Interplay

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.