JOSH BUCHANAN

August 4, 2017

To follow up on my previous post, I thought I would go over the math to figure out the true average rate of sale for homes in Saskatoon based on recent sales numbers and inventory levels.

The month of June is typically the busiest month of the year in Saskatoon for real estate activity and as explained in post #86, June is the month where the highest percentage of homes available on the market actually sell. We will use this month as our first sample month even though it will give us stronger numbers than the typical month due to the high volume of sales. This sample will not account for seasonal fluctuations.

For June of this year, we had 394 sales and averaged around 2,225 units of inventory for sale in Saskatoon.

Now, using these numbers to determine the average rate of sale in Saskatoon, we simply multiply that month’s sales by 12 in order to get the number of sales in a hypothetical year at that rate.

394 x 12 = 4,728 sales

We then divide this number by the level of inventory in June to figure out how many times current inventory would have turned over in the past year.

4,728/2,225 = 2.13 times of full inventory turnover

This means that the level of inventory in June would have been sold off 2.13 times over the course of the year if the monthly sales numbers and inventory levels were to stay constant throughout the year.

Now we take 365 days and divide it by the inventory turnover ratio to determine how many days it would take each home to sell on average with that kind of turnover.

365/2.13 = 171 days

This means that using the month of June as a sample size, the average home in Saskatoon is taking 171 days to turnover.

For a second sample, we’ll use a larger time frame and analyze the first 6 months of 2017 which will give a bigger picture and allow for some seasonal fluctuations to be considered. Up until the end of June, Saskatoon produced 1,866 sales and averaged roughly 1,907 units of inventory available for sale. To calculate the average rate of sale using these numbers, we just have to multiply the number of sales by 2 in order to get 12 month’s worth of sales at that rate, divide it by the average number of inventory and then divide 365 days by that ratio.

(1,866)2/1,907 = 1.96

365/1.96 = 186 days

This means that, for the first 6 months of 2017, the average rate of sale was 186 days.

For sake of comparison, if we look at the first 6 months of 2014 back when the market was balanced, there were 2,387 sales with an average inventory of 1,350 units. Using the same formula as above, this means that the average home was selling in 103 days based on the rate of sale.

(2,387)2/1,350 =3.54

365/3.54 = 103 days

Conclusion:

When we analyze the current market situation and calculate the average rate of sale for a home in Saskatoon, it tells a much different story than just taking the average by simply using the most-recent-listing-only method that some people prefer to use. The mathematical analysis will tell us that the average home in Saskatoon is taking roughly 180 days whereas those parties who only look at most the most recent listings will claim it only takes 45 days.

This discrepancy may come as a surprise to many people, however, if you keep an eye on some of the active listings in Saskatoon and know how slow they are moving or you’ve read either post #18, post #50, post #63, post #64, or post #81 that expose how long homes have actually been sitting on the market, then this won’t come as any surprise to you. In addition, it wouldn’t make sense that prices would be falling if homes were selling on average in 45 days. The fact that it’s really taking them about 180 makes it much clearer as to why so many properties are reducing their asking prices and offering incentives.

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