The Price is Not Right… (But Not by Much)
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.
Data: Bob Truman, First Place Realty – Old Criteria
Game Over for First Time Home Buyer?
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:
It illustrates that:
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For the first time home buyer market, single family home sales volumes have experienced significant deterioration
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Higher-end ($600,000+) single family home sales volumes have held steady
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.
