Market Insights May 2022 - Market trending toward normal?

2022 Image with Keys

 We appear to be trending toward normal market conditions locally. With rising interest rates, the tight inventory levels are keeping the market on the ‘Seller’s Market’ side of the scale at this time. As further rate hikes appear imminent, this may push us closer to more balanced conditions.

 In Single Family Home (SFD) sales for 2022, January’s active inventory by month’s end was 50. February ended with an inventory of 93; March ended with 174 active listings; April ended with 214 SFD for sale (v. 200 in ’21).

Active inventories increased but the average price dropped from $1,003,705 in January to $944,950 in February; average prices of $970,961 and $933,954 for March and April, respectively. March and April had significantly more sales volumes compared to January and February, so the possibility of the statistical average being higher in Jan/Feb increased based on fewer sales.

Another statistic: February had an average selling price to list price ratio of 108% (8% over list price); March’s sell price to list price average was 105.87% and April’s 103.2%. This may reflect fewer bidding wars or fewer buyers in bidding wars; buyers are seeing more choices and being more selective also.

Spring is usually the busiest selling season, so the actual impact of the rate increases is yet to come. The initial rate hike in January was .25% and another .50% in April. Home buyers are typically given a 120 day rate guarantee by their lender to lock-in the rate by closing on a purchase so this will delay its effect on prices, Days on Market, and List Price to Sell Price ratios.

Two more rate hikes are proposed for June and July by the Bank of Canada.

To get some context on the impact of rates, each .75% cumulative increase pushes up a buyer’s payment by $40/month per $100,000 of mortgage funds. At 2.75%, this is a $460 monthly payment per $100,000 of mortgage borrowing; 3.5% is $500/m; 4.25% is $540/m. If the average mortgage is $500,000, then the difference from the low rate to the high rate is $400/month more in mortgage payments - enough for buyers to begin rethinking what they can afford, resulting in going to a lower price range, pulling back from buying altogether, or finding more down payment funds.

BC Real Estate Association reports that average volume of sales year over year in BC is down from a peak in April 2021 to April 2022 by 34.9%. The Vancouver Island region (north of Malahat) volume dropped by only 19.9%, 2nd lowest in the province. I feel this reflects the desirability of this area for both quality of life and affordability relative to bigger, more expensive markets. Our chief provincial competitor for attracting new residents is the Okanagan which saw a 34.3% drop. The Fraser Valley and Greater Vancouver saw 44.8% and 34.5% drops in number of homes sold, respectively. Victoria's volume of sales dropped 25.7% year over year.


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