In A Destination City of 1.3M+ People – I Think A Real Estate Pricing Floor Will Be Established (at some point)
I’m noting this post for business and personal reasons. Here’s why: I think it’s easy for me to say “now is a good time to buy” when I speak with people. I earn an income in Real Estate so listening to a man in my position is to be taken with a grain of salt. I get that.
I’m noting this post as a reference point to future data reports. I like to think, when the market cycles up, and it eventually will, that I’ll noting the market position and offering insight to people buying and selling. Then, and only then, will I have earned the position in the marketplace that I’m not full of B.S. Get it?
Ok, that all said, let’s look at the data from the Calgary Real Estate Board for January 2019. Here’s what happened.
[For my new readers …I report on leading supply side indicators that help anticipate the number of future home listings for sale. This data influence near term price movement in Calgary. I also note macro economic happenings to anticipate the demand side of the coin of Calgary Real Estate (here)]
Single Family Detached Homes
Sales To New Listings Ratio:
This ratio combines new listings with homes leaving the market (sold homes or expired listings). A decreasing line or data point indicate more homes coming up for sale, net of homes leaving the market. Higher supply indicates down pressure on pricing (with demand staying constant).
Calgary’s detached sales to new listing ratio fell both month-over-month and year-over-year. This might be early Spring listings coming online? I think this also a function of lower sales volume in January, down 16.78%.
We should start to see this line seasonally trend higher into the Spring market.
Absorption Rate:
This data point combines sales, inventory and new listings for a monthly output. The absorption rates answers this question, how long would it take to liquidate all of Calgary’s detached sales inventory, at the pace of this months sales?
Higher absorption rates indicate lower sales volume, higher unsold inventory or more new listings (or all three). Higher absorption rates place the negotiating power in the buyers hands. The opposite is true with lower data points. Between 2-4 months is a “balanced market”.
Calgary’s absorption rate is at a 5 year high which should seasonally trend lower. Note the distinction in absorption rate data in 2018 from previous years.
Average Price:
This is a true average. I find this useful for general trends of direction. I hope you understand that Real Estate is very local, even within Calgary. Each area, quadrant, neighbourhood, property type and price range etc is influenced locally. Refer to a good Realtor for more specific data.
Calgary’s average price is up month over month, but down year over year.
Apartment Data:
Sales To New Listings Ratio
There is a relativley tight clustering of data for January over the past 5 years. Considering the lower sales volume of apartment condos in Calgary, I think the past 5 years of this ratio have been relativley clustered. I expect more of the same to unfold in the coming months.
Absorption Rate
The absorption rate is relativley well clustered in January. Let’s not lose sight of how high these numbers are though. 9 months of inventory is very high. 2014 & 2013 absorption rates were below 4 months (even lower at some points). That is going back many years now, but I think nice to understand. The seasonal trend line should fall leading into the Spring market. How low the absorption rate will fall is to be determined.
Median Price
This data point is not clustered with previous years. Wow. For context, condo sales are a fraction of single family detached home so the numbers can be skewed high and low. I find the median price will smooth out the extremes better than the average price metric. However, outlier data points do show up. I look for trends instead of zooming in on monthly info.
Conclusion:
The effect of tightening Mortgage rules and monetary policy is now starting to show up in Canada’s and Calgary’s Real Estate market.
In November 2016 the Mortgage qualifying stress-test, for high ratio Mortgages (less than 20% down payment), came into effect. January 2018 is when the latest Mortgage stress test, for all percentages of down payment, came into effect. In general, this decreases peoples maximum home affordability by 18%.
I also think the first phase of Central interest rate hikes by the Bank of Canada are fully appearing in our economy. The first rate hike happened in July 2017.
Recognizing the cyclical nature of markets can be a part of helping guide your decision to enter or exit the Real Estate market.
If you would like me to help you understand your home affordability and arrange your Mortgage financing (purchase, refinance or renewal) call or email.
Cheers,
Chad Moore
