Low Inventory Driving Prices and Competition
The Lion of Inflation is Tamed
Last week, we attended a presentation by the Vice President of RBC Global Asset Management. He spoke about the effect of government intervention on the economy over the past several months and what we might anticipate next. The sharp interest rate increases were designed to tame inflation amid the soaring costs of goods and services. From the statistics, it appears that has largely worked. He referenced the four banks who’d sought government protection and how their financial collapse was likely due to the government applying too much pressure by way of interest rates. Prior to these institutions failing, it was anticipated we would see further rate increases, but that is no longer the case.
We’ve been saying for months that when interest rates plateau, the fear and uncertainty present in our market would subside. At that time, it would be plain for everyone to see that we still have a shortage of inventory to satisfy demand. Currently, based on existing sales activity, it would only take 1.4 months to sell all our inventory if nothing else were listed. Any number less than 3 months represents a seller’s market where we expect to see upwards price growth. With uncertainty gone, that’s exactly what we are experiencing.
The average home value in HRM peaked in April 2022 at $602,000. Amid rising interest rates, the average price of a home then bottomed in October 2022 at $506,000 (a 16% drop). As of March, the average price of a home was $550,000. This is up 9% from October and only a drop of 8.5% from the peak. We have erased 50% of the losses incurred by rising interest rates in five short months.
Over the past year, rental rates have increased by 10% and vacancy remains at an all-time low. Now that uncertainty is subsiding, we anticipate more people to transition from renting to buying. You can obtain a five year fixed rate at the moment for 4.64% (based on information provided by a mortgage broker partner). While that isn’t a historically low rate, it’s not that bad either. Sales have steadily increased since the turn of the year and we expect that to continue.
In the last month, Sellers are on average getting 100.6% of their list price. This represents the first time since September 2022 that multiple offers are driving values beyond asking prices. While I’m not particularly fond of the idea, I’d be willing to bet we are only a few short months away from a situation where Sellers are using “Offer Presentation Dates” again. This strategy disappeared throughout 2022, but a lack of inventory in comparison to strong demand is beginning to take hold again.
What makes Halifax resilient to recession?
Straight from Mr. Vice President of RBC’s Global Asset management - Certain cities are less susceptible to changes in the global economy. The average price of a home in Halifax is still significantly less expensive than in many other cities across the country. This still makes Nova Scotia an attractive option for people looking to relocate. The migration and immigration to our province is driving demand for housing which supports real estate values. On top of this, we have a diverse economy with several sectors that are not as affected by external factors - Think Government, education, tourism and the Military.
All of these factors have created a strong foundation for real estate values in the past and they are likely to do so in the future as well.
What to do next as a home seller?
At time of writing, there are less than 700 single-family homes and condos for sale in the HRM. For perspective, in March of 2019, we had more than 2,000 homes for sale. While we have more inventory than a year ago, it is still extremely limited based on historical data outside of the COVID years. With proper preparation, you can leverage the current real estate market to sell your home for maximum value. Multiple offers are a very likely reality with the right strategy.
What to do next as a home buyer?
Do not assume you cannot afford a house because interest rates have increased. Take the time to explore your options with a mortgage specialist to determine your borrowing power. A home today is less expensive than it was at the peak of the market, but with the way things are trending, it is unlikely that will be the case six months from now. Interest rates might be higher at the moment, but a house is cheaper. Get ahead of the market instead of waiting for everyone else to jump in at the same time.
Our real estate planning consultations are completely free. We do not expect you to make an immediate decision about whether or not to buy or sell a home. However, the planning piece of your move is absolutely critical to ensure you are successful. Take advantage of our extensive experience with your free planning session.
Chris Perkins, Broker/Owner
HaliPad Real Estate Inc.
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