Nobody Has a Crystal Ball
But using previous market trends and up to date industry reports, we can make educated guesses at what may happen as we move through 2024.
The winter months are always slow. Inventory is low, buyer interest is lower, sales are down and the average purchase price tends to slump. The market gradually builds steam as we head through February and March. The days get longer and warmer making house hunting easier and more comfortable. Buyers start returning to the market and home owners get some much needed spring cleaning taken care of while preparing their homes for the market. Looking back as far as I can go with the tools I have, it's like clockwork: the market peaks in late spring/early summer every year. In the past two years alone, there has been between a 10-15 percent drop from the peak average price in late spring/early summer to the end of the year. Those trends indicate an active spring.
Now that we are familiar with the trends in the market, what information should we consider in today's market?
Inflation in 2022 was out of control. The government intervened with rising interest rates in an effort to slow and bring down inflation. This worked to cool the housing market too. However, in spite of the higher interest rates, our average purchase price still managed to creep up. We are up 4.87% year over year and inflation has come down. As the government continues to work to get inflation under control, it is expected that interest rates will start to come down. In fact, they already have in some 5 year fixed rates.
As of December 2023, our Months Supply is at two months. What is Month's Supply? I'm glad you asked! Months Supply is a metric that represents supply and demand. How it works: If we had ninety listings and we are selling thirty homes a month, we would have three months of supply (90/30=3). Anything under three months is considered a Seller's Market and between three to six months is a Balanced Market and as you may have guessed by the time you read this part, anything over six months is a Buyer's Market.
Let's put things in perspective, in 2019 we were at three months supply and then as we head into the pandemic and historically low interest rates, that metric shrinks to 1.3 in 2020 and then 0.5 in 2021. In 2019, there were approximately 1,129 homes for sale as of December compared to December 2023 where there were only 647. This is what is contributing to the year over year increase on average purchase price. It is also worth noting that even though we were a balanced market in 2019, the average price increased by 10.27%. Every year since then, we have seen gains in the average purchase price. Limited supply has created an environment where there is still upwards pressure on home values, especially in the Spring and despite higher interest rates.
In a recent article printed by The Canadian Press, it is reported that the large increases to immigration have affected housing affordability and services. This report also went on to suggest that as of 2022, housing construction had not kept up with the pace of population growth. By the third quarter of 2023, the country's population grew by more than 430,000; the fastest pace of population growth in any quarter since 1957. Here in Nova Scotia, there were 30,000+ new people to the province by October 2023 (either from immigration or migration).
Locally, many buyers who were sidelined or timid about the higher interest rates and decided to step back from the market to 'wait and see' are currently paying high rental rates. As interest rates start to come down, we could see these buyers return to the market.
50% of the market activity is happening in the $300,000 - $500,000 price range. At this price point, sellers are still seeing aggressive, multiple offers on their homes and they are usually sold within a few days. Why is this price range so attractive? Because while the higher interest rates did work to cool the market overall, the fundamental issue of a lack of supply still remained. These higher interest rates pushed the remaining buyers down to a lower price bracket. What will happen once the rates start to come down?
While we are still in a Seller’s market, we’ve had more inventory available than in the last three years. Higher interest rates have meant more buyers are choosing to rent and sit on the sidelines. As soon as rates start to subside, demand will go up and supply will deplete increasing that average purchase price further. Get ahead of the game and get into the market before everyone sitting on the fence, jumps off.
It's still a Seller’s market. We have extremely low inventory. While I don’t know what listing activity will like be this year in comparison to others, I anticipate that there will be an influx of activity and am not sure if buyer demand will keep up. What I do know is that it is currently still possible to get good value for your home because there are only 2.5 Months of supply. Also, prices are 5% higher than a year ago. There are only 647 homes for sale and Sellers are still getting on average, 100.7% of their list price. Not so bad, right!?
We should expect the same peaks we see every year as we head into spring. More inventory will come on the market along with buyers and the number of sales will increase along with the average purchase price. It is clear that there is a supply issue and this will impact the market. What we don't know for sure is what will happen with the interest rates and if or when they do come down, how much of an impact will that have on demand. We can speculate but we don't have a crystal ball.Posted by Adam Scott on