Ottawa real estate news, discussion and inside broker information brought to you by Gord McCormick, Broker of Record and Dawn Davey, Broker 613-435-4692 firstname.lastname@example.org www.oasisrealtyottawa.com
Just released February results show a continuing and worsening trend in listing inventory shortages in Ottawa real estate. A relatively strong unit sales increase of 13.9% was recorded during February and average selling prices shot up over 20%, as a result of strong demand and bidding wars on properties.
Prices: Average prices for properties sold in February soared 21.1% for the average residential property to $563,694 and the average condo sale recorded was up 21.3% to $349,813.
“FOMO” creates Bidding Wars:
Once a bit of a rarity, this is pretty much the standard in the current limited inventory market. The Board press release quotes that 58% of properties sold in February were as a result of multiple offer/bidding war situations up from 32% a year ago.
While many do not like aspects of the “holding offers” bidding war process, it is really somewhat unavoidable, as one cannot really know what market value is going to be, unless all buyers have a chance to consider a new listing. This can only happen if at least a few days are set aside and provide for reasonable opportunity for buyers to visit the property, while accepting offers at a pre-specified day and time.
There is also the natural inclination for a seller to experience FOMO (fear-of-missing-out) if they do not wait for a reasonable number of buyers to tour the property and accept the first interested buyer offer. The only way to mitigate the potential of “maybe-I-listed-too-low” thinking, is to establish an offer date and hope to hear from a reasonable cross section of potential buyers.
Less than 1 month of expected sales in inventory:
Our current listing inventory levels are pretty anemic, with residential properties available for sale down 36.7% vs 2019. Condos are even worse, at 60.7% lower than last year.
This means we have less than one months’ anticipating sales on hand, so March would be a great time for someone to get their property listed. In a typical balanced market, we have something in the neighbourhood of two months anticipated sales on hand to start a month.
New listings levels:
no sign of help on the horizon. No sign of any significant bump in new listings coming on the market, either, as new listings for residential properties in February were down 9.9% compared to the previous year. Condo new listings were up slightly by 2.5% vs 2019 but given how few condos are available (60.7% below a year ago) this is not enough to help balance supply and demand.
Rentals an interesting part of the market:
The only listing inventory category where we see any growth is in the rental property category where listing inventory is up 31.3% vs last year and new listings during the month were also up 38.3%. This is an appropriate inventory level however, as Board members have assisted in almost 500 rentals in the first two months of the year an increase of approximately 40% from a year ago.
Whether this large increase is a result of Airbnb owners moving properties in to the long term rental market due to the pending new City rules, remains to be seen but is probably somewhat a factor.
Unless there is an unusual economic event or a seismic shift in Federal Government policy or makeup, it looks like we can expect more of the same from the Ottawa market this spring. In fact, we are right at the start of the peak spring market which gets revved up in March but really kicks off in April with the start of government and military moving season. While this creates a bump in new listings, sales also surge upwards by 50% from February to March and another 50% March to April.
Most will think that Realtors must be rejoicing in this sellers’ market and that it is just a matter of fast sales and big commissions. Must be “easy street”, right? In reality, I think we would find that the larger % of real estate professionals would be happy to see a more “balanced” market that features a more equal number of buyers and sellers. While it is true that listings sell quickly and for top dollar, there are many aspects to this market that cause Realtors heartburn, if not heartache.
Not a lot of listings to go around: At the end of January 2020, there were something like 2,100 residential listings posted on the Ottawa Real Estate Board. When you compare that to almost 3,100 members that means there are not a lot of listings to go around. Given the real estate mantra of “you list to exist”, this means many Realtors are scrambling for fewer listings and those listings sell quickly, so the marketing reach and prospect generation value of those listings is very limited. If fewer listings=fewer sales, then despite rising prices, there may be fewer commission dollars being earned out there by many Realtors.
Being on top of new listings and immediately available for showings: Finding a property for qualified buyers, always has its challenges but these are magnified 10 times in this sellers’ market environment. Buyer agents have to be really on their toes and alert to pending listings and being available to immediately get their buyers in to see new listings. The watchword in this market is “you snooze, you lose” and if a buyer misses a property and their perception is that it is their agents’ fault, the agent could potentially lose that buyer. This results in buyer agents doing a lot of “one-at-a-time” showings, whenever a new property of interest comes out on the market, which is pretty time consuming and may require a lengthy search period, particularly if buyers have a pretty tightly defined geographic, property or price point criteria.
Many showings and offer submissions: The supply/demand imbalance has resulted in multiple offers in 35-50% of listings, so buyers’ agents invest a lot of time in researching listings, doing showings and preparing offers on properties, only to lose out to other more aggressive buyers/agents. This can be very disheartening and frustrating for buyers.
No time to decide and hasty decision making: Buyers often get only one chance to view a property and after a 30 to 40 minute visit then make a critical decision on their largest purchase? This alone has pushed the numbers of conditional sales that fall through to double or more the regular rate. (easily 10% of conditional sales are falling through over the last year)
How do you figure out a price in this “crazy” market? Buyers and sellers count on Realtor expertise to establish appropriate list prices when selling and also what offer price (and terms) is necessary to be successful in submitting an offer on a listed price for a buyer. The listing side is somewhat easier, in that the market and collective buyers will determine the market value, so there is less pressure on the listing agent.
Realtors normally do extensive research on comparable properties sold but in this market, much of it becomes old news and even a sale a month ago, may no longer be very useful in providing guidance on what to offer for buyers on a current listing. If buyers are not successful over a period of time they may choose to blame their Realtor or they may refocus their search in a different geographical area or property type that is not as readily serviced by the buyer agent. Ie. New construction, out of town properties.
Temptation to go “all in” with a “no condition offer” Though highest price still generally rules, offer terms are always a critical component and a totally “clean” offer with few/nil conditions, is bound to surface in the most sought after listings. Most sellers don’t mind waiting for a week or so if the price offer is significantly better but many are happy to know that they accept the offer and their house is sold. This is why we see so many listings with offer dates then showing up as “sold firm”, the next day after offers are due.
We had a buyer last year, who actually offered $25K less than at least one other offer but our buyer won, since our offer had no conditions and a 30 day closing which was a critical factor for that particular seller. This place was a total fixer upper and not including an inspection clause, was a risk our experienced reno buyer was prepared to accept. Many buyers (and their agents) are just not able to do this and of course, the risks can be significant.
New construction sales are very strong: Though we don’t have proper stats on this, we believe there are a larger % of sales being done in new construction than normal right now. This is partially due to the limitations on resale listing inventory and also the fact that new construction options are plentiful and widespread. (though delivery dates may be getting pushed out by some builders)
Buyers actually start gaining equity, the day they sign their builder sales agreement, even though their possession date may be a year away. Those with existing homes to sell, are effectively “double dipping”, as both the new construction property “on order/to be built” is gaining in value, as is their existing property which they will only sell close to the possession date. With prices rising 8% or 9% in 2019 and 5% or 6% forecast for this year, these homeowner/buyers are earning a nice tax free equity bump on both properties.
A surprisingly small % of new construction sales involve Realtors (perhaps as low as 15 to 20%) where resale buyers are represented by Realtors at least 80% of the time. On top of that, builders do not offer the same level of Realtor compensation, as do MLS® listings, so Realtor paydays are much less when their buyers are buying a new construction property.
Builder compensation for Realtors tends to ebb and flow with the ups and downs of the market. In tough times, builders are mostly happy to see buyer agents with their buyers but in this market, most builders view Realtors as a cost factor to be minimized or eliminated.
Managing showings and multiple offers: Listings are getting a lot of attention, of course but this can put a load on a listing agent. Lots and lots of showings, phone calls, texts and emails from prospective buyers and also buyer representatives. There are strict rules to follow in properly and fairly managing offer processes and this takes a lot of organization and discipline on the part of the listing agent. While it is fun to provide an over list price offer to your seller, having to make the calls to other agents whose buyers were unsuccessful is not nearly as much fun.
Buyer agents can be very aggressive in representing their clients and this can result in some not so fun moments, too.
Managing “bully” offers (those submitted prior to offer date) and multiple offers can be challenging. Any time there are many losers and only one winner, frustration and tension can be high.
Overlapping showings: As a buyer representative, one is almost always stuck with overlapping showings with another buyer agent and their buyers in the property in the same time window. Normally, this is not too difficult to manage but with the volume of showings on many properties right now, it can be tough to get an appropriate amount of time to have a really good look at a property in private and communication between agent and buyer is constrained when others are also in the property.
So while our challenges in this market are vastly different and more positive than the other side of spectrum in a buyers’ market, it is not all easy days and big commissions for Realtors in this sellers’ market. Your Realtor will have adapted to these market conditions and help you navigate these oft choppy waters.
Ottawa has a hot sellers’ market in real estate right now, with limited listing inventory and price increase levels we haven’t seen since the advent of super low mortgage rates almost 2 decades ago. New construction homes have similarly been enjoying significant sales success and similar price bumps. Unfortunately, we do not have stats to track new construction sales or average price increases but let’s assume they are going up at least as much as resale homes which is approximately 9% year-to-date for both residential and condo sales.
Double dipping: With increased unit sales and some labour shortages, builders are stretched to deliver the volume of possessions, so lead times have been extended and customers are generally having longer waits for their new build home. *though there are many spec homes being built and sold with somewhat shorter delivery times. It is not unusual for a new home buyer to wait a year or more, for their new home to be ready for occupancy.
In this rising market however, that is not a totally unhappy circumstance for buyers. The first time buyer has longer to save up for a larger down payment or for other costs, such as window coverings, appliances, furniture, etc.
The new home buyer who also has an existing property, is really “doubling down”, with both their existing property and the new build property appreciating in value at the same time. Depending on how much down payment the builder requires, the new home buyer may be seeing as much as a doubling of their down payment amount in increased equity on the new build, before they even move in!
So it should be a “no-brainer”, right? With expectations of at least another 5-6% increase in overall average selling prices in 2020, (perhaps more in entry level and medium price points) buying new construction certainly appears to be a pretty safe bet, provided the future delivery of the new build is not too far out there. No one has a perfect crystal ball, so it is tough to be sure what the markets might look like 18-24 months from now. Some may remember that many buyers in Toronto got burned in recent years when, prices levelled off or even dipped which caused them to be underwater on their investment.
Things to remember about new construction purchases: Builders typically want 10% or more down on a purchase(at time of signing), so this can run in to a fair amount of cash and buyers will have to have a good financial plan to manage this down payment.
Getting a handle on new construction total costs is often a bit of a challenge, as typically one can’t get 100% accurate upgrade costs, until they have already “signed on the dotted line” for the base price of the property. Parking costs and storage costs are also extra in almost all new condos, too. This requires some flexibility in budget or buyers can find themselves compromising important upgrades to keep the overall costs within desirable parameters.
The market for new homes is very competitive, so just like resale, the “you snooze-you lose” premise is very much a factor. The couple in the sales centre at the same time as you, may well write the cheque for a “hold” on a specific lot or unit, while you are still touring the model home.
Few incentives on the table: Builders have adjusted their incentive programs for both buyers and Realtors, so the type of bonuses available only 3 or 4 years ago are long gone. Don’t expect to be able to negotiate much of a “deal” (if any!) in this sellers’ market. If your Realtor is less than enthused about your interest in a new construction purchase, it may be because the financial remuneration they receive is slim or none, for assisting you with that purchase.
Beware the “boiler room” environment in new home or condo sales: New lot releases and new subdivision or condo launches can be a good time to try and be first in the queue to secure most desirable choices within a development or condo. However, many times, these events are super hyped and promoted with the “buy-now-or-lose-it” pressure of a timeshare selling environment which can contribute to some hasty or ill-informed buying decisions. Condos can be the biggest example and are typically also the furthest down the road on the delivery date. This can provide a major risk to buyers, if the market changes, before that condo is built.
We have seen recent examples where some new developments are already “sold out” even though the planning approvals have not yet been received. Changes to accommodate planning requirements can make changes to what buyers have actually bought and may not bring pleasant news to buyers who thought they were doing the right thing by buying first.
Delivery timelines dictate selling of existing property: Those who are “double dipping” will eventually have to sell the current home and delivery timelines are out of the buyers’ control. This can lead to some awkward timing in selling an existing property, to coincide nicely with the possession date of the new build. For example, a February or March possession date, probably means listing in December which is not the best time to be selling for most. Delays can also push out possession dates by 60-90 days and though builders are usually very good about meeting their delivery dates, things do get delayed for a variety of reasons.
No guarantees: Many new construction buyers have done very well in recent years, particularly those that bought in tougher markets back in 2014 or 2015 when builders were anxious to do a deal. Though the short term looks very positive for those interested in this form of “double-dipping”, there can be no guarantees when trying to guess on future market dynamics or complexities.
Remember, there is typically no cost to utilizing a Realtor’s services and expertise with your new construction plans, so don’t miss out on what could be invaluable 3rd party advice and counsel.
The Ottawa Real Estate Board (OREB) results for November show another strong sales month, despite the early onset of wintry conditions. Unit sales and average home prices both approached double digit gains, compared to November 2018. The market shows no trends of flattening out, except for the usual seasonal fluctuations.
Key average price milestones reached this year: The average detached home price has sold this year for $510,975, an increase of 8.4% or $39,693, breaching the $500K mark for the first time.
The average residential row townhome has sold for $408,905, an increase of 9.8% or $36,620, topping $400K.
The average residential semi-detached home has sold for $489,656 an increase of 9.5%. or $42,447
The average condo sold this year has topped $300,000, coming in with a 9.1% price increase to 303,817 which is up $25,459 from a year ago. Apartment condos lead the way with an average price of $324,459 up 5.7% while row units and stacked condos also showing similar $ price gains at $268,613 and $274,860 respectively.
Listing inventory continues to languish: The number of new listings in November are pretty flat with a year ago, so while they are not getting any worse, they are not improving, either. This means our supply/demand imbalance should continue for the short term, at least-given the strong sales demand.
At the end of November, our residential listing inventory was 22.6% lower than last year at the same time and condo listing inventory was 43.9% lower.
About the only listing category that was higher was the number of rentals that are MLS® listed, which are up 53.9% vs 2018. Year to date rentals done via MLS® are basically flat vs last year, so that category is not seeing the same growth as the resale market.
City policy on short term rentals may put more inventory in the market:
Though there will no doubt be ongoing appeal action via OMB or other legal avenues, there could be a slight bump in available listing inventory and long term rental properties, from investors losing their ability to rent their (non resident occupied) properties via Airbnb or VRBO. Numbers are not readily available of how many housing units fall in this category but this could have help the condo and urban market inventory where most of the short term rental properties are located. Airbnb totalled some 4,600 listings in Ottawa over the last 12 months, so the number of investors involved might easily be 500-1,000 (or more) which would be welcome in the long term rental or resale markets. Stay tuned!
New home construction: New home sales continue to flourish and with the upward trajectory in the market, many new home buyers feel they are kind of “doubling down”, in that both their current home and the one “on order” or “to be built” are appreciating in price, while they wait for the new home possession which typically is 8-12 months or more, down the road.
Cost of waiting makes buying even more expensive: Strong markets like this make it tough on all buyers, particularly first time buyers and those that are “fence sitters”, who are considering a move but don’t really have a compelling reason to do so, until they find the “right” property. The upward price trajectory, however, makes the cost of waiting potentially significant. For example, even if current prices only increase by 6% over the next months (a Re/Max projection for Ottawa), the average prices overall could look something like this:
The average detached single home will jump to $541,633 and a further hike of $30,000+ over current prices.
The average two storey single detached home could top $600,000 next year, with a 6% hike from this years’ average price of $567,456.
The average townhome would jump to $433,439 up $25,534
The average condo would increase to $322,026 overall and the average apartment condo to $343,926, each up almost $20K.
This means more down payment needed to qualify for appropriate financing, more to generate 20%+ down payment for investment properties, higher land transfer and mortgage insurance costs and a longer period to pay off mortgages taken out against these purchases.
These also represent only “average” price increases and higher priced properties could easily be going for $50-$100K more in the immediately foreseeable future, especially, if the current inventory shortage continues and the market generates another 8-10% price rise.
The Ottawa real estate market just keeps rolling along, with another double digit sales increase recorded in the month of October and continuing listing inventory shortages, with less than 2 months of anticipated sales currently on the market.
Residential unit sales for the month were 16.9% more than October 2018 and the number of condos sold was up 23% during the month.
Monthly average selling prices upward bound: The average selling price of a residential property during October was $483,405 an increase of 7.6% over last year and the average condo sold for $319,208 which was up 18.3%. On a year to date basis, the average residential price is up 8.3% and the average condo is up 9.1%
Listing inventory continues to slide: Residential listings are down 22.3% vs last year at the same time and condo listing inventory is down a significant 38.8%. New listings are not taking up the slack and are pretty flat vs last year, so our increasing sales continue to chew through available listing inventory.
Our number of listings currently available, is less than 1 per Realtor member of the Board.
36% of homes selling above asking: This is a great new stat the Board is tracking and providing, so members and consumers are aware of the real degree of multiple offers. So while it is quite common, it is not happening for every listing. The Board noted in its release that in Oct 2018, only 21% of homes sold were sold above listing price, so our continuing inventory shortages are creating more competitive offer activity, although it should also be mentioned that a high % of listings are holding back offers, which can create a multiple offer situation.
Election fallout? With the minority Federal government coming out of the election, it is highly unlikely the local economy will suffer, as both the Libs and NDP try to out-left one another, which only means more program money and staffing in the National Capital Region. So our local economy should continue to be quite healthy for the duration of the minority government.
Recent job numbers:
Ottawa’s unemployment rate dropped to 4.2% in October, the lowest it has been since 2007, yet another positive indication that the bull market in real estate should continue in the short to intermediate term, those planning a move may consider acting on their plans, as that home under consideration may well cost $30 or $40K more next year.
Normally the start of hibernation period…but perhaps not this year? Mid November is normally when real estate activity eases seasonally and troughs out for 90 days or so, until we get through the worst of winter and then things get brighter and more active mid-February on. This market, however, should continue to post gains, though the seasonal slump should still occur as usual.