Second Quarter Market Trends
Property value remains stable, despite a reduced speed of sale—signally a confidence & cost crisis, not a crash.
As predicted, Cayman’s real estate market continues to operate with extremely low supply. At the time of writing, on July 1st, there are 1952 listings (including those under offer) on the market. Year to date, there are 6.79% fewer listings than this time last year. Cayman real estate remains a true sellers’ market. (Source: CIREBA).
While supply is limited, there is also very low activity in the mid to low end of the market. Sales for properties below US$2 million have slowed. Let me qualify this by saying that whilst the interest remains high (the demand is there), the cost of living, inflation interest rates, and insurance increases have understandably made buyers hesitant. Slowing the speed of sales for entry-level and mid-range properties.
Like many, my home insurance policy, which rose 20% at the end of last year, has just risen another 30%. Essentially this cost has doubled, at a time when all our other household expenses have risen with inflation. It’s the pinch we are all feeling, and the market reflects that.
After 24 months of hyped activity, Cayman real estate is experiencing a pause and re-stabilisation. This has happened before (September 11, Hurricane Ivan, the Great Recession, and the COVID pandemic.) and now, with the cost crisis, it is happening again. It is, in essence, the natural life cycle of real estate economics and a healthy necessity for our ongoing market growth. However, it is important to note that the ‘cooling-off effect’ we are currently experiencing is a decrease in sales activity, year to date, the number of sales has decreased by 26.43% compared to last year. (Source: CIREBA). At the same time, the average sale price remains stable. This signifies continued demand, and that the market’s pause is a crisis in buyer confidence, not asset devaluation.
Demand for the high-end segment of the market remains high as Cayman tops the relocation list as a safe, smart investment, with an uncompromised lifestyle. However, the above-mentioned low supply is limiting the speed of sales in this sector of the market. Again, high demand, a steady price point, but less conversion.
Overall, the second quarter market trends were very much a continuation of the first quarter with the loss of buyer confidence that began with the first rise in interest rates last year. If anything, the second quarter trends have just made it more apparent, driven it home (no pun intended), that a lot of us seem to be holding our breath, watching, and waiting.
Federal Reserve Announcements
Celebrate a small win.
I am no economist. I did not pursue that passion any further than the mandatory first-year university course. That being said, I did anticipate the latest Federal Reserve announcement of zero-change announcement after the June meeting. However, what I didn’t expect was the announcement caveat declaring the likelihood of two more increases before the end of the year. This deflated the potential benefits that could have come from the zero change. These further hikes would put interest rates at 8.75% or higher by 2024, adding an additional six months of breath-holding for those currently on the fence waiting.
No change in the rates should have brought a surge of confidence, a sense of stability and normalising as we reached ‘the peak’ of lending rate increases. But I think I can speak for all of us when I said the small win from the zero-change announcement was quickly followed by a sense of deflation. It literally took the wind out of our sales (okay, pun intended there.) Simply put, the Federal Reserve does not want us to spend beyond our means. Caveating the announcement helps prolong the anticipated economic benefits of the hikes, much to all our chagrin.
Cayman vs Everywhere Else
Different, in the best way.
While pegged to the US, Cayman’s real estate market has always existed in a bit of a protected microcosm. We see the general stability of our property value despite current global economic pressures.
Pockets of the US and Canada are reacting similarly. The likes of Toronto and Vancouver based on their growing populations, highly active rental markets, low supply and external interest. These locations are seeing a reduction in activity due to the same buyer confidence crisis, while pricing remains stable because of population and demand.
Forecasting Cayman’s Second Half.
A continued slow of activity through the third quarter.
Cayman’s slow summer season is here, and while our friendly neighbours to the north will see an increase in activity, things operate in reverse down here. The island gets quiet. Schools out, and the summer heat means a lot of us, myself included, jet off for a time. Fewer buyers equals a reduction in enquiries, which translates into pressure to reduce list price for sellers who have positioned themselves well above market value or those on a shorter timeline to offload their investment.
A little bit of a tangent and perhaps a bit of a broken record, but I cannot stress the importance of pricing strategy. List price should be influenced by your timeline to sell, comparable sales, current listings, and future market movements. This information needs to be considered given your sector of the market, your location, and the specifics of your property. That’s why, with our team, it’s a pricing strategy, not a random number based on what the house three doors down from you sold for.
Sorry, rant over, but I especially wanted to highlight the significance of your list price as I do expect to see a bit more supply coming to the market by the time residents and newcomers return from summer. In the fourth quarter, we anticipate more and more enquiries and general activity with the start of the new school year and high season around the corner. So, the uptick in supply will be short-lived. An increase in demand in a low-supply market means upward pressure on pricing. In football, this would be the fourth-quarter come back. In Cayman, it’s high season.
Advice for Buyers
Opportunity knocks, and it’s usually when you’re least expecting it.
There is more flexibility in the mid and entry-level of the market right now. Buyer apprehension and the summer slow-down means enquiries are down. Some sellers will be willing to take less or sweeten the pot in some way, so even though you might not see a reduced sign, it doesn’t hurt to ask. Put in an offer with an established agent’s guidance who can go to bat for you on negotiations. Worst case situation, it falls completely flat, but guess what, you haven’t lost a penny, and you’ve educated yourself on the process and will be more prepared when the next opportunity comes around.
“But Mike, the interest rates?” Trust me. I feel the pinch too. I know it’s hard, but as tough as it might be to accept the current lending rates, let’s view them in context. Interest rates remain well below the average of the last two decades. A fact that doesn’t change your monthly expenses, I know, but it needs to be considered alongside a limited supply market with population growth, rising demand, and in turn, property value.
The rate of increase has slowed, but it’s not going down. Next year, when hikes are ‘done’, and confidence begins its return, the surge of buyers looking in a small pool of inventory will create a surge in pricing. It’s inevitable. Any amount you think you are saving by not purchasing a home within your budget today (because of lending rates et. al.), will be a loss. The home you had your eye on will no longer be in your price point, and unfortunately, at the same time, your rent will have increased.
So, my advice for buyers, given the current trends and future predictions, is NOT to lose confidence. If you are in the position to do so, get onto the property ladder. If there’s nothing on the market that captures your attention right now, then use the time to get all your ducks in a row. Reach out to our agents, speak to your bank and prepare yourself for when the time does come.
If you’re not quite there yet, that’s okay, but do yourself a favour and think long-term. Make the necessary lifestyle adjustments to save now because in two years, you’ll be reading the same market update: Cayman property value continues to climb. Sometimes it’s more gradual, like right now, but through time it always climbs.
Advice for Sellers
Consider your carrying costs.
Landlords and investment property owners, do you need to free up capital, offload right now? Can you reduce rental fees and comfortably cover your carrying costs? If not, that is okay. Consult with one of our agents to understand and find the price point at which your timeline to sell and return on investment can be maximised.
For owners in stratified properties (home owner asociations), it’s due time to discuss expenses or projects that can be cut back or postponed without negatively impacting the long-term value of the complex.
For all homeowners, don’t be scared to talk to your banks. Negotiate an extension to the amortization period of your home, or adjust your payment schedule to reduce your mortgage payments. It might sound backwards, but are there investments you can make now that will yield savings over the course of time? Consider energy-efficient modifications in your home to reduce monthly utilities. These upgrades will also augment the value of your home, yielding you more when it is time to rent or sell. I just embarked on this journey with Bessanio at CleanGas and Neil at ProSolar and was blown away by the report of findings. With the suggested modifications, we have managed to reduce our monthly utility bills by 85%. Yes, it’s an upfront expense but an investment that will save us in the long run. I wish I had done it sooner!
Real, Real Estate Advice
Everybody is at a different stage of their property journey. I encourage you to properly consider how the current market fits in with your life and your investment plans. What’s right for your friend might not necessarily be right for you. It’s worth having a conversation with one of our professional real estate agents. It’s what we do! Not only do they really know this stuff, inside and out, but this might sound counterintuitive, but we actually pride ourselves on not trying to make a sale. Instead, we believe in giving good solid sound advice so that you’re informed and educated and can make the best decision for you. Whether it is to buy or not to buy, to sell or not to sell, it’s the right decision when you’re able to make it with confidence.
(Please note that this is a broad analysis of the overall market. Please reach out for a more bespoke detailed report tailored to your personal property journey).