When looking at the market, people very often forget to discern from the micro and macro effects and trends. The local market has multiple forces pulling at it and no one force is responsible for the market. We have had rising interest rates and a falling market, and we have had falling interest rates and a falling market. The same logic holds true for the dollar, the government, what is happening in the States, and what is happening in Alberta and the rest of Canada. No single economic force will change the market, it is always a combination and net of all the forces. So how do we predict what is going to happen in the only market that really matters to us....ours? In my opinion you can't. A true prediction is saying which way the market is going to go with no real indication of it changing yet. However, there is a holy grail of Real Estate predictions. Use the numbers from the beginning of the change to predict the end of the change. We have tested this theory in 8 market places across the country. Some of them, like Toronto, we were able to go back 30 years in the stats. The theory held true for all. The market changes very gradually and in stages. There are 5 stats that change in succession....like dominos:
- DOM (Average Days on Market to sell),
- Absorption (The percentage of the total inventory that sells on a monthly basis,
- Activity, and
According to this, the last stats to change are activity and prices and yet these are the 2 stats that matter most to our customers....the chance of their selling their home and how much it is going to sell for.
In late 2006 early 2007, Inventory started to rise, DOM increased and Absorption started to fall. One year later we had the beginning of a major correction in activity and sales. This is the same pattern we saw in all 8 market places that we researched a few years ago. Inventory, DOM and absorption start to change long before activity and prices change. Today, Inventory and DOM have been decreasing and absorption has seen an increase for the past 4 consecutive months. This is after it is adjusted for seasonal changes.
I know from this trend, excluding unforeseen national disasters, that our local market is starting to recover and 2011 will be substantially better than 2010. At this time of year the market is supposed to be ramping down and yet we`ve have had an unusually active 4th quarter. Experience tells me that the market is already in recovery which will translate into a strong spring. We will not see boom numbers but possibly back to a balanced market next year. The one caveat for all of this, when the buyers come back in the spring, we will not sell if we are not priced at market value. Market value has nothing to do with what it costs to create a property or what the market value was 3 years ago. It is a totally new figure. I will look forward to keeping you informed in what’s happening in the real estate marketplace. Merry Christmas to you all and let's get psyched for a Happy and Prosperous New Year.