Thursday, April 03, 2008

FVREB Long Term Sales to Listings Ratio

Here is a great chart I received from 'steveb' over at Real Estate Talks. Thank you.

The chart shows the Sales to Active Listings Ratio (green) and the Average Price of a home in the Fraser Valley Real Estate Board area from 1979 to 2006.

We can clearly see that obvious supply and demand relationships are in place in regards to the price movement of real estate. When the sales / listings ratio drops below the 0.2 area, the price pressure is zero to negative. A sales / listings ratio of 0.17 is equivalent to 6 months of inventory.
There have been a few points in past real estate cycles where the sales / listings ratio dropped below 0.1 and this was obviously highly negative for prices. A sales / listings ratio of 0.1 is equivalent to 10 months of inventory.

As per the previous post, we are at 7.1 months of inventory right now, which is the equivalent of a sales / listings ratio of 0.14. If we look on the chart for similar occasions we find that the mid-1980s and late 1990s were sustained periods of high supply and low demand at those type of levels.

The extreme peak for inventory during the 1981 correction was 0.06 or approximately 16 months of inventory. This supply / demand situation resulted in a >30% negative price adjustment over less than 12 months. The other previous corrections saw sales / listings ratios of 0.075 or 13 months of inventory. Some of these corrections saw sharp drops in prices upwards of 20%.

Here is some more recent data.


Unknown said...

Interesting data! Although the last time the ratio hit 0.15, prices did stall briefly then marched upwards soon afterwards.

mohican said...

yes - we need to see a sustained sales / listings ratio below 0.2 for price stagnation / decline. 1 or 2 months won't do the job.

We have had 6 months below 0.17 now.

Paul said...

I would love to see the last year. Interesting chart. I agree with you that we are just months away from steady YOY price declines in the FV.

Unknown said...

A link I found at another forum

More good news for the bears. That's the province saying that.

macho slob said...

When the biggest bulls in the industry are calling for a "more balanced market" it should not take a Rhode's scholar understand that the downside far outweighs any upside.

This market is so close to the brink that it will have crashed and be ready to recover around the time of the olympics.

Unknown said...

I also believe the market will turn (declining YOY prices) before the Olympics. Which is great. As the Olympic caravan leaves town -- with its athletes, support, media, admin, and Olympic/Condo construction workers -- it will leave empty places that need to be rented or sold. Many places.

And then the city/province/country will come to the people and ask for more taxes to pay for the Olympics. The timing couldn't be better (for a sustained crash).

It'll be like kicking someone really hard when they're already down. And then kicking them again. And then spitting on them.

patriotz said...

it will have crashed and be ready to recover around the time of the olympics.

The will be no recovery of the BC housing market, and economy in general, until the US housing market recovers to normal volume of construction and sales.

And that's not going to happen before 2012, if it happens at all.