Is real estate price going up or going down? It is one of the most frequently asked questions I hear.
The Real Estate Board of Greater Vancouver (REBGV) releases a statistic package every month with information like this:
Residential property sales in Metro Vancouver in February 2015 increased 21% as compared to the same month last year while the total number of listing decreased 11% as compared to same month last year.
The sales-to-active-listing ratio in February was 25.7% which is the highest it has been in Greater Vancouver since March 2011.
What is the sales-to-active-listings ratio and how is it related to real estate price?
The sales-to-active-listings ratio is used to as an indicator of supply and demand because it is simple to calculate and understand. The housing price is determined by supply and demand. When the supply of homes for sale (active listings) and the demand from potential homebuyers is in equilibrium, we have a balanced housing market.
Seller’s market is when price appreciation above inflation is likely.
Buyer’s market is when price appreciation will be less than expected inflation.
Some say it is a balanced market when the sales-to-active-listings ratio is between 15% and 20-25%. A Vancouver local real estate veteran told me he has his own numbers of 12-22% as an observation after 30 plus years in the industry.
The real estate markets have some common drivers such as interest rates which are determined by inflation and economic growth. However, the real estate is very local. Drivers like demographics, income trends, population densities, net migration and share of first-time homebuyers have significant variation within a province or even neighborhoods within a city and it can lead to very different dynamics.
As a result, the BC Real Estate Association has performed a regression analysis to uncover the ratios for a balanced market in different real estate board regions in BC. In the analysis, it assumed balanced markets are markets in which home prices grow in line with inflation.
The REBGV reported the sales-to-active-listings ratio is 25.7% in Greater Vancouver in February. This means that for every 100 available homes on the market, 25.7 homes are sold every month and it is a seller’s market.
Let’s look at the sales-to-active-listings ratio for your city, your property type. Is it above or below the Greater Vancouver average of 25.7%? Is it a Seller’s, a Balanced or a Buyer’s Market? How is the market doing compared to last month’s ratio? Is the price going up or staying flat?