Wednesday, August 03, 2016

REBGV Sales Update Through July 2016

REBGV released data for July 2016. Inventory is starting to creep up from unprecedented lows

This is mostly due to a marked drop in sales, which are now trending about average compared to the last decade. A surprisingly not-well-discussed way of increasing supply is to reduce sales (i.e. demand).

Months of inventory is, due to the drop in sales, up sharply from the low in the spring. Still low, but a few more months of average sales will bring MOI back into historical territory. If historical territory for MOI is retaken, we can expect price changes to moderate. MOI would continue to move up with lower sales rates because more properties stay on the market for longer, and begin to accumulate.


New listings are trending as they have historically.

As I have mentioned in previous posts, a return to normal levels of MOI is necessary for the market to retract from two years of significant price gains. We may be experiencing the beginnings of this process. Blame what or who you like, but from my analysis, the only thing we can say for certain about causes for a real estate market correction (or, if you prefer, "soft landing") is their proximity to the observer. It would have to be something. Not that the market is soft-landing-ing. I never said that.

4 comments:

Leo S said...

Hi Jesse. Leo here from househuntvictoria. I'm looking for the long run Vancouver average price data that forms the basis of these kinds of charts http://www.yattermatters.com/wp/wp-content/images/2016/08/2016-08-01-Average-Price.jpg

I saw some previous articles of yours where you graphed this data (or some kind of HPI that goes back that far?). http://housing-analysis.blogspot.ca/2008/06/past-price-declines-in-vancouver-real.html?m=1

Do you know of any source for this data? Data availability in Vancouver seems to be quite miserable compared to what we get in Victoria thorugh our real estate board.

Thanks.

jesse said...

Hi Leo, Sauder School of Business used to keep average data back to about 1976. I think CMHC has a dataset but I don't know if it's publicly available. You can try CANSIM as well, that might give you some house price estimates. I don't look too much at historical data because the quality is rather poor and it is prone to significant variance due to underlying assumptions. A good example of this is the significant assumptions made by Prof Shiller in the US regarding long-run house prices only keeping up with inflation. Tom Lawler had a brilliant takedown of the methodological assumptions in Prof Shiller's analysis and came to a different conclusion by mildly tweaking the baseline assumptions, namely that house prices have indeed been increasing above inflation for over a century. Inconvenient.

Using data from the past 40 years is problematic due to macro effects (e.g. changing inflation and interest rates), so forecasting a trend into the future will be difficult. We are at the start of a significant wave of household formation of the Millennial generation. I cannot see that being bearish for housing in certain forms. That does not preclude medium-term stresses, though I'm confident Canada has the ability to weather these stresses better than other countries. I know, an unpopular opinion, but those are how I read the cards.

Leo S said...

> significant assumptions made by Prof Shiller in the US regarding long-run house prices only keeping up with inflation

Yep, even 5 years ago seemed obviously not true to me. After their crash where prices over-corrected they still weren't close to back to inflation adjusted zero trend. Seemed obvious if it ever was a trend it certainly wasn't holding anymore.
Victoria data over 57 years shows an average nominal rate of about 7%, 4% real/year. http://househuntvictoria.ca/2016/03/17/a-brief-history-of-prices/

> We are at the start of a significant wave of household formation of the Millennial generation. I cannot see that being bearish for housing in certain forms.

Certain forms yes. But SFHs in Vancouver and Victoria are already out of reach for about 90% of that generation. Maybe it will spur more condo construction.

> Using data from the past 40 years is problematic due to macro effects (e.g. changing inflation and interest rates)

I'm convinced the dominant factor is affordability in "normal" markets not driven by foreign investment. Certainly has been true in Victoria.

> I know, an unpopular opinion, but those are how I read the cards.

Hey I have no bias either way. We bought in 2013 which turned out to be fortuitous timing for Victoria. I'm just interested in adding to the discussion and learning more about Vancouver...

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