The Nanaimo real estate market has become one of the most expensive in British Columbia, rivalling those of Vancouver and Victoria. From Nanaimo’s gorgeous scenery to its beautiful residential properties, many prospective homeowners are clamouring to live in Nanaimo. But with limited inventory, can the boom continue?
According to data compiled by Nanaimo News Now and RE/MAX, residential property sales tumbled 25 per cent month-over-month in August, totalling 83 single-family homes. This was up 17 per cent from the same time a year ago.
In the final full month of the summer, the average price for a single-family home jumped three per cent month-over-month to $861,502. But prices were down about two per cent year-over-year and have slipped roughly eight per cent from the record high of $944,500.
At the same time, the benchmark price in the Nanaimo real estate market was unchanged from July and fell five per cent to just below $800,000.
The issue for the Nanaimo housing market has been the lack of inventory. The latest data show that active residential listings of single-family homes plunged 21 per cent from the previous year, totalling 1,072 units. New supply added to overall inventory levels, but active residential listings were so low that they could not satisfy demand. And this is driving up Nanaimo real estate prices.
So far, it is unclear if the rate of new housing construction will suffice to satisfy demand as activity levels have slowed. According to Canada Mortgage and Housing Corporation (CMHC), housing starts collapsed 90 per cent year-over-year in August, totalling 26 units. In the first eight months of 2023, housing starts totalled 335 units, down more than 60 per cent from the same span a year ago.
Should the recent numbers be a cause for concern? Not necessarily, says Kelly O’Dwyer, the head of the Vancouver Island Real Estate Board (VIREB) in 2023.
“The last two weeks of August were slower than the rest of the summer, which isn’t surprising,” said O’Dwyer in a statement. “The market is usually pretty quiet right before school starts again.”
Could investors provide relief to a market that desperately needs fresh supply?
Is Nanaimo Real Estate a Good Place to Invest?
For many investors, Nanaimo real estate could be a great place to park their money. Nanaimo offers a wide variety of housing opportunities: households that want to purchase a property, individuals who wish to rent a single-family home, or even demand for a short-term rental property by tourists wishing to travel and experience Nanaimo’s beauty. Indeed, Nanaimo is everything you would want, whether to live, work or visit.
But could investors be taking a risk by buying at the top of the Nanaimo real estate boom?
Some estimates suggest that prices could rise further while sales activity could diminish due to low inventory, leaving buyers sitting on the sidelines.
“Less-dense cities and neighbourhoods offer buyers the prospect of greater affordability, along with liveability factors such as more space. In order for these regions to retain these appealing qualities and their relative market balance, housing supply needs to be added. Without more homes and in the face of rising demand, there’s potential for conditions in these regions to shift further,” said Christopher Alexander, President of RE/MAX Canada, in the RE/MAX 2022 Canadian Housing Market Outlook Report.
Will Interest Rates Hurt Nanaimo Investors?
Is the Bank of Canada (BoC) close to being finished with its quantitative tightening cycle? This is the expectation among the financial markets after the central bank left key interest rates unchanged at five per cent at the September policy meeting. But market analysts believe that the door remains open for one more quarter-point rate hike amid the reacceleration of inflation.
In August, the annual inflation rate soared to four per cent, up from 3.3 per cent in July and higher than the consensus estimate of 3.8 per cent, according to Statistics Canada. On a monthly basis, the consumer price index (CPI) rose at a hotter-than-expected pace of 0.4 per cent. Core inflation, which omits the volatile energy and food components, also edged up to a higher-than-expected 3.3 per cent year-over-year.
Following the central bank’s latest decision, Governor Tiff Macklem hinted that the Governing Council may need to raise rates again.
“In trying to balance the risks of under- and over-tightening, the governing council decided yesterday to keep the policy rate at five per cent and agreed there may be a need to raise the policy rate further if inflationary pressures persist,” Macklem said.
The rate pause could offer some relief in the mortgage market after the five-year fixed-rate conventional mortgage rate was 5.99 per cent in July.
In the second quarter, the Canadian real estate market enjoyed robust sales activity and higher price growth after the Bank of Canada left the policy rate unchanged. Should the institution maintain this strategy – leave rates higher for longer while officials take a look around and assess how tighter monetary policy is affecting the economy – it might provide some certainty and stability to mortgage rates and the housing sector, including the Nanaimo real estate market.
That said, RBC economists anticipate that the housing industry could experience a further cooling heading into the fall season.
“Higher interest rates continue to cool down Canada’s housing market following a surprising solid rebound this spring. August marked the second-straight month home resales dipped (down 4.1 per cent from July), and home price gains moderated. Earlier tight demand-supply conditions eased further as the number of homes put up for sale climbed again (albeit slightly),” bank economists wrote in a September research note. “The majority of local markets have sharply rebalanced by now. We think the cooling trend will extend into the fall season despite the Bank of Canada pausing its rate hike campaign.”
Put simply, a modest drop in prices amid fresh supply could give buyers a new lease on life in the Nanaimo real estate market and perhaps in the broader national housing sector.