Earlier this week I sent you a macro-economic summary of leading economic indicators our Central Bankers consider when moving the interest rate needle (or not).
Our Central Bank interest rate decision(s) trickle into affecting home buyer demand. Here we’ll look into anticipating supply levels of Calgary Real Estate.
I think having a macro understanding of this data, in addition to formulating your own thoughts and consuming other data points, helps shape a near term outlook on Calgary Real Estate.
I think this matters when entering the market, either as a buyer or seller. Connect with me if you, or someone you know, is either buying or selling. Thank you in advance.
Let’s look at the following data from the Calgary Real Estate Board (CREB) for detached and apartment homes:
1. Sales to new listings ratio.
2. Absorption rate.
3. Average/Median price.
Detached Home Data:
A detached home is defined as a unit not attached to any other unit.
Sales to new listings ratio:
This ratio helps us anticipate net new listings coming onto the market for sale.
A decreasing ratio indicates more listings entering the market. An increasing ratio indicates less listings entering the market.
Looking at supply alone ….
Lower supply = upward pressure on price.
Higher supply = downward pressure on price.
Calgary’s detached market Sales To New Listings data point recovered from four-year lows and is back at 2015 and 2017 levels. We are matching the seasonal trend of having less inventory over the Christmas season.
Absorption Rate:
This tells us, in months, how long it would take to liquidate detached listing inventory in Calgary. This combines current inventory with the pace of this particular months sales volume.
Higher absorption rates = some combination of higher listing inventory and or lower sales volume, or both.
Lower absorption rates = some combination of lower listing inventory and or higher sales volume, or both.
Calgary’s absorption rate is much higher year over year, coming in at 4.80 months.
This is reflective of the year long trend we’ve been experiencing with lower sales volume (down 15.16%).
Calgary’s detached inventory is also up 34.98% year over year.
The good news is the direction of Calgary’s detached absorption rate is trending down month over month, matching previous seasonal trends.
Average Price:
I think this stat is useful for overall direction of Calgary’s market. However, I view it with a grain of salt because Real Estate is very local (quadrant, area, neighbourhood, street all influence price etc).
Calgary’s average detached home price has been trending down since June, but is closely clustered relative to the past 4 years of data.
Apartment Data:
An apartment is defined as a unit within a high rise or low rise condominium building with access through an interior hallway.
Sales To New Listing Ratio:
This ratio is trending upward month over month, in a seasonal direction. This data point is slightly lower year over year. This is a positive direction for apartments as an indicator of less new supply.
Absorption Rate:
Apartment absorption rate is STILL irritatingly high year over year. However, month over month I see a seasonal trend lower.
A positive sign for the apartment market would be a reversal of an increasing trend in the last two months of the year. We’ll know the results of this data in January 2019.
Median Price:
Median price is up month over month and about the same as 2017.
Conclusion:
I am finding potential home buyers are patiently looking at homes for sale. The sense of urgency to enter the housing market is different in 2018 than it was in 2013 or 2014 etc.
For home buyers on the fence, waiting to enter the market, be aware of your cost of borrowing as interest rates rise.
A 0.25% interest rate increase results in about $14 per month for every $100,000 of Mortgage. As interest rates increase, with income and personal debt staying constant, one’s maximum home affordability will decrease.
Naturally, as interest rates increase, pressuring down home buyer demand, commodity prices (homes) also face down pressure.
Canada’s Department of Finance artificially injected this interest rate pressure by way of the Mortgage qualifying “stress test”. This is where buyers need to qualify for a home at interest rates much higher than the natural market interest rates.
For home buyers with less than 20% down payment, this stress test has been in effect since November 2016. For home buyers with 20% or more down payment, the stress test has been in effect since January 1st 2018.
I think it’s possible the narrative amongst the market has just as large of influence on their decision to purchase a home as does the actual qualifying to purchase said home. And I get it. Trust me.
For home sellers, consider the above data for Calgary and your specific area. I think a good Realtor will be very honest with the direction of home prices, based on the above data and other important metrics (recent sold listings, days on market, list-to-sale price percentage etc).
Everyone, I really appreciate your referrals. Thank you.
Talk soon,
Chad Moore
D: 403-809-5447
E: chad@canadamortgagedirect.com
P.S
WARNING: When dressed up as Mr. Clean for Halloween, party clean up becomes your problem!
Apparently, I didn’t do the best job mopping and left the floor too wet. Someone slipped and fell. Oops :-)
