Monday, January 18, 2010

Ubergeek Post Update December 2009 - Price Changes and Months of Inventory in GVREB

Here is a quick update on the work mohican and I did in spring 2008 around refining mohican's work tracking price changes and months of inventory. Remember that the best fit was to track half-over-half (i.e. 6 months over 6 months) price changes to a three month moving average of months of inventory (total active listings at the end of the month divided by the sales in that month).

Here is mohican's scatter plot for half-over-half versus 3 month moving average MOI, updated inclusive December 2009 data:



The correlation still exists, and another small step closer to the designation of "law". We can see how well the model has behaved.



Months of inventory was extremely low through the second half of 2009, an odd event in history when unemployment is rising. There was a step-change in affordability due to low mortgage rates, coupled with a lack of tightened requirements for loan qualifications. Are there other plausible reasons for low inventory and high sales? Last year's about-face happened across Canada but unique local factors still play a role.

What will 2010 bring for BC housing? There are several portents.

- There are musings on the wind of tightening mortgage requirements which will have some impact on demand.
- Interest rates are predicted to rise the second half of this year. We'll see. Low interest rates will reduce the chances of a price collapse but will not prevent prices from falling.
- Rental demand looks to remain weak. With the Olympics finishing in 45 days or so we may see some extra rental supply and, perhaps, extra for-sale supply as well.
- Unemployment is unlikely to decrease through 2010. Government budgets, at all three levels, are under stress. The pool of money grows increasingly thin, as one would expect as the world continues to de-leverage, though the process appears to be a drawn-out affair.

8 comments:

vreaa said...

Many thanks for the analysis.

JimTan said...

Don't forget the housing starts shortfall in 2009!

Does that mean that we can expect 10% price increases as long as MOI remains at 3?

jesse said...

JimTan, according to the model, yes.

No guarantees though :)

david said...

Jim,

Last I checked on Rob's blog MOI was well above 5 with a sell list of 28.8%. We could blame the olympics for this but it is tough to say what effect this is having as it is a once in a lifetime event.

mohican said...

Thanks for keeping this up to date jesse.

The link between MOI and price changes is definitely one of the more potentially conclusive relationships in the real estate market.

jesse said...

mohican I am absolutely certain you might be right.

mohican said...

funny :-)

This is one of those times where I read over what I have just written and think - 'does that make any sense? - nope!'

I need a vacation really bad!

vreaa said...

The Froogle Scott Chronicles: Mortgaging Our Souls In Paradise – Part 1: Greed And Luck

A Vancouver homeowner, fascinated by the personal and social effects of the booming Vancouver RE market, shares his story of buying a house in Vancouver, and the journey that he and his wife have been on since that day in September 2003. In the first episode, we hear the story of the buying itself. Here begins one couple’s multi-faceted experience of this boom...

Episode 1: Greed and Luck

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Further episodes of The Froogle Scott Chronicles will be posted at regular intervals over the coming weeks.

VREAA, the Vancouver RE Anecdote Archive.
Stories from the Vancouver RE Boom.