Sales were 29% off last year. This is the drop off in sales that I was looking for in order to conclude that 2008 would be the year our correction starts. Indeed it looks like it is happening and future months will allow us to be even more conclusive or not.
One of these things is not like the other! Active Listings have shot up dramatically after a slow start to the year. The active listings are rising due to increased listing activity and a slowdown in buying activity.
One of the more conclusive elements of the data is the non-typical rise in Months of Inventory during May.
More on prices to come later.
The model that jesse and I worked on earlier in the month to correlate inventory with price changes would suggest a monthly price decline of -4% +/- 2% approximately. I am not too confident in the model because we just don't have enough data to be terribly accurate yet but it gives us a 'best guess' and that is better than nothing.
19 comments:
Thanks Mohican, good stuff.
For that price model, do you mean -4% from April 08 to May 08, or a YOY price change of -4% (8% increase to 4% increase for example).
I mean a MOM % decline of 4% +/- 2% from Apr 08 to May 08. This is extrapolated from what the 6 month price change should be based on the model.
That should read -4%.
At what point does your model predict we will be seeing YOY price declines?
deliverator - If listings and sales continue to trend the way they have so far this year then the model predicts a possible YOY % decline in August with a probable negative in September.
Good work Mohican.
Great graphs and analysis, thanks.
My 2c on the graphs: (1) it strikes me that there are really two independent variables here: number of properties added for sale and number of sales (relistings and price changes are another thing to take into account; ignore for now). I think it would be good to plot these two separately (adding one extra graph). (2) the spread in the first graph (sales vs time) is big over 2005-2007. I don't think, statistically, that may 2008 is significant (if it is, just tell me), and I wonder whether the may 2008 "added for sale" number would also be significantly different than previous years.
Don't get me wrong, I like the analysis, I'm just trying not to overinterpret the data/get my hopes up unnecessarily.......
I don't know the inner workings of your model, but we can apply common sense to the situation. The longer a listing stays on the market, the likelier that the seller will lower his price. MOI correlates with negative price pressure precisely for this reason. But there are so many chaotic factors, especially those related to psychology. If sellers are in denial and the MSM lays off, MOM could build for a while without significant price drops. But if seller hysteria takes over we could have huge price drops with moderate gains in MOI. All else the same, of course, the higher the MOI, the larger the price drop.
"All else the same, of course, the higher the MOI, the larger the price drop."
We shouldn't fall into the optimising models and curve fitting trap too much. The model is statistically significant only to show higher MOI means lower % changes in price. The best fit we could ascertain is semiannual prices changes to 3 month moving average MOI and this translates to our "best guess" about where prices are heading. It won't speed up a correction or make you any money but it makes for interesting blogging.
I think Vancouver is a large enough and diverse enough of a market that high MOI for a few months in a row will have a negative effect on prices. Even in Q4 2006, in between two periods of above average price gains, we saw price weakness with high 3 month MA MOI.
Interesting that the Vancouver and Victoria markets are behaving in similar fashion: low sales and high MOI. If it were some anomaly particular to Vancouver's economy I would not have expected Vic to follow the inventory runup. I think there is something else holding back buyers. The old "market psychology" may be a factor though it could be something more "rational" at play...
Are you guys going to post the model at all? I love models... it's my job :)
I think there is something else holding back buyers
Nobody left who can afford to buy?
Just maybe.
I agree with jesse - these are just best guesses on price direction. Albeit, fairly educated guesses but they are guesses nonetheless.
I found that for Calgary, when I did a similar analysis the model held up for awhile. The peak in our market was near July 2007 and had some price corrections into the fall which were predicted by a similar Calgary model. However, I noticed that there was a psychological seasonality factor, wherein prices typically go up the most in the Spring when sales volumes are the greatest. I think that people's 'hopes' are the highest in the Spring, and that leads more people to be more stubborn about price drops until the high sales volume period passes. The following graph shows the trends for Calgary real estate price per square foot; even though inventory is now at it's highest, we are not seeing the price corrections that one would have expected from a model:
Calgary Sales Price Per Square Foot
Now that Calgary is approaching summer, we may see the seasonality factor disappear and people become more anxious to sell.
The Vancouver market is looking very much like Calgary's 10 months ago.
"Nobody left who can afford to buy?"
I think there are still those that can afford to buy but choose not to. "Affordability" requires a combination of adequate cash, cash flow, and credit. I am suspecting there may be some increased tightness in credit availability though nothing revolutionary.
Interesting that April has been a low month the last three years but is the peak thus far this year. The story isn't really that May's sales are down MOM but that there wasn't a huge jump, which there has been the last few years.
FVREB Stats out
IMHO MOI can be viewed as a dammed river. The increase in MOI represents the rising water level. The level rises because water (listings) flows in faster than it can flow out (sales). The water can squeeze out through litte cracks (a series of gradual price decreases), or it can build for a while and then burst violently (plummeting prices). All we know with certainty is that rising MOI means trouble for prices, sooner or later.
The dam analogy
FVREB May 08 report is out. MOI is staying above 7.0 as expected. Benchmark price is basically flat.
I like this little tidbit buried in the footnotes:
"As of May 2008, an adjustment was made to our active listings calculation to ensure it captures only Fraser Valley listings. Previous calculations inadvertantly included Fraser Valley member listings in other Board jurisdictions. As active listings are a constantly moving target, we are unable to generate revised active listings for previous reporting periods."
Ah but no mention of this in the first page press release:
"the number of active listings to 11,133, an increase of 33 per cent compared to the 8,381 listings available during May 2007."
Nice try but you lie like a rug. That 33% increase is more like 50% I'll bet.
FVREB Stats out
Now 7 months of inventory. No price declines in any category (average, median, index). Stubborn sellers, dumb buyers. Right now sellers are asking what they think they can get, and buyers are paying what they think they have to pay. Soon those perspectives will reverse, and when it does, look out below.
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