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.