interest rate hikes should be fewer, and smaller going into 2023 until eventually these are stopped, and (hopefully) start to reverse near the end of 2023 or beginning of 2024. For the time being, uncertainty could be a welcome friend for potential buyers, but also a strong headwind for potential sellers.
For sellers it means that there are far fewer motivated buyers in the market, resulting in far fewer offers, and growing inventory supply meaning more competition among sellers. If you are a seller in this market, you should expect a few things, longer days on market, the need to price your property very competitively, and a good chance that your sale price will be lower than your listing price. Let's look at Single Family Detached (SFD) houses as an example. The average SFD property sat on the market for between 33-38 days between September and November this year. During the same time period, SFD properties sold for an average of 5-6% less than their original listing price. For a house listed at $1.1M that would be a difference of $55-66k.
For buyers, the current market conditions will mean that except for those properties that are priced very competitively, in most cases you could be the only buyer at the negotiating table right now. This creates opportunities to write offers that satisfy a range of needs including financing requirements, extended or expedited closing and possession dates, and obviously negotiation on price. Although at a high level listing and sale prices are not very far apart for the average property, this stat fails to account for the fact that so called 'stale' listings are often cancelled and relisted so they appear in the MLS system as if they were brand new listings. This means that a property could have originally been listed 90 days ago for $1.1M, relisted again 30 days ago at $1M, and finally sold a week ago at $950k. This kind of scenario is happening all of the time in the current market, and the ability to negotiate on price can be leveraged as a hedge against future price declines. If for example, you can negotiate $100k off of a $1M property, then the market can fall another 10% over the next 6 months without putting you at a loss. In fact, since no one can ever know when a market will bottom out, you could be ahead, either by negotiating a great price in a cool market, or by finding the perfect property now while so few others are looking. In either case, today's buyers are getting ahead of the market by giving themselves lots of time to start looking for the right property now while others are deciding to wait and see. Even if you're not planning to write an offer today, but you would like to purchase sometime in the next 6-12 months, this is a great time to start doing some reconnaissance. Seeing a place in person can give you a much better sense of what you want and need than just looking at pictures and floor plans.
Below is a table that outlines the current housing benchmark pricing along with a sample calculation that can give you an idea of what it might cost you to own a home.
With all of this in mind, there are a couple of nuances that I should point out. Obviously property owners and investors who are looking to sell or downsize are probably better off waiting for the market to rebound. For downsizers, although you are trading across, you are losing more money on the sale of your more expensive property, and saving less on the purchase of your future downsized home. Where possible, investors and downsizers should hold off on selling in this market. Alternatively, and perhaps less obviously. If you are planning to sell and buy so you can upsize into a bigger home, this could be hugely advantageous for three reason.
First, if you've owned your home for 2 years or more, you'll likely to be well ahead in terms of appreciation since you first purchased.
Second, you can expect to save more on your new purchase then you may be losing out on if you had sold 6-8 months earlier.
Lastly, you are able to cash in on the equity you have built up by paying your mortgage down since owning your home.
Although it's too early to tell where or when the market will bottom out, we are starting to see a flattening out of the downtrend in the property absorption rate. This rate has been hovering between 22% and 30% since July and is currently sitting at 23%. Taken alone, normally this trend would indicate that we are somewhere between the high end of a balanced market, and the low end of a seller's market. However, when we account for the other market variables, this reads more like the potential beginnings of a market bottom forming. Again, I should caution that this is entirely dependent upon which way interest rates go next year. However, if interest rates continue to slow down this will be a positive sign going into 2023.
Opportunities for ordinary people looking to get into their first home, or move up into one of the more affordable homes that are in and around the $1M or less range are still out there, it just takes a bit more diligence, and ideally the support of a committed agent.
The goal is to give you insight into what the overall market view looks like in Victoria and Vancouver Island. I have included more Resources below so that you can dive in and read more at your leisure. I will also make sure to include a new Glossary Term each month, and define it to add to your knowledge of common industry terms.
Feel free to contact me if you want to learn more or if you have any questions about the broader market trends.
In strata housing, the owners own their individual strata lots and together own the common property and common assets as a strata corporation. In other words, as a strata owner you hold the title to your individual unit and you also have a proportionate share of the common property, which are typically common areas such as the grounds, elevators, halls, recreational spaces, etc.
https://www2.gov.bc.ca/gov/content/housing-tenancy/strata-housing and https://www.burnabyhouses.com/buyers/strata-title/
1. VREB Insight:
2. Mortgage Calculator:
3. Mortgage Rate By Bank: