Category Archives: Historical comparison

Why 3 years?

‘The real estate executive says July sales statistics from a historical standard were “tepid” and adds the numbers gets “the big headline” because the comparison is to a period when housing sales were slumping badly.’

http://business.financialpost.com/2013/08/15/canadas-housing-market-the-one-that-no-one-can-predict/

If you’ve followed my blog, you’ll be aware that I’ve been comparing the present year to the average of the past 3 years when I compile the market updates. The story in the Financial Post illustrates the reason why. A single year can be an outlier, an anomaly. It can severely distort the overall picture when comparing to a single year.

In the same article, David Madani of Capital Economics gets thrown under the bus for his history of incorrect predictions. He’s been predicting a 25% correction consistently for 30 months. If the Canadian market declines 25% from today’s prices, it will be pretty much back where it was when he started his forecasts. Now that Harold Camping has met his maker, perhaps Madani can take his place at the table.

It would appear that CREA is the voice of calm and reasonableness: “Canadian home sales have staged a bit of a recovery in recent months after having declined in the wake of tightened mortgage rules and lending guidelines last year,” said Gregory Klump, chief economist with CREA, who expects August results will also look strong as they are compared to a weak 2012.”

Accolades to First Foundation

When Madani first made his prediction in Feb 2011, it was rebutted by a mortgage broker who wrote, “people are not over-leveraged, that our incomes are sufficient to pay our obligations, and that the fundamentals are solid for a good, old fashioned, boring real estate market where reality overcomes emotion and conjecture.” It wasn’t sensationalist enough to attract any headlines, but it was accurate. Why David Madani is wrong

I’m not sure how a guy like Madani is able to keep his job in the light of such incorrect forecasts. On Capital Economics home page it states, “we have gained an enviable reputation for original and insightful research.” Good thing they don’t claim that it’s accurate.

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Is demand outstripping supply?

Lester asks “How does this compare in terms of statistics to the frenzied days of 2006? It seems demand is rapidly outstripping supply. Are the number of proprties, dom, absorption similar?”

Comparing July 2006 to today, the scariest number is SNL(sales-to-new-listings ratio). It’s at 80% right now, whereas in 2006 it was 52%. Also of concern this year: sales are slightly higher, and new listings are a lot lower. The trend is definitely more demand, less supply. The early months of 2006 were the craziest and it cooled down starting in July. This year, it seems to be getting hotter(and not just the weather!).

Luckily, we have 50% higher inventory, but at 3100 listings, that’s still considered very low. DOM is a lot higher than in 2006. It took, on average, 18 days to sell a house in 2006, today it’s 35 days.

The absorption rate today is 2.0 but was lower in 2006 at 1.5. That means we had a 45-day supply of homes for sale in 2006, and today we have 60. Both those numbers are very low and of concern.

All things considered, the situation does not bode well for buyers.

2007 is history

Average and median prices in Calgary have been flirting with all-time highs this year. I had a look at the sales history from the past 3 days to see the ultimate fate of those homes sold in 2007 when prices were at their peak.

We’ve had 11 sales where the homes were previously sold in 2007. The average list price was $601,027. The average sale price was $610,136.

7 of the homes sold for more than the previous purchase price in 2007.