JOSH BUCHANAN

May 16, 2017

To follow up on the previous post, in case there was any confusion or unclear explanations: the current sales-to-listing ratio for the year-to-date up until the end of April in Saskatoon is 0.34. A ratio of 0.34 is considered very low and very much a ratio that signals the flow of supply and demand are imbalanced in the form that supply is far outpacing demand. As well, this means that the existing number of homes for sale known as “inventory” will continue to rise because of that imbalanced flow of supply and demand.

The point trying to be made was that 0.34 is a very imbalanced ratio which will continue to create poor market conditions in the city. However, the ratio at the same time last year was exactly the same which means the market is not worsening when analyzed using that method. This does not mean the market is improving, it means it staying consistently bad. It would be like saying your child used to get grades in the 90s in school then they dropped to 50s. Last year they were getting 50s in their classes and they are getting the same result this year. They are not doing well, but they aren’t getting any worse compared to last year and if they continue to gets 50s, the health of their academic career will suffer. This is what’s going on in the local residential market as seen through the lens of a sales-to-listings ratio analysis.

The fact that the ratio is just 0.34 means that there are far more houses being listed than there are being sold which is why the current inventory level is at an all-time high and it is continuing to grow. When we look at the other method of measuring supply and demand, it paints a different picture because it is not measuring the ratio of supply and demand that has been flowing onto the market this year but rather the number of recent sales compared to the average level of inventory.

Because sales numbers are dropping from previous years while inventory levels are rising, it means that the percentage of people trying to sell their home each month who actually make a sale is getting lower and lower. When you analyze the market using this method, it’s clear that the market is getting worse because we have more units for sale and fewer units being sold which ultimately means the average seller has a lower chance of selling their home than they did at the same time last year and a far lower chance of selling than they did in more balanced years before that.

If you consider that just 317 units were sold in the month of April and the average level of inventory was around 2,050 units, it means that roughly 15%, or less than 1 in 6 of the people who were actively trying to sell their home in April were actually able to sell it.

If you can remember from post #86, typically, April-July are statistically the best months to sell your home relative to other months in the year because the highest percentage of homes for sale actually sell in those months which means your odds of selling are the best.

While we may be right in the middle of the optimal sales season, the odds of selling are still very low when comparing to this time in previous years. Yes, this April-July should create better odds of selling than January-March of this year, but compared to April-July of previous years, it will likely be the worst one we’ve witnessed since the 1980s or earlier.

This may come as discouraging news to some people, especially those who are currently trying to sell their homes, but there is an important sidenote to this. Not all homes are equal in terms of supply and demand balance right now. Units such as luxury houses above $800K or apartment-style condos in any price range are far more over-supplied than single-detached houses under the $500K price point.

Generally speaking, the odds of selling in April were just 15% but for homesellers in the oversupplied categories, those odds would have been significantly lower and for homesellers in the more balanced categories, the odds would have been much higher.

When looking more specifically at home categories, the single-detached houses under 500K are still doing fine and if priced correctly, it’s not unusual for them to sell within a month. On the other hand, the luxury homes above $800K and many categories of apartment-style condos are in much worse shape. For some of these units that are overpriced, lacking a broad enough target market, show poorly or just generally are unable to convince buyers to see their value, some of these units are far beyond the timeframe of months on the market and are now well into number of years on the market as I’ve illustrated in previous posts.

Conclusion:

While the movement of supply and demand in Saskatoon remains very imbalanced this year, it’s leading to an even greater buildup of inventory compared to previous years which is making it more difficult for sellers to find a buyer. Their odds of making a sale are far worse this year than previous years due to the fact that there are far more homes on the market and far less sales. These poor market conditions are going to be felt especially by those sellers who are trying to close a deal on units that are highly oversupplied. This struggle shows no sign of stopping anytime soon and sellers will not be able to sell within reasonable times, on average, until the sales-to-listings ratio climbs well above 0.50 and the months-of-inventory ratio drop down well below 6 months.

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The views represented are solely those of Josh Buchanan and are independent from any professional organization.