The real estate market globally is being impacted by inflation and rising interest rates and the Cayman Islands are experiencing some of these effects in its market. But it important not to rush to conclusions. There are many factors which are impacting some of the slowdowns or should I say readjustments we are experiencing which need to be analyzed, which I will do in this article.
But first, as we close out the first half of 2022, I thought I’d take this opportunity to provide a recap of the Cayman Islands real estate market for the first half of 2022 with respect to inventory, transactions, and volume, as well as provide some insight as to where I believe our market will be heading throughout the rest of year. Please note that all of these figures are taken from CIREBA.
There were 568 sold transactions in first half of 2021 versus 466 in 2022, which is a 18% decline. Yes, when you look at year-over-year numbers the sold transactions are down, but they have been holding steady since March of this year with 83 solds in March, 82 in April, 79 in May and 81 in June. In fact, the first 3 months of the year saw 224 sold transactions compared to 242 in the last 3 months which is an 8% increase.
We must remember that beginning with the pandemic in early 2020 we saw a huge boom in the real estate market which I’ve outlined in several articles. This unprecedented boom really began in July 2020 and continued through at least the end of 2021.
But what’s interesting to note is that for that 18-month period we saw an average of 86 transactions per month, which is only 5 fewer transactions in June 2022, which equates to a 5% decrease.
Of note, when looking at 2019 numbers for the first half of the year we saw 415 sold transactions illustrating that when looking a pre-pandemic market, our numbers this first half of this year are actually up 12% compared to 2019.
Sold volume and average volume per transaction
For the first half of 2021 we saw $573,670,843 in total sold volume compared to $556,436,395 in 2022 which is a 3% drop.
Like the sold transactions when you look at the year-over-year sold volume we are down, but March, April and May saw over $100M in sales each month, which we haven’t seen since August of last year.
But it’s important to overlay these numbers with a value per transaction number to get a better picture of the overall market.
On a per transaction level, for the first half of 2021 we were at $1,009,983 compared to $1,194,069 per sale in 2022, which is an 18% increase. So even though we are seeing some overall slowdown in the number of transactions which obviously has an impact on the overall sales volume we are not seeing any decline whatsoever when looking at a value per transaction basis. In fact, we are still seeing double digit increases.
Of note, when looking at 2019 numbers for the first half of the year we saw $349,641,504 in sold volume. These represent pre-pandemic numbers. Compared to the first half of this year, our numbers are up 59% compared to 2019.
Pending transactions and volume
For the first half of 2021 we had 512 transactions go pending versus 409 for the same period in 2022, which is a decrease of 20% year-over-year. When looking at volume, those 512 transactions in 2021 amounted to $591,976,798 versus $525,641,095 for 409 transactions in 2022 which is only an 11% decline indicating that prices per transaction overall are continuing to increase.
There are a couple of things of key importance with respect to these numbers. It is not surprising to see that pending numbers and volume are down given the historically low inventory levels we have had since mid-last year. In addition, pre-pandemic numbers can provide us a much better picture. In the first half of 2019, we had 311 transactions go pending, which is a 31% increase when compared to 2022, for a volume of $280,300,168, up 87% compared to the first half of 2022.
New listings transactions and volume
In the first half of 2021 we had 781 new listing transactions that amounted to $1,295,019,485. For the same period in 2022, we had 870 new listings transaction, up 11%, that amounted to $1,712,976,563, up 32%.
This statistic is very key. It shows that even though our new listings are increasing unit wise the percentage of the value of those homes are outpacing the units. This indicates that we are not seeing a drop in the market value of homes in the Cayman Islands.
The average price for a new listing in the first half of 2021 was $1,658,155 compared to $1,968,938 in 2022, a 19% increase.
The good news is that inventory is starting to grow which means we have more options in the market for consumers. As of writing this article, we have a total of 1,579 active listings in the market, which is the highest it’s been since September 2020.
The average inventory per month for the first half of 2021 was 1,474, compared to 1,521 in 2022 which is a 3% increase.
It’s important to keep in mind that not all these 1,579 active listings are available for sale. Of those 455 are pending and 354 are pending/conditional leaving only 770 units available for sale. At the end of Q1 2022, that number was 677 which means that there are currently an additional 93 units on the market that can be bought, which is a 14% increase quarter-over-quarter.
US real estate market
In the US, housing supply increased in May for the 2nd month in a row, as home sales decline. May is usually a typically hot month but this year saw closed transactions dip 8.5% lower than the same time last year.
RE/MAX, LLC President and CEO Nick Bailey doesn’t consider this change all that surprising, however, given the recent rise in mortgage rates. Elevated rates have seemingly led to an abnormal cooldown for this time of year but given the context of the blistering hot housing market of the past two years, as well as the fact that the US is still short by about 4 million homes, Bailey is confident demand still remains high.[i]
“A decline in home sales isn’t entirely unexpected given the higher mortgage rate environment, but the slight increase in inventory is welcome news for buyers who are now starting to see a few more listings come onto the market during their home search,” said Bailey. “Options in multi and single-family housing are there that weren’t available just a few short months ago. Affordability remains a concern, but homebuyers are regaining some control which has been long overdue.”[ii]
Inventory grew for the second consecutive month, making May the first month of 2022 to see an increase in inventory levels compared to one year ago. The month ended with 16.3% more homes for sale than in April 2022, and 2.2% more than May 2021. Buyers are starting to have more options to choose from.[iii]
In the US home prices keep climbing and homes are still selling for more than the list price.
In May 2021, Freddie Mac indicated that the housing deficit has been growing in the US, not only during the pandemic but even before the pandemic hit. In 2018, it was estimated that the US housing shortage was 2.5 million homes, which climbed to 3.8 million units in Q4 2020. The main driver of the housing shortfall has been the long-term decline in the construction of single-family homes and that decline has been exacerbated by an even larger decrease in the supply of entry-level single-family homes, or starter homes.[iv]
Although we do not have access to similar statistics here in the Cayman Islands, I would argue that we also have a housing shortage especially when it comes to the affordable housing market.
Where are we heading?
Overall, the real estate market is starting to see some slowdowns but as the previous numbers illustrate, we are not seeing the types of drops that are happening in many places in the US. It is also important to note that these slowdowns should be completely expected given how hot the real estate market has been. Things are slowly getting back to normal.
As stated above, sold transactions in the US were down 8.5% in May 2022 compared to April whereas in the Cayman Islands our transactions were up by 3% month-over-month.
Although we are not seeing the type of slow down as the US is currently experiencing it is unrealistic to think that our real estate market will not be impacted by the two major factors influencing the market in the states: rising inflation and increasing interest rates.
As I touched on in my previous article “Developer Contracts and Escalation Clauses” rising interest rates are affecting every buyer requiring a mortgage and in fact, it is estimated that rates will continue to climb in both the US and Canada, and thus Cayman throughout the rest of the year to bring inflation under control.
In a pre-pandemic world, it was not uncommon to see a slowdown at the beginning of summer which traditionally picks up again during high season. It is also important to note that many of our purchasers come from overseas. Although our tourisms numbers are up, they are definitely not back to pre-pandemic norms. This, of course, should change with the new travel restriction news, additional flights ramping up during high season and the introduction of Cayman Airways’ new direct flight into Los Angeles beginning on November 5, 2022.
Cayman lifts all travel restrictions
In other good news, effective June 30, 2022, all travel restrictions were lifted in the Cayman Islands.
The Cayman Islands Department of Tourism announced a series of highly anticipated changes to its COVID-19 Government protocols, officially eliminating pre-arrival testing requirements for inbound, fully vaccinated travellers. Effective June 30, 2022, fully vaccinated travellers to the Cayman Islands will no longer need to submit proof of a negative COVID-19 test result within one day of arrival.
- Removal of pre-arrival testing requirements for inbound, fully vaccinated travellers
- The destination will also officially lift mask mandates requiring indoor mask-wearing by persons in public spaces
- Fully vaccinated visitors to the Cayman Islands are still required to complete a travel declaration at least 72 hours prior to travel to the Cayman Islands
For those looking to invest in property locally whether it be foreign or local buyers the fact is that even with a slight market slowdown prices are continuing to trend upward. It makes sense to act sooner than later. Give myself or my team a call at +1 345 945 4000.