2nd Quarter Market Update | A Price Plateau
Before I tell you why we are having a difficult time explaining the numbers, we’ve got to talk about the numbers. Average price in the second quarter only went up by 0.8% in comparison to 12% in the previous one. Total sales in the 2nd quarter were 1,960 in comparison to 1,466 in 2020. In the past year, the average price increased by 32% driven by low supply and high demand. However, back in 2020 we had more than double the inventory – 1,079 homes for sale versus 470 in 2021. So why has the average price plateaued?
Making Sense of the Numbers
Based on the numbers alone, there is absolutely no reason why the average price is not continuing to increase. Market value is based on supply and demand. We have less than half the inventory from a year ago and sales are up by 33% - less supply and more demand. Sellers are also obtaining on average, 115% of their asking price in 2021 versus 99.9% in 2020. The reason for our price plateau in the last three months is a bit baffling. To attempt to make sense as to why this might be be, I’ve come up with a few different possibilities.
Sales are up in the 2nd quarter overall, but they have slowed down from a peak in April. The lockdown in May was always going to cool the market and this winter was an especially long one considering our COVID reality. Once Summer was on the horizon, people rightfully looked forward to relaxing and finally being reunited with their families. Perhaps house hunting is on the back burner for now, while people enjoy the warm days and dream of travelling again. More money might be allotted to experiences rather than homeownership.
Limitations on affordability
Understandably, a lot of people have had enough of the incessant bidding wars and the disappointment that often came with it. However, Sellers are still obtaining 115% of their asking price. Despite this, the average sale price is not increasing. Could it be that the local population has reached the limit of financial viability for home ownership? You can’t offer more than you can afford and this could play a role in holding prices where they are.
The uncertainty of what happens next
We are yet again in uncharted territory. The borders are open with the rest of Canada and that comes with a host of questions. Will more people leave than come? Will remote workers suddenly be called back to offices? What happens to real estate values if they are called back to offices? My bet is people are going to watch the cookie crumble over the next couple of months before making any concrete decisions about their real estate plans. The associated risk that comes with not knowing the answer to these questions is enough to give someone pause. Students and travelers will return to our province over the coming months. Employers may call their staff back to offices. Once these potential factors become a reality, will we know the full impact on our local real estate market.
The sales data does not explain why our prices have plateaued. It is far more likely our plateau is caused by the uncertainty of how a vaccinated world adapts to live with COVID. In unprecedented times and without a crystal ball, we'll have to wait to see what happens next.
Chris Perkins, Broker/Owner
HaliPad Real Estate Inc.
Posted by Chris Perkins on