Vancouver Teranet and Housing Inventory Correlation Update

The past few months have seen a marked cooling in price changes and sales volumes in Metro Vancouver and I just got around to updating some scatterplots that relate the change in the Teranet House Price Index to the ratio of for-sale inventory to monthly sales (months of inventory, or MOI). Here are the updated charts, showing price changes for 3 months (quarter), 6 months (half) and 12 months (year):

An interesting development late last year saw prices drop significantly when compared to the available inventory — the model predicted more price strength in the face of a dearth of available inventory than what actually occurred. Prices have moderated somewhat but are still up 16% year-on-year, an indication perhaps that last spring's buying frenzy was anomalous compared to other years. Perhaps the spike in the spring of 2016 was more of a transient event and was not truly representative of underlying demand.

On the subject of inventory, inventory is very low right now, around 8000 or so for REBGV and inventory growth is nothing short of anaemic. As the market enters the traditionally robust spring selling season the lack of inventory will tend to place upwards pressure on pricing, all else equal.  I see no significant evidence yet to suggest that prices (as measured by the Teranet HPI) are exceptionally weak compared to current MOI, in the context of the historical price-change-to-MOI correlation. That stated, with inventory this low, the market may be operating in a different state compared to most past years.

REBGV Sales Update Through January 2017

REBGV released their stats package through January 2017. Here are the numbers:

January gives us an early read on market conditions preceding the busy spring selling season. It does not appear like conditions in 2017 are similar to 2016. Sales and new listings were both slightly on the weak side of average. As a result, inventory growth has not been high, but is average. Since inventory was extremely low through all of 2016, there is a long way to climb to bring inventory back to historical levels. The lack of inventory suggests that, even with low sales volumes, prices will likely remain robust through the spring. This is based on the historical high negative correlation between months of inventory and price changes.

2017 is an unprecedented year in that both sales and inventory are low. It is unclear to me how quickly, or if, the market can return to an average level of inventory and sales this year. Inventory can only climb by new listings significantly exceeding sales (and listing expiries not being high). Unless new listings pick up or sales slow further, there is no path for inventory to return to historical levels before the end of the spring selling season. (See 2006 for a potential template.)