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Game Over for First Time Home Buyer? March 18, 2008

Posted by DustinRJay in Calgary real estate, supply and demand.
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Single family home sales have dropped off dramatically in Calgary year over year.  Therefore, it’s difficult to determine if averages and medians are representative of the direction of the market or reflective of changes in composition of the sales mix. 

The following graph illustrates the year over year change in sales volume by price range:

Change in Calgary SFH Sales Mix

 It illustrates that:

  • For the first time home buyer market, single family home sales volumes have experienced significant deterioration
  • Higher-end ($600,000+) single family home sales volumes have held steady
  • Average and medians, although extremely useful, are not reflective of the health of the entire real estate market due to changes in the sales mix

As an aside, things in naturally occurring populations typically lie in a log normal distribution (including distribution of reserves in oilfields).  Hence, it comes as no suprise that things like household income and also house prices also lie in a log normal distribution.

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Comments»

1. crebb - March 19, 2008

Radley, you’re killing it with your graphs. First time home buyers are running away scared. Without buyers, it’s only a matter of time till prices come down. Great post as always, I enjoy reading your blog.

2. Refusing to Buy - March 19, 2008

It would be interesting to see how prices were affected by similar sale volume decreases in other markets. Similarly, it would be nice to know what kind of lag there is for price decreases in each segment based on falling sale volume. One would have to assume that real estate markets behave similarly to our local market.

Good blog.

3. squid - March 19, 2008

you have a way with illustations that dose more then words….that graphs a daggar plunged deep into the chest of our wonky real estate picture…with sales down as much as 50% and vacancy rates above 15% in new condo buildings this is an industry in deep peril
well done

4. Jim_s - March 19, 2008

Quality post, rad. Good work, as always.

Ramen spin will turn it into a positive, somehow.

5. Anonymous - March 19, 2008

perhaps sales are down in the sfh 200-299 category because there are few homes available at that price. really it does look grim when the data is presented that way.

6. Jim_s - March 19, 2008

That’s true…. few homes are available in the lower price ranges. But prices have stayed fairly flat YOY, so the argument holds. It’s not like last year there was a huge inventory of homes for sale in the 200-299K range, and this year there isn’t.

The data doesn’t lie. It doesn’t matter HOW it’s presented, the fact that it is presented is proof enough. Why haven’t any ramens presented it? They only spin on average price, intentionally being deceitful.

7. Carioca Canuck - March 20, 2008

Deceit “is” the name of their game…….it is the only occupation where you have to deliberately lie in order to make an income……just like the monkey story.

What do you call an honest real-tot ?

Bankrupt.

8. Rational Exhuberance. - March 20, 2008

Excellent graph Radley.

To me what’s interesting, is this is exactly what occured during the 1st year of the housing downturn in much of the US. Medians and Averages held steady or even rose, as the bottom half of the market fell off a cliff (from a sales volume).

Many realtors and newspapers that quote realtors don’t understand that price is actually a lagging, not a leading indicator. Volume is a leading indicator, and what this graph tells me is that the leading indicator for “middle class” priced homes is crashing. Prices will follow, unless volumes unexpectedly rise, and quickly. Given prices though, I think this is unlikely.

9. Noemo - March 20, 2008

There is another twist to this – and it may forebode a farther out (time-wise) problem – as other areas of our country (and the world) are in ‘recession’ it leads workers to seek out economies where work is available. This will/could lead to a renewed in-migration to Alberta therefore feeding more people into the buying/renting conundrum of the moment.
All well and good until the underlying support (oil & gas profits) weakens and market conditions revert to something other than demand winning the wrestle with supply. Then people leave and “go back home” and the un-wind feeds on itself a la 1982. If oil drops below $60/bbl buy stock in U-Haul!

Anyone want to claim to be able to time this, or any market? You have a 50/50 chance on getting it right on what the Dow Jones will do tomorrow.

One other consideration: Building permits in Calgary are still going strong across all sectors as of end of Feb. http://www.canada.com/calgaryherald/news/story.html?id=0379a2d8-7593-42f9-a0d5-d9ac0a2e11db&k=82928
A lot of smart people making a prognostication (and laying down good hard cash) of a relatively good prospect of a stable market ‘downturn’.

10. Realitycheck - March 21, 2008

An angle on ‘mix’ that you did not cover-
“I can afford a regular sized house again – no more doll houses above 400k”

Prices are already dropping (peak was 1st half of Feb). You have to look at squarefootage to see it. I have been compiling Mike Fotiou’s square footage stats on a daily basis. There is an obvious trend since last fall of larger houses and condos selling. What we have been seeing is the median price staying roughly the same, but squarefootage per sale increasing. In other words, people are taking the price decrease in the form of a larger house rather than paying less – getting more house for the same money. Anyone who monitors the actual market in a given neighborhood knows this to be true — what used to be the 1400-1500 sft listing price range a few weeks ago is now being invaded by 1650-1800 sft houses. This all makes sense because buyers were previously at or past the limits of their affordability and were sacrificing squarefootage in buying the ‘doll houses’ (in my mind anything less than about 1700 sft isn’t a ‘normal’ 3 BR home but witness the proliferation of the doll houses in the past couple years). Now, the first sign of a price decrease is actually increasing average square footage, rather than median price dropping. The median price will follow.

11. Noemo - March 21, 2008

Have we become spoiled when anything less than 1700 square feet of home (plus a full basement) is considered not a ‘normal’ family home? In the 1960’s a 1200 sq ft home was average and the average family size was 30% bigger than today.

If people were at the limit of affordability with 1400 square footer they are still going to be at the limit with 1700 at the same price. In my mind not the best choice given the uncertain market conditions around the world.

12. lukecs - March 24, 2008

Radley,
I’ve been tracking some stats but I only have house prices since 1987 any chance you can give me your stats for pre 1987 house prices and CPI index. my email is my user name at gmail. thanks

13. Toronto Bear - March 25, 2008

Great information you provide on this blog Radley. I would love to see the Toronto equivalent, if anyone knows of something comparable it would be fantastic.

One of the points raised was that reduced sales at the lower ranges may indicate that prices have risen, reflecting a lack of houses for-sale in that range. While this is true to an extent, the overall sales volumes are so much lower that this leading indicator cannot be ignored. It does however show the merits of an index such as the Case-Shiller index which tracks sales price of the same homes, and also is adjusted for inflation (if you believe the bogus CPI number of course). Does anyone know if there such an index available in Canada?

14. David Kim - April 4, 2008

Calgary housing market is a bubble that is bursting. Why buy now simply to be caught?
Just wait and see.

15. RMD - April 25, 2008

Hi there great graphs..I wonder if everyone is aware if the coming downturn in Calgary RE why we haven’t hear a peep out of the media about this?

16. Felipe - May 16, 2008

Hi there. I’m a real estate agent in Las Vegas and I’ve been wondering how the market is doing in Canada. I’m seeing so many Canadian investors flocking to the US because of our weak dollar. It’s interesting to see how our credit market hasn’t hit you guys as hard. Las Vegas is the number one city for foreclosures right now. Some AMAZING opportunities, but it’s hard to convince tentative buyers. Anyway, great stats on your blog. Feel free to visit my blog and if you have any questions let me know. Good luck!
Sincerely,
Felipe Crook

17. section31 - August 8, 2008

It doesn’t matter how many people “migrate” to Calgary, the housing prices are just too high. This isn’t B.C. there isn’t such a finite amount of land in Calgary. The reason people see so many homes popping up is because land is cheap and available in Calgary. The population is irrelevant in the medium and long term when it comes to rising prices, only the short term.

There is a retarded amount of homes still being built and scheduled to be built in Calgary. Supply is catching up with Demand. Housing prices don’t just magically go up. The go up for a reason, and that same reason will drive the prices down again Supply and Demand as simple as that.

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