The dynamics of local real estate markets

by Peter Squire

It is self-evident, as a result of what has occurred this year in the hyperactive and volatile real estate markets of Vancouver and Toronto, that not all markets are the same across Canada. As we like to say at WinnipegREALTORS®, all markets are local and then some.  The “then some” is what will be the focus of this column.

What needs to be understood is that local markets such as WinnipegREALTORS®, which encompasses Winnipeg and the surrounding rural municipalities, vary from year to year even if MLS® sales are similar. 

Let me explain using 2017 to make this point clear. Let’s start with the various property types making up the MLS®.  While single-family homes will always be the most dominant property type based on sheer volume of listings and sales, they can still behave in different ways based on the area within the market region, price range, house style, age of home, etc. 

At the beginning of this year, there was a spike in expensive new home build sales in Winnipeg’s new emerging areas in order to avoid the May 1 introduction of city’s impact fees on new residential construction.

Another development is that there has been more move-up market activity in comparison to first-time buyers in the under $300,000 price ranges. This was not surprising given that the federal government brought in a new mortgage stress test for insured mortgages, which make it more difficult to qualify for such mortgages. The stress test is based on the higher Bank of Canada five-year, fixed-term rate of 4.64 per cent.

With some of those first-time buyers not qualifying for the single-family home they had intended to purchase this year, some sales failed to materialize. Consequently, as of the end of six months, single-family homes sales were down one per cent.

Benefiting from what is called the substitution principle, whereby consumers look for alternative choices if prices are too high for them, condominiums sales are up five per cent at the mid-way point of 2017, single-family attached and duplexes increased by eight per cent and townhouses by 15 per cent.  In particular, dupluxes are interesting, as they provide a first-time buyer with an additional income stream to offset their mortgage costs. The average selling price for duplexes has gone from $245,000 in 2016 to $280,000 this year.

What about variances within property type classes, according to the area they are selling when compared to the same period in 2016? There were some interesting changes from last year. So far, Tuxedo is having a break-out year, which may have something to do with the new impact fees. Sales and listings are very similar to last year, yet the average selling price has gone from $710,963 to $855,028. Moreover, the average days to sell these 28 homes in 2017 was almost cut in half from 38 days to only 21 days or three weeks.

Why impact fees have to be considered because buyers of high-end homes may have chosen to forego building a new home and settled on buying an existing home in Tuxedo, with plans to do some renovations to make it suit their needs. Impact fees are not a make-or-break decision for wealthier buyers, but the fact they are an additional cost makes some rethink their decision and at least consider an alternative choice.

Linden Woods may fall in the same category as Tuxedo, with buyers choosing to buy existing homes instead of building a new home. Days to sell a home in this upscale neighbourhood dropped from 21 days to only 11 days. Somewhat related is what occurred nearby in Whyte Ridge where listings decreased 38 per cent from 70 per cent to 43 per cent.

There were also some notable listing drops in more affordable neighbourhoods this year, which leads one to believe the higher stress test on insured mortgages is affecting owners who want to sell their home, but now still need an insured mortgage as they may not qualify for the higher rate.  Fort Rouge, the heart of the North End, St. James and St. Norbert all experience some significant drop off in listings.

A final point is the rural/urban dynamic of the real estate market. This may not be so much a year-to-year change, but more of a trend that has been happening for some time.  While it is true that rural residential-detached sales are making up a greater total portion of these property type sales, and were identical when compared for the first half of 2017 to the same period in 2016, the average days to sell a home and the percentage of homes sold to listings available is significantly higher than in many more active Winnipeg neighbourhoods. And similar to Winnipeg neighbourhoods, rural municipal markets can vary considerably when compared to each other.

The bottom line is that you need to be call a REALTOR® to help you manoeuvre through the various dynamics of local markets.