Okay, I just completed this analysis and I really wanted to get it out before the weekend. This is a chart based on Fraser Valley Real Estate Board statistics from January 2005 through December 2006 and it analyzes the link between Months of Inventory and Quarterly Price Changes. I would expect the exact same findings no matter which real estate market you look at.
What I discovered should come as no surprise to those who subscribe to basic supply / demand economic models. There is a strong inverse correlation to the number of Months of Inventory and Quarterly Price Changes (coefficient = -0.7911). Months of inventory is calculated by dividing the number of Active Listings by the number of Completed Sales in a month. Quarterly Price Changes are from the FVREB stats package.
My unoriginal hypothesis based on this observation and analysis is that when Months of Inventory rises above 6 then there will be negative price pressure. Based on what I am seeing in the market right now we are looking at 7+ Months of Inventory for January for the FVREB and the REBGV. This means that with a fair degree of certainty (4 times out of 5) we will see negative quarterly price change numbers.
And by popular demand, a chart tracking months of inventory vs. Monthly Price Changes with an inverse correllation coeffecient of -0.6664.
What will the numbers be for January? Any anecdotal evidence of anxious sellers and massive price drops?