Calgary Resale House Price Model April 22, 2009Posted by DustinRJay in Calgary real estate, short term real estate trends, Uncategorized.
Tags: calgary house prices, econmetric model
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.
[click above for larger view]
[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.
Calgary Bull or Bear Real Estate Market? January 22, 2008Posted by DustinRJay in short term real estate trends.
Tags: bear market, bull market, Calgary real estate, forecast, prediction
For those looking to buy or sell in the near term it is worthwhile to understand the current trend so that some forecasting or predictions can be made about the real estate market. This is a complementary post to my Long Term Trends in Calgary Real Estate.
The primary factor affecting the near term trends is the supply & demand balance. The absorption rate is the (current inventory)/(sales in the last 30 days).
For example, as of yesterday:
Active listings: 3882
Sales last 30 days: 777
Absorption Rate: 3882/777 = 5.00 months
CREB defines a balanced market as anywhere between 2.0 to 3.5. The following graph illustrates the relationship between the absorption rate and the price change per month.
If the absorption rate was:
Below 2.0 = 79% of the time there were price increases
Above 3.5 = 100% of the time there were price decreases
The equation that can be used to roughly predict the price increases or decreases per month is:
Price Change Per Month = -$4,594 * (Absorption Rate) +$14,141
Based on the current absorption rate of 5 months, it appears that price decreases in the near future are likely.