Monthly Market Intelligence - October 2022 Edition

October 2022

Buyer Sentiment Strongly Tied To Interest Rates

This past September, Victoria’s slower summer market has continued to push through into the fall. 410 properties sold last month in the Greater Victoria Market area. This represents a 46.1 per cent decline from September of last year, and a 14.2 per cent decline from August 2022. Sales of condominiums suffered most year-on-year, down 58.8 per cent from September 2021, while single-family homes only declined 33.2 per cent from this same period last year.

Consumer hesitation remains strong; sales have been on a downward trend since May. September has seen some of the lowest sales numbers for that month in decades, and while the rate of decrease has slowed due in part to concerns about rising interest rates and inflation, this level of activity may not reflect the actual demand that exists in the marketplace. Although activity is below historical levels, well-priced properties are still getting a great deal of attention. The demand is there, however buyers are being extremely cautious. Buyers are expecting time to do proper due diligence and are acutely-focused on price.

September ended with 2,300 active listings for sale on the Victoria Real Estate Board Multiple Listing Service, an increase of 7.6 per cent compared to the previous month of August, and a 104.6 per cent increase from the 1,124 active listings for sale at the end of September 2021.

Slower sales numbers and rising inventory have brought our Greater Victoria absorption rate up to almost 5 months of inven tory (Figure 1). Traditionally, we consider our market in balance when the absorption rates are between 5 and 6 months. The last time our absorption rate was in this territory was in 2020, at the start of the pandemic arrived. The market’s immediate reaction was akin to someone pressing a pause button. However, that didn’t last long and consumers developed what could only be described as a ravenous appetite for real estate. The following two years became our strongest seller’s market ever.

The Bank of Canada’s prime lending rate changes have contrib uted to the recent cooling in our housing market. While there was an expectation in the industry that these rate increases would cause added downward pressure to inventory pricing, this isn’t happening as quickly as one would have expected. Although we have over the past three months seen our benchmark prices on a gradual decline, from $1,301,300 in July, to $1,248,900 in August, to $1,218,500 in September, despite this, values are still much higher than this same time last year where the benchmark was only $1,068,300 in September 2021.

How is this translating to the day-to-day? We are seeing a rising intensity of pricing pressure. Sellers are holding their ground on prices and buyers are more inclined to test the resiliency of a property’s list price. While some may consider this as unfortunate news, the effect is a market that is much easier for both parties to navigate. Gone is the fever pace of last year and what both sides have transitioned to is an ability to negotiate,

Absorption

Absorption

do proper due diligence and simply have some breathing room, which is good for everyone.

Another rate hike of at least 50 basis points is all but guaran teed at the Bank of Canada’s next meeting on October 26th. That implies a variable rate mortgage north of 5.5%, and a stress test of at least 7.5%. With each of these rate hikes, they have pushed more potential buyers out of housing sales and into the rental market space. With Victoria’s limited rental housing and historically low vacancy rates, this has resulted in significant demand. Rents are simply sky-rocketing with no sign of slowing down. A one-bedroom apartment in Victoria rents for $1,900 a month. A two-bedroom close to $2,900 per month, and a three-bedroom could be as much as $4,000 per month.

The result of this has been a resurgence in our investment market. Despite the higher cost of borrowing caused by the Bank of Canada’s interest rate hikes, we find investors can still “make the numbers work.” By off-setting the higher mortgage payments with these increased rents, purchasing real estate as an investment remains a profitable option.

Not all neighbourhoods in the Greater Victoria Area experienced the same decrease in activity. When we look at the absorption rates by neighbourhood (Figure 2), we see that Victoria/Vic West, Esquimalt, Broadmead/Sunnymead, the Lake District, Central Saanich and Sidney all remained in very high demand with rates below three and a quarter month’s of inventory. It is not coincidental that the neighbourhoods having the highest absorption rates are also those presenting the higher priced and luxury oriented product. The transitioning market affected the high-end properties the most. On the chart opposite (Figure 3) we can see that property under 1.5M remains in the seller’s market territory; however, over 1.5M, the absorption rates jump squarely into that of a buyer’s market.

With another month behind us, 2022 will prove to be a year in our real estate market that is punctuated by change. As we transition from the mayhem of 2021’s housing market into some thing more refined and balanced, all eyes are on the next set of interest rate increases and what effect this will have. While we are certain that in the short term, we can expect to see some degree of bearish journalism on the subject, there are always favourable possibilities. An example of such is the rental rates being a boon to our investment market. It’s that type of trend that reminds us that our diverse real estate market always pres ents opportunity.

If you would like to further the conversation on the current mar ket, discuss buying/selling strategies or gain an understanding of the market value of your home, we would be delighted to hear from you.

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