Sales - Edmonton Housing Bust

Category: Sales

Thursday, July 16, 2009

What’s selling?

Filed Under: Sales

A couple months back I did a post on market share by price range (will be doing another update on that hopefully in the not to distant future), and today I’m going to take another stab at market share, but this time from the angle of unit type.

Edmonton Proportion of Sales by Unit Type

You’ll want to click on this one to get a closer look, she’s a big’uns!

This is broke into single family homes, condos and townhomes. As we can see, SFH’s dominate the landscape, no surprise there. By this measure townhouses look to only make up about 5% of the market (give or take 1% any given month), but I’m not exactly sure where the line is between condo and townhouse, seems a lot of the latter get grouped in with the former, but I digress.

Going off on a short tangent, these three make up the vast majority of what is announced as “residential sales” each month… though not quite all of it. There is another tiny fragment that comes from vacant lots and mobile homes. For example, last month there were 2,552 “residential sales” of which, 2,506 were from SFH, Condo’s and townhouses… so those other 46 sales came from somewhere, but are fairly immaterial to the stats as a whole. In anycase, they are not included in any of the calculations presented her.

Anyway, back to the graph. Now you may be wondering what the shaded area is. Basically it is the level where we would typically expect the market share of SFH’s to be. It is based on the numbers I had from 2000 up until 2006 when the boom started… we had a mean of 69.5% (also the median fwiw) for SFH (conversely Condos/Townhouses combined for 30.5%, obviously), and a standard deviation of roughly 2%. So, the shaded area is the area within one standard deviation of the median.

As we can see, it held up true to form through 2006, and has largely returned since the boom ended…though that could be a sign that a slight downward shift may be called for going forward as there was a disproportional number of condo’s built during the boom.

What is interesting to note, that while we’ve been hearing the last couple of months about how many more SFH’s have been being sold, proportionally they are still in line with what we’ve seen historically, and even over the prior year during an extended period of poor sales overall.

The major observation I take from this though is the massive increase in activity in condos/townhouses during the boom. They went from typically making up about 30% of sales, to making up as much as 44.1% in March of 2007.

Really quite a remarkable change from a statistical perspective as that’s over six standard deviations from the predicted path… even recalculating standard deviation just using information presented on this graph it is still over three.

Assuming a normal distribution, the odds of one result that far out varies between extremely low (less then 1/370) to astronomically low (less then 1/500,000,000)… and we had several results in that territory.

Obviously there was nothing normal about the bubble. Also reaffirms that there was a whole lot of speculation going on, and it’s going to be very hard to clear out all that, especially now that proportional sales appear to have returned to their norms.

I’m going to try to take a slightly different look at this figures, and give you all a look at the hard numbers of sales per unit type, and how they changed during the boom. But alas, that will have to wait for another day as I’m off to the football game. Have a good weekend.

16 comments

Friday, June 5, 2009

Boom and bust… the rise and fall of ComFree?

Filed Under: Sales

Private sales, or For-Sale-By-Owner (FSBO for short) have been around for as long as there has been something to sell. Though in real estate private sales kind of fell out of favour as sales people and agencies became specialized and by pooling resources started offering levels of exposure that private sellers couldn’t match.

With the emergence of the internet though, the game changed. As more and more people were going online for information, conventional media advertising was no longer the only game in town.

The establishment soon started adjusting to this by bringing the MLS online, but a major barrier to entry had been removed as the costs of operating online were far lower then buying advertising in the conventional media. Now a person with a little bit of html know-how could effectively showcase their property in detail they never could before.

It also paved the way for new entrants to come in and unite the traditionally highly fractional private sellers, and offer a low cost do-it-yourself service alternative to selling through a realtor. Here in Edmonton we’ve seen the emergence of ComFree.

ComFree actually started in 1996 in Winnipeg, six years later they made their first major expansion coming to Edmonton in the fall of 2002. They’ve since established themselves throughout the rest of Alberta and much of BC, as well as Australia. They basically carved themselves out a niche by offering sellers the basic tools to complete a sale and exposure on their website, for a flat rate that is a fraction of what one would pay a realtor in commission.

It’s a fairly basic but effective business plan, very low overhead, everything is very standardized. The seller pays their money, ComFree gives them their package and from there the onus is on the seller. Their only real significant costs is marketing, as staffing and website costs would be very basic.

This model worked out quite well, they were largely the first mover in the market and established themselves quickly. They were also fortuitous in that from 2002 onward, the real estate market kept picking up momentum. By 2004/2005 the market was on fire, and 2006/2007 was just ridiculous… and ComFree was enjoying the ride.

In the spring/summer of 2006 they were averaging about 450 sales a month, and tallied 4,375 for the year. If you combined MLS and ComFree sales, ComFree had a 16.6% marketshare for the year for sales.

Like the rest of the resale market, ComFree stayed hot through the first half of 2007, raking up over 500 sales a month from March through May, topping out at 556 (May). In the first half of the year they had 17% market share.

Then the music stopped… and as hard as it hit MLS, it hit Comfree even harder. For the second half of ’07 their market share dropped to 12.9%… for ’08 it was just 10.5%, and where a year earlier they were setting records with spring sales of over 500 a month, they were now only managing about 200. It’s only gotten worse in ’09, with just 241 sales through April… a mere 4.6% of the resale market.

Like the MLS, ComFree has witnessed an erosion of prices, and explosion of inventory… in December of ’07 they had an absorption rate of over 33, with an inventory of 3,026 to just 91 sales.

Also like MLS, they have also witnessed a major wave of delisting, last April they had 3,329 properties listed… this April just 856, a drop of 2,473. Obviously not all sold, as they’ve only had 1,536 sales since then (all the while 3,330 “new listings” came on board too).

So why has ComFree wilted so much worse then MLS? There are several reasons, but I think it mainly comes down to exposure, and service. In a hot market, homes were selling themselves, buyers were clamouring for more so they were actively seeking listings, they’re beating a path to the sellers door.

Then the frenzy ended… now suddenly, ComFree isn’t as effective and is losing market share rapidly. We’re in a stage where homes need all the exposure they can get because there is a massive glut of inventory, buyers are no longer biting on the “buy now of get priced out forever” line, and the speculators haven’t just disappeared, but now are trying to unload their own flips gone wrong.

Before you could pretty much slap a price tag on anything, hold an open house and welcome the bidding war. Now you actually have to show the place, likely several times. As much as most feel commissions are too high, it’s situations like this where it’s a lot less hassle to go through an agent. Buyers can just submit a list and let the agent schedule all the showings.

With ComFree the buyer has to do the legwork themselves and deal with the seller directly… which speaking from personal experience, is something of a pain in the ass. I know when I was looking at places last summer, I tried to look at a few ComFree listings and it was a nightmare or phone tag, last minutes cancellations… and these were the ones nice enough to actually return my calls.

And often from the buyers perspective the prices really aren’t any better then the MLS listings, it’s just the seller is pocketing the difference rather then paying a commission.

Obviously there is no need for a toe-tag with ComFrees name on it, largely because they have very low fixed costs. They make their money by getting people to list, not on the sale itself (though, more sales would certainly help them get more listings via word of mouth). Their only real cost is marketing, and can likely rest on their laurels for awhile if need be. So they’re probably doing just fine.

The real issue with FSBO at this time is for the seller. Services like this would be quite effective in a hot market… but in cool to balanced ones, it’s a tough row to hoe. I don’t want this to sound like an advertisement for realtors either, but I think I’ve gotten in my fair share of licks on them already, and pride myself as little if not an equal opportunity detractor.

17 comments

Wednesday, May 6, 2009

Price Ranges

Filed Under: Sales

We’ve been hearing from the real estate boards and their minions in the media about how sales in the 300-400K range have been strong for the last couple months… so I figured I’d see what I could gather from the stat packs.

In their quarterly reports they include sales by price range, and that’s about all I could really find, but it’ll do. Then had to figure out how to present it, that was a bit of a puzzler, but I ended up settling on one that I think works.

So without further ado, here it is.

Edmonton Proportion of Sales by Price Range

These are for the month of March each year going back to 2002. If you take a minute to soak it in there are actually quite a few interesting observations that can be made. I’m sure I haven’t found them all either, so feel free to offer up your own in the comment section.

Since I was already keying on the 300-400K range to begin with, the first thing that struck me was that sales in that range are actually contracting significantly as compared to last year, as are the ranges above.

Now, this shouldn’t be surprising, because as we’ve been seeing, prices are down year-over-year… but with all the bravado about sales in the 300-400K range I was expecting that it would at least hold while the ranges above them dropped. Instead we can see it itself dropped from 37% to 31%.

It’s actually been the sub-300K ranges that make up the majority of sales, and are gaining steam as increasing numbers of listings are falling into their ranks. 200-300K now being the most prominent price range.

Looking at it over the long term, it’s interesting to see how the 300K+ ranges made up all of 2% of sales in 2002, and just six years later it made up 63% of sales… but it’s now contracted to 48% in the last year.

It’s kind of also interesting to see the somewhat natural growth of prices progress through 2005, when suddenly the larger ranges start to explode.

Some may be wondering how if prices had been dropping since 2007, like we’ve been talking about, how is it that prices apparently kept growing through 2008 when they should have been dropping?

There is a couple reasons for this, the major one being that as of March 2007 the prices were still yet to peak, and as the month-over-month gains were quite substantial at the time, there was still a ways to go. So, while prices had been dropping from the peak, their year-over-year comparison come March 2008 was still largely up year-over-year (interestingly SFH’s were down slightly, but condos and the residential average were up a fair bit.

I’ll try to remember to do this again when the next quarterly report comes out (they include YTD and that months stats, but not the months in between or the actual quarters for whatever reason), and compare the June’s, as June 07 was right around the peak.

It’ll be interesting to track this over time. I should do one comparing the progression from quarter to quarter, unfortunately I don’t have enough complete data to do that just yet. In any case, there is lots of observations that can be made from that graph, so when you find one I missed, please, add your two cents.

14 comments

Monday, April 13, 2009

Seasonality

Filed Under: Historical Prices, Inventory, Sales

Hope you all enjoyed your long weekend. If it was anything like mine, it was likely full of sun and way too much refined sugar.

If you’ve been reading the releases coming from the various real estate associations, you may have noticed they are now talking up the month-over-month sales and price figures more so then they have in the past.

Traditionally they usually focused on year-over-year figures… but as those are coming in as declines as of late, they are referencing those less and less. Something of a marketing move, as they’re in the business of stimulating sales, and hearing about prices and sales going down doesn’t make their message very receptive to buyers or sellers.

As a result of this, it’s also increasingly being pointed out that month-over-month gains are actually normal in the spring, as real estate for whatever reason has a lot of seasonality. So today I’m going to take a quick look at the traditional seasonal movements of prices, sales and inventory.

The 100 value is the relative value in January… and from there it behaves like percentages. So 110 = 110%… so if the price was 200,000 in January, that value would be equal to 100… so 110 would be 110% of the January price, so 220,00.

Here we see how prices typically move through the year. The blue line is the historical trend, and as you can see it usually shoots up about 7% in the first half of the year before leveling off, then drops off a couple points in the summer, and ends the year up about 5%.

We can also see that over the last year we’ve severely deviated from the norm. In 2008 it tracked normally through March, then fell off slightly through spring and then really dove throughout the second half… and 2009 thus far has been an extension of that.

Here’s a look at how prices behaved during the boom relative to historical norms. In this case normal seasonality barely registers as a speed bump, and while the boom was on through mid 2007, normal seasonality was no predictor what-so-ever. Which has also been true thus far in the bust.

Basically, seasonality is no indicator of prices during a bubble. That said, it is noticable that during the downturn, spring still does appear to be the strongest period, and falls off from there. Which seems to indicate the second half of 2009 could witness a very big decline.

Here we look at sales. Similar pattern, but in much larger proportions. Sales continually improve through May (typically more then doubling the January tallies), then going back down the rest of the year.

In 2008 we can see that it tracked a closer pattern in sales then prices. This also holds true though the boom, so while the scales may change, the general seasonal pattern remains.

It’s also notable that 2009 appears to be gaining very strongly, but this may be more of a result of an overly poor January. Again though, it is tracking quite closely to the historical seasonality.

Finally we’ll take a quick look at inventory levels. Again we’re seeing levels track fairly normal curves, 2008 went a bit higher, and 2009 is shaping up to be lower.

On the other hand, during the the boom, and the onset of the bust it looked quite different. In 2006 inventory actually tracked the opposite pattern, and declined through to the summer. This obviously caused a inbalance of supply and demand, and really fed the skyrocketing of prices.

Then in 2007 it was a very different story when inventory tracked normally, then picked up, then did some skyrocketing of its own. Which then caused a glut of inventory, and halted then reversed prices. Obviously a very volatile period there in 2006 and 2007.

So, as we can see, we should not be surprised by sales increasing in the spring, and the real estate boards out there should enjoy trumpting month-over-month gains while they can, cause come summer they’re going to have to find something else as both month-over-month and year-over-year figures will be poor.

As for some April predictions, I’ve been working on some different models but they’re hardly perfect… but I’m a glutton for punishment, so lets throw out some numbers and see how I do.

As mentioned before during a bubble prices are kind of anyones guess, but I imagine they’ll hold their prices in April. Active Inventory I’m going to say will end April around 7,900. Sales I’m going to peg at about 1,700 for April.

Though that could be a ways off, on one of the local agent blogs they are citing the EREB claiming 574 sales already this month, which by my calculations would put us on pace for almost 1,800 on the month (there were 1,830 last April)… though in the paragraph prior they talk about how much things have slowed sales wise and gave quite a low tally for the week.

So, in conclusion… who knows?! Time will tell.

13 comments

Monday, February 23, 2009

Forecasts ’09 – Part 3 – CHMC

Filed Under: Forecasts, Rental Market, Sales

The CMHC pumped out their latest forecast this past week. Cutting through the b.s. and bravado, here’s the pertinent Edmonton prognostications, tabular form for your viewing pleasure.

        2008        2009    Projected     2010       Actual     Forecast    +/- %     Forecast------------------------------------------------------Price     $332,852    $315,000    -5.4%    $325,000------------------------------------------------------Sales       17,369      16,000    -7.9%      17,000------------------------------------------------------Vacancy       2.4%        3.5%    +0.9%------------------------------------------------------Avg Rent    $1,034      $1,070    +3.5%------------------------------------------------------

A little rosy in my not so humble opinion, as prices already are in that $315,000 territory, and February doesn’t appear to be shaping up to be delivering any increases. The numbers are conceivable I suppose, though I’d be completely stunned to see rents go up, especially when they’re even acknowledging the increased vacancy rate. We’ve already been seeing 10-20% cuts as well as ‘free months’ and other promotions from the big players in the rental game.

The Edmonton Journal pumped this so-called recovery, front page of the Friday ‘Business’ section no less. Though I suppose one shouldn’t be surprised considering the Homes and New Condos sections posing as legitimate, when they’re really just de-facto paid advertisements. Seems all to many of these so called experts are merely those with a vested interest in selling real estate. Sadly we’ve seen this increasingly across all fronts and media though, legitimate journalism has increasingly taken a back seat to the advertisers

Anyway, for some context here is a look at CMHC’s forecast issued this time last year, against how it actually played out.

        2007        2008        2008       Actual     Forecast     Actual   Difference------------------------------------------------------Price     $338,636    $355,000    $332,582    -6.7%------------------------------------------------------Sales       20,427      19,250      17,369   -10.8%------------------------------------------------------Vacancy       1.5%        2.0%        2.4%    -0.4%------------------------------------------------------Avg Rent      $958      $1,050      $1,034    -1.4%------------------------------------------------------

They did pretty well on the rental front, but were off in a big way on the resale market. Seems they’re suffering from the same fallacy as most others in the sector and believing that the run up was the result of an efficient market and not just a bubble caused by easy credit and over-consumption.

I guess we’ll find out in the next 24 months.

No comments yet

Wednesday, February 11, 2009

Lies, Damn Lies, and Statistics

Filed Under: Inventory, Sales

When I first started looking at the litany of stats released every month by the various outlets, it was kind of overwhelming. There are dozens of different measures, examining things from just as many angles. Even with my background in accounting and statistics, it was kind of wild.

But as I’ve worked with the numbers, and seen how they interact, I’ve found an increasingly select few stats that are actually relevant… and conversely, a growing list that are not worth the paper they’re printed on. So today I figured I’d take a quick look at the more commonly reported stats, and offer my takes on which are the wheat, and which are the chaff.

I of course reserve the right to later change my mind and completely contradict this post, when or if it becomes convenient.

Good Stats

Median Price – This I find to be the most accurate reflection of what the “average home” is worth. I don’t want to bore you with the mathematics of it, but if you follow this link you can read up on just how medians are found, if you don’t already know.

Sales – A very straight forward measure, and tells you just how many units are sold.

Active Inventory/Listings – Another straight forward measure. As its name suggests, it tells you how many properties are listed at any given time. Not always widely reported here in Edmonton, but it can always be found in the Quarterly Stats packages on the EREB site.

Between those three stats alone you can get a very good overall picture of what is going on in the real estate market.

Occasionally Interesting Stats

Average Prices – Probably the most widely reported stats, unfortunately I don’t think it’s as good a measure as median prices. I feel this way because it can be skewed a bit. For example, if in February there are 999 homes sold for $300,000 each, and one sold for $5,000,000, we end up with an average price of 304,700. So while the number might not be way off, you can see the potential for a couple high end sales to really throw off the number, especially since sales in that category can be somewhat sporadic. That’s why I prefer the median figure because I think it gives a more accurate idea of what the “average home” is worth, rather then the “average of all homes.” Though because, at least here in Edmonton, they only give average prices for condos and townhouses and not the medians, it is unfortunately the only figure available, thus it is a necessary evil to discuss them.

Days on the Market – I was tempted to put this one in the “Completely Useless” pile, but I decided not to. My problem with this stat is the way re-listings restart their clocks once they expire, which obviously will skew the data, especially in times like now when we have large inventories and a lot of expiring listings. Though, while their figures are muted, they do seem to give an idea of the general health of a market.

Completely Useless Stats

New Listings – We hear a lot about this number, and some people just love it, using it in all kinds of ratios and such… but I think it’s as useless as tits on a bull. Because of the way re-listings are included, it’s a totally bogus stat. If you want an idea of how inventory is tracking, just keep an eye on active listings and sales, that’ll give you a much better idea of what’s out there.

In conclusion, in my not so humble opinion, if you keep your eye on median price, sales and active inventory over time, you should have a pretty good idea of what is going on in the market. Most of the rest of the numbers are just static, but if you want to know how the condo and townhouse prices are doing, those average prices can be used as something of a jumping off point.

6 comments

Thursday, February 5, 2009

Where do they go?

Filed Under: Inventory, Sales

Those that follow the stats released by their local real estate boards may have noticed that their inventories don’t seem to add up.

For example, at the end of December in Edmonton there were 6,316 units in inventory. Then in January there were 2,443 new listings, and 730 sales. Doing the quick math, 6,316 + 2,443 – 730 = 8,029, one would expect they’d have 8,029 units in inventory at the end of the month… but they only had 6,573.

So where did those 1,456 units go? Well, simple answer is they most likely expired, or were otherwise cancelled or withdrawn. When people sign on with a realtor to list their place, it can be for any term, many are for three or six months, but some can be for years. If that time passes without the property being sold, the listing expires and it’s up to the prospective sellers whether they want to re-list or not.

And getting back to the January totals, the truth is that in all likelihood there weren’t even 8,029 properties involved. As many would be counted twice in that figure if they expired and re-listed in the same month.

While the exact numbers aren’t included in the EREB stat packs, they are not hard to calculate since we have all the other relevant information. On another site ran by a local realtor they include such figures in their weekly updates. As you can see from charting out their figures there is always a big flood of expired listings at the end of every month.

So obviously most people sign on to list until the last day, or last business day of any given month. We can also see that come calendar year end there is an even bigger spike, probably just cause its a more significant date. While the spikes during the spring are a bit lower… probably a combination of the increased sales as well as people wanting to make sure they’re listed through the traditionally hotter sales season.

While that graph nicely shows the monthly cycle, it doesn’t really do anything to show a historical context of our current position. For that I’ll graph out the monthly totals for the last eight years.

If you’ve been following this blog, you may have noticed that the pattern followed by the Expired/Cancelled Listings is actually quite similar to that of inventory over this period. Which shouldn’t be surprising though, since obviously with increased inventory, you’re going to have more listings expiring, or corresponding decreases.

As you can see, during the boom sales rose and very few listings expired. Then as soon the market cooled, the number of expired listings quickly escalated, and much like inventory, reached record levels. Now the troughs remain at levels that the peaks didn’t even reach while the market was balanced. We now average over twice as many listings reaching their expirations as we traditionally did.

Another somewhat related stat is that of Days on Market, which is a measure of the average days a listing stays on the market before selling. I’ve charted that out here.

A correlation between D.O.M. and Expired Listing appears quite positive. Not surprising, during the boom D.O.M. were at record lows. A couple months in the first half of ’06 they reached their absolute low of 19. Now it has rebounded and is setting records at the opposite end of the spectrum, hitting 68 just last month.

Trouble is that with the number of expired listings being as high as they are, they may be further skewing the D.O.M. stat. Many units that expire get immediately re-listed, new MLS numbers and the clock starts over, so when/if they finally do sell the number is much lower then it actually should be. Thus the average D.O.M. may actually be significantly higher then they already are.

In any case, we can see from the elevated numbers of expired listings that there are still a whole lot more people looking to sell then are listed in active inventory. Whether they immediately re-list, or hold off for a few months, they’re out there and we’re a long way from supply and demand coming into balance.

3 comments

Wednesday, January 14, 2009

Topic du jour: Absorption Rate

Filed Under: Inventory, Sales

Assuming you read the title, you probably have already figured out I’ll be taking a look at Edmonton’s absorption rate in today’s entry… well done, go get yourself a hero cookie!

Many of you probably already know what absorption rate is, but for those who don’t, it’s basically just a measure of inventory turnover. Take the active listings at the end of a given month, divide that by the number of sales in said month, and voila, you have the absorption rate. So, in a nutshell it’s the number of months it would take to completely turnover the existing inventory at present sales levels.

There is no one definition of just what absorption rate constitutes a buyers market, sellers market or a balanced market, but for the sake of this post we’ll go with the CREB‘s take on it, since Calgary is pretty close to Edmonton when it comes to proximity, size, and government. They consider a sellers market to be 0-2.0, a balanced market to be 2.0-3.5 and a buyers markers to be 3.5 and beyond. Now, onto the show (as always, you can click on the image to get a look at a larger one)…

That was a look at the absorption rate in Edmonton over the last eight years. For the first five years it was fairly well balanced, sustained moderate fluctuations within a point into buyers or sellers territory, but generally stayed in the balanced range…

Then came 2006, and all hell broke loose. A major sellers market was established as the rate dipped well below 1.0 at a point and remained below 2.0 for over a year… then took off in the opposite record, blowing away all prior records and leaving us in this extreme buyers market where even relatively large dips in the rate still leave it well in excess of the prior record highs.

Now lets take a look at how this interacted with price, again we’ll use the median price for a single family home in Edmonton as our measure of choice…

As you can see, up until ’06 prices experienced a gradual upward trend as the absorption rate hovered around a balanced market, but as soon as we saw a deep and prolonged sellers market develop prices rocketed.

Trouble there being that attracted a lot of speculation and monumental construction as everyone tried to get their piece of the windfalls… and resulting from that the market ended up flooded when more and more people started getting priced out, sales started dropping but listings kept coming. The artificial demand caused not only prices to increase at an unsustainable level, but has also left the city significantly overbuilt… all of which adds up to an extreme buyers market.

Now a year and a half later we’re left with record levels of inventory, slumping sales and as a result, and incredibly high absorption rate. So basically now all that’s left is for price to drop, as that’s the only thing that is going to be able to start clearing out all the inventory. Until we reach something remotely resembling a balanced market we’re not going to see any increase in prices that add up to anything more then an aberration.

3 comments

Tuesday, January 13, 2009

Interplay

Filed Under: Inventory, Sales

Today we will take a look at the relationship between inventory, listings, sales and price. I took the Edmonton stats for residential new listings, active inventory, monthly sales and monthly SFH median price and plotted them out. I’m using the median price because I think it’s the best measure of what the “average” home went for in any given month.

You’ll definitely need to click on this one to get a better look.

There are several interesting observations one can make from this chart actually. First I guess we’ll start with ‘New Listings’ and ‘Sales’. You can definitely see the seasonality of those two, seemingly bouncing every December/January topping out each spring then doing it all again (though, contrary to popular belief, prices don’t appear nearly as susceptible to such seasonality).

The lows seem fairly constant over time, but the highs seemed to pick up a bit for ’03-’05 and increasing inventory. Then sales spiked to record levels in ’06, new listings were fractionally lower and active inventory was quickly eroded… that combination triggering the skyrocketing of prices.

In ’07 suddenly we saw a massive increase in new listings, which when sales increased relatively kept prices rising… but that seemed to be when the market hit it’s breaking point price wise, suddenly sales plummeted but the listings kept coming and as a result the market was quickly flooded with record amounts of inventory (IMO resulting largely from speculation/overbuilding during the “boom”).

Since then prices have slowly been falling, and sales have returned to more traditional levels. But there is now a massive glut of inventory, which even during the seasonal troughs, have remained way above anything ever experienced pre-2007.

Judging from how 2008 played out, I suspect we’ll see another big spike of new listings/re-listings. Sales will quite likely drop off to lower levels then last year, thus already high inventory levels will just keep rising and prices will continue to drop… when foreclosures start becoming more common, further driving down “market price” and sooner or later the reality finally sets in for sellers that their homes aren’t worth nearly what they think they are. We could see some very significant drops in prices as sellers start trying to beat the bottom.

The supply and demand market forces themselves would have been enough to cause eroding of prices, but that combined with the global recession/credit crunch, and it’s seemingly a recipe for pain.

1 comment