The Price is Not Right… (But Not by Much) December 22, 2008Posted by DustinRJay in supply and demand.
Tags: Calgary real estate, demand, supply
In 2005 and 2006 supply was much less than demand and house prices rose. A ratio of 50% sales to new listings ratio has historically kept prices in balance. House prices overshot the supply/demand balance and started to fall. The crossover of the supply/demand balance indicates a level of price support at ~$375,000. Demand is likely to rebound slowly as prices drop. Supply is likely to retrace the supply/price relationship. As illustrated below, some overshoot to the downside is likely to burn through the current inventory.
Of particular interest is that supply had a high degree of elasticity in respect to price whereas sales did not. As a corollorary, I think that to some extent:
- Supply = f(marginal cost of supply), linear relationship
- Demand = f(consumer confidence), nonlinear relationship
Click above image to enlarge.