My take on the statistics...

Where Is The Market Right Now?

Looking at the statistics we see that there was an increase of almost 25% in annual sales ending in January 2013 over the same time frame last year. During this time, inventory has only dropped 7%. Prices continue to fall 3% since last year and are down 11.3% from the highest prices ever recorded in 2008. This small loss in home prices in our market is good news as many other markets in Canada and the US experienced much greater losses in property values. I attibute this to the desireability and attractiveness of our region as 41% of our Buyers came here last year from other markets.

We are in the 5th year of a falling market so this can be taken to mean that we are near the end of a down cycle at a market bottom and progressing towards a gradual recovery.

The market over the next 12 to 18 months will be charaterized by a gradual increase in sales, followed by lower inventory. Prices will continue to fall, then firm up (bottom out) and then slowly start to rise. This outcome and the timing of it will depend greatly on how the world and national economies fare out over the coming months.

Please call or email me any time if you have any questions. What follows is a brief description to help you interpret the statistics that we publish.

Overview

Markets move up and down depending on general economic conditions and how much confidence the public has in the future of the economy. The real estate market, like all other markets, moves in cycles up and down, usually roughly about 7 years up followed by 7 years down and then 7 years up again and so on. These statistics are used to help us track where we are in the up/down cycles. All of the statistics are published monthly and are calculated as an average of the 12 months prior to the current month. There is one graph for each of Sales, Inventory and Prices. The Sales and Inventory are combined to calculate one more statistic called the Absorption Rate. What follows is more details on how to interpret these statistics.

Sales, Inventory and Prices

There is a sequence by which these different statistics are affected by activity in the market place. The volume of sales impacts the inventory which then impacts the prices. Sales is said to be a leading market indicator, followed by inventory and then invenotry is followed by prices which is said to be a lagging market indicator.

To use an example, if there is an increase in sales then inventory will eventually fall. The reason why inventory does not fall immediately is that when home owners see sold signs in their neighbourhood, they see that there are Buyers in the market. A rise in the market follows a slump in the market and that slower preceeding market has created some pent up demand as home owners were not able to sell there homes in the prior slower market. If they have a need to sell their home then they see this as a good time to offer their home for sale and so for a short time the inventory rises slightly or stays level until more Buyers come in to the market. The decrease in inventory combined with increased sales will eventually put upward pressure on prices. As is typical of any market, when demand increases and the supply drops there is upward pressure on prices as more Buyers compete for the fewer properties available. Sellers obtain higher prices from these competing Buyers and have less competition from other Sellers.

In a falling market, a decrease in sales leads to rising inventory. The increase in inventory combined with decreased sales eventually puts downward pressure on prices. As is typical of any market, when inventory increases and the demand drops there is eventually downward pressure on prices as fewer Buyers negotiate lower prices on the large variety of properties available. Sellers have to be agressive in setting their price to attract the few Buyers who are active in the market.

Absorption Rate

The absorption rate gives us a single number that combines 2 of the most important indicators in any real estate market... inventory and sales. The absorption rate calculation is only applied to the category of single family residential homes as that is considered by experts to be the most relevant category. The buying and selling of single family homes is also the largest category of transactions in real estate and therefore provides us with a more accurate measure of the general mood of the people that participate in this sector of the market, the general population.

An absorption rate of 10% to 12% represents a market that is balanced between Buyers and Sellers. Anything above that is considered a market that favours people who are selling their homes and anything below is considered a market that favours people who are looking to buy a home.

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