Sales hit yearly high and continue to break records

Another extremely active month in the Victoria real estate market is behind us.  Sales were up even from August to end the month at 989, which is an astonishing 67% above the long term average for September.  Daily sales are down slightly from peak, and should start declining more sharply from here on out as pent up demand becomes exhausted but it’s a long way to fall.  Breaking it down by property type, only townhouse sales took a dip in September, with seasonally adjusted sales up for both condos and detached properties.   All are close to their 2016 peaks and breaking records for September.

Condos did decently well in September, with sales up about 20% from a year ago, but looking at the year to date statistics, we can still see that they are going in the opposite direction as townhouses and detached homes.   New lists for the latter two are down while sales are up, but condos have seen an increase of new listings matched with a decrease in sales.

Different market segments cannot go in opposite directions forever.   As prices for detached homes spiral upwards, it will push some buyers out of that segment and force them to look at condos, which will slow down the detached market and boost condos.  However there may be some more room to run here.  Currently the detached median is just over twice that for condos, and we’ve seen that ratio go higher in the past.   That ratio is also expected to continue to increase over the long run, as it has been for three decades.  The jump from a condo to a house is getting larger, both because prices are increasing and because single family houses are appreciating at a faster rate than condos.

Inventory continued its long slow slide downwards in September.  Overall new listings were disappointing in September, with the usual fall new listings rush missing in action this year.   A 33% increase in new listings for condos was not enough to make up for the strong detached sales and lack of listings in other segments. 

What does the future hold for prices?

We know that detached prices are on a strong upswing while condo prices have stayed pretty stable, but what of the future?  Well if there’s one thing we learned from COVID it’s that we may as well throw any forecasts out the window since they’re even less reliable than in normal times.   Whether bulls, bears, or regulators, not a single pundit predicted that the largest economic shock in our lifetime would cause house prices to spike in Victoria and across North America.   I argued back in April that the market was well positioned to absorb this shock, and I didn’t see a big downside risk, but I certainly never expected the boom that we’ve seen, with luxury sales off the hook and the detached market back to nearly the crazyness we saw in 2016.

So I won’t make predictions about where prices are going.  However I’ll leave this chart of Victoria single family house prices VS months of inventory here.  In the past, market balance like what we have now (MOI about 2) has been usually followed by single family house price gains of 10-20%.  Will it happen this time or is it different?  Draw your own conclusions.   I’m almost sure the market will not stay this hot for long, but right now this is where we are.   It is perhaps interesting to note that after the financial crisis we had a price boom as well.  That lasted for about a year before it burned itself out and consumer sentiment changed toward the negative.

Construction

A quick check on construction to close out.  Since the pandemic, units under construction has held fairly steady and starts in the first 8 months of the year are actually up slightly over 2019.

The reason is likely that a lot of construction now is rental housing with money secured by the government, rather than the primarily condo-driven construction boom in 2008 where financing immediately dried up and starts went to zero for several months.   Speaking of rentals, there are currently 2329 rental units under construction in the region, with 1827 of them in the westshore.   With an average construction time of 17 months, we will see the majority of those complete over the next year.  The increased supply hits at a time of weakened demand, which should strongly increase the rental vacancy rate and stop rent escalation in the region or even reduce rents.