Average Sales Price Still Matters- And it’s Dropping Rapidly
I want to look at what the average sales price is doing in Vancouver real estate. We’ve all seen the media reports showing massive drops in average sales price.
I’ll be the first to admit average sales price is not the most accurate way in determining the current value of homes or the current market. Which is why I’ve teamed up with UBC economist Tom Davidoff. We already determined Sales Prices Decline 8% Since June. However, average price is still very relevant and it should absolutely not be overlooked.
Average sales price can be flawed on a monthly basis because it depends on what is sold that particular month. Meaning you could have a whole bunch of condos sold, and few detached houses, thus bringing down the average price.
But here’s why it’s relevant. If the average price is dropping on a consistent basis it is a clear indicator that the overall composition of what’s selling is changing. Whether it means more condos are selling and fewer homes. Or fewer high end homes, and more average, lower priced homes are selling. This data can be used to speculate who is still buying and what they’re buying.
So let’s break it down.
The graph above shows Greater Vancouver home prices (detached & attached) have dropped from $1,104,471 in March to $850,692 in August 2016. This represents a 23% price drop in 5 months.
This is most likely due to a drop in detached home sales. Which I eluded to in a previous post Detached Housing Market Takes Heavy Blow. As per the graph below it shows there were 2156 detached sales in March which dropped to 741 sales in August. This represents a 68% decline.
So clearly the composition has changed.
Composition Breakdown March VS August
43% Detached Houses
30% Detached Homes
We know it’s mostly condo/townhouses that are still selling. But here’s where it gets interesting. Sales for condos/townhouses are also way down since March.
Apartment sales are down 40% since it’s peak in March and Townhouse sales are down 41%. However, average prices remain relatively firm. Townhouse prices are down 1.5%, while condos are down 6.2% since March. Although it shows some movement on prices, it pales in comparison to the 15.8% drop in price for a detached house.
This sums up my theory that much of the 23% combined drop (of attached & detached) was mostly from a change in composition. Fewer houses being sold, more condos/townhouses being sold. I believe this is locals still buying the somewhat affordable homes. As I eluded to it appears some of the foreign buyers are being warned about investing in Canada in my post Foreign Investor Gives Insight on New Tax.
So to summarize, although the detached housing market is responsible for the majority of the average price drop, evidence of the condo/townhouse market correcting is apparent. Although be it a very minor price change, the 40% drop in sales since March is an indicator the tides could be turning. Whether that continues or not is anyones guess.
Of course this is all assuming you’re willing to consider acknowledging average sales price…