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Calgary Resale House Price Model April 22, 2009

Posted by DustinRJay in Calgary real estate, short term real estate trends, Uncategorized.
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The following graphs illustrate the historical relationship between absorption rate and house price changes in Calgary.  As the absorption rate decreases, demand exceeds supply, and house prices rise.  When the absorption rate is high, supply exceeds demand and house prices fall.  While I do not believe this metric is useful for determining long term price point, I do think it is useful for determing the near term price trends.

Calgary Absorption Rate Correlation

[click above for larger view]

Calgary Resale House Price Model

[click above for larger view]

Recent history indicates that an annual absorption rate of 4 would be a market that is roughly balanced.  In 2008, Calgary had record amounts of resale inventory and these inventory levels have dropped in 2009.  Also, sales dropped dramatically following the credit spread crisis, but have since improved on a seasonally adjusted basis.   If the current inventory glut continues to decline at it’s current annual rate, and sales stay flat seasonally adjusted, it is possible that the Calgary housing market will bottom in December 2009 after falling further in autumn.  I think there are upside risks and downside risks to this forecast.  I believe it is prudent for all market participants to err on the side of caution both when formulating business plans and household budgeting.  It’s probably also worth noting that house prices are likely to increase by only in the zero to very small single digits for a number of years after bottoming, so there is no rush even if you are trying to time the bottom.

Data:  Bob Truman – First Place Realty

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Comments»

1. Tim Berners - April 22, 2009

Timing the markets, real estate or otherwise is always a fool’s game anyway. Need to invest? Buy stocks when they represent a good value, not when you THINK it’s the bottom. Same goes for real estate, if you need a place to live, it doesn’t make much sense to keep paying someone else’s mortgage while waiting years to time the market.

Just my $0.02

2. Newt - April 24, 2009

I posted this on Bobs site also, but it sure looks to me that the market has made a quick transformation from “buyers” market to “sellers” market. If I had any thoughts about selling a home, now would be the time to list it!

3. John Bid - June 10, 2009

Timing the markets, real estate or otherwise is always a fool’s game anyway.

I agree.

4. Barcelona Apartments - July 25, 2009

The real estate investment base on the location, price, quality, present situation of the market demand.

5. Andy McDonald - July 31, 2009

Totally agree with the comment from John Bid !

6. DavidT - August 4, 2009

Try reading this if you think that timing doesn’t matter. http://www.irvinehousingblog.com/blog/comments/timing-does-matter

7. billbiko - August 11, 2009

Timing of purchasing a property or a stock can always be an issue, but if you are buying wisely in good areas or in good companies, timing is less of an issue.
The example in DavidT’s link shows the worst example, but it misses out on the large gaps between the peaks and the troughs where there are still good deals and opportunities.

8. Marc Roland - August 26, 2009

Hi Radley77,

Were you the one to produce the graphs or did you take these graphs from another source? I would be interested to get the most recent data up to August to determine if your forcasts have been correct. I would even be willing to update the graphs myself if you would let me.

I am also an engineer and I would like to fit the data to the models that you have presented in your posts. They are very interesting and thought provoking.

What is the best way to contact you?

9. radley77 - September 1, 2009

The data is available on Bob Truman’s website. The link is posted above. This was a correlation that I came up with to explain some of the real estate trends, however I have seen subsequent to my original posting that other websites now use this correlation as well.

My original post:
https://calgaryrealestatemarketblog.wordpress.com/2008/01/22/calgary-bull-or-bear-real-estate-market/

Housing Analysis post:
http://housing-analysis.blogspot.com/2008/02/january-2008-fvreb-statistics.html

Calculated Risk post:
http://www.calculatedriskblog.com/2008/05/scatter-graphs-months-of-supply-vs.html

Different regions and product types may have different balanced market months of inventory. I believe this is due to structural differences in the real estate market. e.g. Vancouver may have a higher balanced absorption rate as compared to Calgary due to greater lead times required for MFH projects.

10. Nathan Roberts - October 1, 2009

hey radley i’ve been waiting and waiting for your next post. are you still in it?

11. Edmonton Real Estate - Derek Hulewicz - November 17, 2009

I agree with you when it comes to correction in the real estate market being behind us. The absorpion rates for Edmonton have been decreasing for a while know as inventory has been getting lower. The pricing of the homes are more realistic now compared to wages and cost of living, which was not a case in 2007.

12. Laurence - April 1, 2010

Hello there, Happy April Fool’s Day!!!

Four Jewish ladies are playing Bridge.
Betty sighs and says, “Oy…”
Freda nods, sighs, and says, “Oy vey!”
Kitty says, “Oy veys meer!”
Charlotte chimes in: “Enough talk about the children already. Let’s get back to the game.”

Happy April Fool’s Day!

13. hermes handbags - July 4, 2010
14. hermes kelly bag - July 5, 2010

Totally agree with the comment from John Bid !

15. john1alpha - September 26, 2010
16. Real Estate Calgary Alberta | Betty Anne Tarini, Realtor - October 2, 2011

Thanks for sharing this.. and I totally agree with you that this metric is only and most likely useful in determining near term price trends. still useful for many..


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