How To Anticipate Near Term Supply Changes In Calgary’s Real Estate Market
I’m usually asked once or twice a week, “how’s the market?” or “is now a good time to buy?”
In the past homebuyers had a sense of urgency to enter the market because the thought of buying a home was a good investment. Today, the urgency buyers have to enter the market is of their own creation.
When asset prices are upward trending the narrative becomes “it’s a good time to buy”. I see this in other commodities out side of Real Estate (stocks, bitcoin etc). This creates an external reason for urgency.
When prices are down, or there are fundamentals that indicate down pressure on pricing, the narrative becomes “wait and see”. Understandably. Now the urgency to buy a home is primarily internal.
This becomes a self fulfilling prophecy because the more people that wait and see, the less sales there are, the more home listings pile up and the more down pressure there is on pricing.
Let’s talk about pragmatic Real Estate supply data. The numbers. Let’s review the supply side numbers in Calgary’s Real Estate market to help anticipate near term price changes.
Like any commodity, supply and demand changes drive changes in pricing. Return to my website for updates on demand side economics.
All data is from the Calgary Real Estate Board.
Detached Calgary Homes:
Sales To New Listings Ratio:
This data point looks at the ratio of new listings entering the market, net of homes leaving the market (expired or sold listings). A increasing number indicates less inventory expected to enter the market. A decreasing number indicates more inventory to enter the market.
I think what’s interesting, which might be more relevant than this time last year, is “shadow inventory”. 2018 saw a large increase of new detached home inventory for sale. For seasonal reasons, it’s possible some of this inventory is off the market waiting to be re-listed for sale this Spring. I don’t have any data to suggest this, just various conversations on the possibility.
Back to the data …We are seeing a seasonal increase in the Sales To New Listings number indicating less near term detached listing inventory. Home sellers might find this useful to get in front of the Spring rush? Buyers might find this useful in anticipation of more selection coming up for sale?
Absorption Rate:
The absorption rate looks at sales, inventory and new listings. This data point gives us an indication of how long it would take to liquidate all of Calgary’s detached home inventory, at the current pace of sales.
For context, a higher absorption rate indicates a slower market because of either low sales volume, high inventory levels or a combination of both.
A balanced market is between 2-4 months. Lower absorption indicates a sellers market (sellers have negotiation leverage). A higher absorption indicates a buyers market (buyers have negotiation leverage).
2018 marked a big year of distinction with the absorption rate for Calgary detached homes. December 2018 CREB data was no different. There is a significant y-o-y increase, with a marginally small increase m-o-m.
Average Sale Price:
The average sale price is found dividing the total number of sales by the total price of Real Estate traded. This accounts for a large range of home sale prices ($1M homes and $350K homes that sold). I mention this so you understand the inputs.
A trusted Realtor will be able to drill down these numbers for you by property type, area, quadrant and price point.
I am seeing the average price consistently drop from it’s high in June 2018. Seasonally it’s reasonable to anticipate this number to increase leading into the Spring market.
Apartment Data:
Sales To New Listings Ratio:
The apartment sales to new listings ratio is seeing some wild swings. November was a big indicator that fewer listings were expected, and now December indicates more listings are planned.
It’s possible the shadow of condo apartment inventory is coming up for sale to get in front of the Spring market. I also find it important to note there is less apartment units in Calgary’s Real Estate market so data points can swing more so than the detached housing market.
Absorption Rate:
Calgary’s apartment absorption rate is just shy of a five year high – close to 10 months of supply! Wow …
December’s data reflects a combination of high listing inventory and low sales volume. There were only 106 apartment sales in the month of December which is down 37% y-o-y. So yeah, that will spike the absorption rate.
Look for 2019’s absorption rate to cluster with the previous two years of Real Estate data. Buyers definitely have leverage in purchasing condo apartments in Calgary. I think this segment of the market should find bottom this year to give buyers confidence to enter with fundamentals prices will not further decrease.
Median Price:
Line up all of the Calgary apartment condos that sold in the month of December from lowest to highest value. The median price is the middle number. I find this smooths out the data of a relatively small sample size for market direction context. This data point is at a 5 year low.
Conclusion:
In a meeting, just this week, I was asked “is now a good time to buy”? Instead of being a “Real Estate pumper” – when it’s always a good time to buy, I referred to the data.
I explained the above data points to my clients. I also explained the general narrative, common among different commodity based industries, related to peaks and troughs.
When prices are at their peak, the narrative is it’s a good time to buy. When prices are low, the narrative becomes the opposite. I’m not saying it’s right or wrong …I’m just noting behaviour in general.
When living in either general narrative, doing the opposite is often difficult because of the social pressure. I also get that!
I hope this is helpful for you in planning your Real Estate decisions. I create this content to add value to your life. I look forward to earning your business and referrals.
Talk soon,
Chad Moore
