JOSH BUCHANAN

August 4, 2018

Around this time last year, I wrote post #114 which explained my ideas on how to determine if the market has bottomed out or not. Of course, there is no universally accepted way of determining this and it’s pretty subjective, however, because the market seems to be improving in some regards, I thought I’d apply current stats to the criteria I listed in that post to see if we’ve officially bottomed out under those measures.

Here’s the list I made last year:

The sales-to-listings ratio trends upward for 3-6 months compared to the same months for the previous year meaning the flow of supply and demand trend back to a balanced state The months-of-inventory ratio trends downward for 3-6 months compared to the same months for the previous year meaning the current amount of sales as a portion of the current amount of inventory trends back to a balanced state Civic unemployment rate trends downward for 3-6 months compared to the same months for the previous year meaning the number of people working trends upward which should increase home purchases and reduce mortgage defaults Rental vacancy rates trend downward for 3-6 months compared to the same months for the previous year meaning the excess supply of rentals started to be absorbed and reduces downward pressure on rental rates

I’d also like to add the other two ratios that I use for market analysis; the rate-of-sale ratio and the percentage-of-sale ratio which I just analyzed in my previous post, post #161.

1. Here’s a look at the monthly sales-to-listings ratios for the year so far compared to last year:

Analysis: The overall average has improved slightly year-over-year and more months have an increased ratio than a decreased one. However, because 2 of the past 3 months have seen declines, there is much inconsistency and volatility and because the overall average improvement isn’t that significant, I can’t safely say that we have bottomed out yet in terms of the sales-to-listings ratio. At the end of the year, 2017 may prove to be the year with the lowest sales-to-listings ratio but after 7 months into the year, I don’t think we’re quite ready to make that conclusion.

2. Here’s a look at the monthly months-of-inventory ratios for the year so far compared to last year:

Analysis: Although the year-to-date average has improved slightly, I still don’t believe it’s safe to say we have bottomed out using this measure simply because 4 of the last 7 and 2 of the last 3 months were worse than last year and the cumulative average improvement isn’t significant.

Here’s a look at the percentage-of-sale ratios for the year so far compared to last year:

Analysis: Once again, the average for this year is a slight improvement compared to last year, however, this is mostly due to the month of July being so strong. If August numbers are weak, all of these ratios could fall back below last year’s averages. Because more months are worse than last year and 2 out of 3 of the last months are worse, I also don’t think it’s safe to say we’ve bottomed out when using this method of analysis.

Here’s a look at the rate-of-sale ratios for the year so far compared to last year:

Analysis: Thanks once again to July, the year now has a slightly better average than 2017 using this ratio but it’s only a 1-day improvement. The majority of months this year have performed worse than last year and 2 of the past 3 months have performed worse. Therefore, once again, I don’t believe it’s safe to say that we have bottomed out here.

3. Here’s a look at the monthly unemployment rates for the city compared to last year although July numbers have not yet been posted:

Analysis: Based on these statistics, it’s pretty safe to say that we have bottomed out in terms of unemployment rates in the city. This is a positive sign though doesn’t necessarily impact the price of housing, it’s just a good economic indicator in general. The one concern I have with these numbers is that they are just numbers and certainly don’t tell the whole story. We may have had a lot of people lose good, full-time, high-paying jobs with great benefits that fit their skill set and credentials and then get a new job after being unemployed which pays less, is part-time, has minimal benefits and they are overqualified for. In reality, this is not at all an improvement on their previous job but on paper, it will look like things getting back to what they were in previous years.

4. Because no one actually tracks and publishes the city’s rental vacancy rate on a monthly basis, I can’t really comment on this other than CMHC reporting an improvement for October 2017 compared to the report in October 2016. I imagine we have bottomed out in this category but can’t state with certainty or base it on any legitimate statistics.

Conclusion:

Even if this does end up being the year that we bottom out once we look back at it from 2019, bottoming out does not at all mean that prices will start to rise, especially because the ratios are still weak. Even if the ratios improve, as long as they are still imbalanced, prices will continue to drop.

In order to reasonably expect prices to start rising again, all of these ratios must not only return to a balanced level but also move into a “seller’s market” territory. Just because they may be improving does not yet mean they are healthy or enough to change the direction of price behaviour.

I think it’s also important to be aware of other events that can suddenly and significantly impact our market such as interest rate increases and large layoffs like we’ve seen in the past couple of weeks.

In summary, I don’t think we can confidently say that we’ve bottomed out yet, however, we could at least say that things don’t appear to be getting worse. It looks as though 2017 may be the year where all the ratios bottomed out but we won’t know for sure until the end of 2018, especially with all the volatility we’ve seen with monthly statistics so far this year.

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Data sources:

Government of Saskatchewan Unemployment Reports: http://www.publications.gov.sk.ca/details.cfm?p=86645

SRAR stats: https://www.saskatoonrealtors.ca/web/SRAR/Market_Updates/Market_Watch/SRAR/Market_News_and_updates/Market%20Update/market_watch.aspx?hkey=4797e58e-e187-4a32-a4c7-d327ea9931cc

Josh Buchanan isn’t employed by anyone, is not compensated in any form for this blog and does not benefit in any way from your real estate decisions.