Wednesday, April 21, 2010

House Price Comparisons

Just sayin'...

Over at is a constant stream of listings and sales data from commenters for the Greater Vancouver area. The listings growth is robust, as is the level of sales. We are on track to bust records for April listings and sales in recent memory. What will happen to prices, specifically the benchmark and house price index?

According to mohican's months of inventory to price change correlation analysis, the benchmark price will not start substantially falling until sales slow or active listings continue to increase at breakneck speed. Below is the half-over-half prices changes and 3 month moving average of months of inventory (i.e. active listings at month-end divided by sales from the month) on a time and scatter plot. (I extrapolated expected April MOI on the time plot.) This series provides the best correlation of the data. I've also included the scatter plot on semilog which allows the low MOI data to be better resolved.

Although not immediately obvious from the graphs, assuming the rate of sales does slow, a meaningful price drop from current levels is unlikely to materialize until sometime in the summer. If sales remain robust it is unlikely prices will drop unless active listings significantly increase. It's worth asking who is selling, or trying to sell. That listings are increasing fast may be a harbinger for lower sales going forward.

Given there appears to be an integral component to listings growth, it is unlikely listings growth will slow until sometime in the summer. Hat tip to PaulB for the hourly numbers. This one's for you and the inventory junkies. Subliminal message at 1:05.


Anonymous said...

Man you guys are setting yourselves up for a major FAIL.

I'd be extremely surprised if things don't take a turn for the worse in BC. If they don't, I can't imagine anyone wanting to live in such an expensive city...unless they are a bunch of snobs and douches who feel entitled to do so...much like San Francisco and Manhattan.

macho slob said...

If sales remain robust???
That's the kicker.

After the smart money has sniffed out the peak and is bailing, how long can it possibly take for potential buyers to figure out that there might be a reason for the explosion of new listings.

jesse said...

@macho slob: I think that listings are increasing does not bode well for future sales. I'm asking myself the following questions:

1) How many sellers recently bought another property BEFORE they listed for sale?

2) How many sellers will buy another property soon AFTER they list for sale?

3) How many current buyers are buying without selling?

4) How many sellers are selling without buying?

Van Housing Blogger said...

Have I ever told you that these are my favourite graphs?

So, price changes hit zero at around 6 MOI and get serious when we are north of 10 MOI.

Two comments.

With inventory of 20K, we only need sales to decrease to 2K to get 10 MoI. Not crazy to think sales will fall to that level by June. The average for the last 4 Junes is 3720.

Second, Jesse I am curious whether you think that events are so uniquely messed up right now that we are going to go off the regression line. What is unique? a) CMHC rule changes b) realistic fear of big rate hikes over next 12 months. Both of these might lead people to want to get out NOW and drop their price more quickly. But, this would not fit the model line. What do you think, Jesse?

mohican said...

Awesome - been meaning to update for a while now - no time though. Thanks!

A MOI of 10 or more is completely realistice by the end of summer. Sales drop seasonally in summer which will, combined with the higher inventory, raise the MOI to 6 or more. 6+ MOI means no price increases. Once price increases stop, sales will drop, once sales drop they will drop fast and the MOI will shoot straight up. By fall we should see substantial price decreases unless, somehow, sales can remain high.

jesse said...

Hey VHB, I have been surprised at how correlated the sales and benchmark data have been to date. Money is still available and the sales haven't yet fallen off a cliff.

Most likely I see significant inventory growth with a below-average performance for sales going forward. That will give 10-20% drops in a year, maybe more if mortgage rates continue to increase.

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