Recent Market Report
Last summer oil production reached levels that far exceeded the consumption demand globally. Typically the supply management was left to OPEC to cut production levels to maintain price levels. That didn’t happen this time and global prices plummeted as reservoirs filled to the limit.
In Alberta, our economy is highly dependent on the price of oil with our labour market and subsequently our housing market are tied to this. What is interesting to note is how resilient we are to the swings in the oil commodity market. We don’t panic because we’ve been here before and we know what goes up eventually comes down. What we see in the housing market is a significant delay between last summer when oil prices fell to now, 15 months later, when home prices are moving downwards. Prices only fall in the housing market when we cross into a Buyer’s Market. We’d like to draw a firm line as to when this occurs but there are many variables, some we understand and others we have yet to grasp. Conventional wisdom says when Active Listings increase to 3.5 times Sales we have the makings of a Buyer’s Market. Other variables including context, trend, and seasonal consistencies grey this threshold.
Looking at the graph below, blue columns represent Sales, orange columns, Active Listings, and the red line is the differential between the two. What we see right now at the end of October is that we’re nearing a 5 to 1 ratio Active Listings to Sales. You can see the seasonal rhythms each year with sales increasing from January usually to May, and then declining through the summer with an early fall rally Sep or Oct. The differential line also spikes in December when Sales and Active Listings (Inventory) are at their lowest. This year we are seeing quite significant increases in the differential, from Jan right through to Oct. We were in the numerical zone of a Buyer’s Market for the first quarter of this year but did not see responsive changes in prices, people opting to remove their properties from the market, choosing to wait or rent instead of selling at reduced prices. The equation balanced through the 2nd quarter and we moved below the 3.5 threshold likely providing a sense of vindication for sellers who thought they were right to hold their line. Now in the final quarter of 2015, we’re seeing strong indicators of downward pressure on prices for home owners who need to sell. This puts us undeniably into the Buyer’s Market and we would forecast these conditions to stay this way for the next few months. Interest rates are historically at all-time lows and if you’re planning on purchasing a home, the next few months will be worth watching for some super deals.
Previous Red Deer Market Reports: