Richmond Condo News

Can one time the real estate market, and make money by following the monthly supply/demand for homes?

Real estate follows the basic economic principle that home prices are affected by market supply and demand. As can be seen from pricing trend and data here, home prices are inversly related to the changes in the supply/demand or list/sale ratios.

Following the pricing indicator

It is generally accepted that a ratio of 6 is neutral, or the market is considered to be in balance. There is no pricing pressure for home prices to move up or down. When supply exceeds demand, the supply/demand ratio rises above 6, resulting in home prices falling. The reverse happens when the ratio falls below 6, signifying stronger demand than supply, resulting in home prices going up.

Supply/demand ratio for Richmond

Home sales activities in Richmond contribute to the overall Greater Vancouver pricing trend as shown above. The list/sale ratio below showed a clear trend as whether home prices will move up or down.

You can see from the data that the supply/demand ratio tipped over in June and July of 2008. That's when home prices falled, and reached the bottom around Jan/2009 when the list/sale ratio was at it's highest at 17.33 months of inventory. The ratio falled quickly the subsequent months, and crossed the 6 month supply ratio by April, 2009. At this point, home prices turned and gained in values due to stronger demand.

The ratio tightened further to below 3 from June, 2009 and remained around the 2,5 months ratio until today. The 15% or so drop in home prices since May, 2008 to the bottom around February 2009, recovered just as quickly by November 2009.

Future market activities and pricing trend

The above is a simple housing price indicator to follow. There are many factors influecing the supply and demand for homes. There are many economists who are sounding the alarms that home prices in Greater Vacnouver are over-valued. If you are wondering whther it is time to buy or sell, you may want to follow the supply/demand ratio to guide you with your investment decision. You can be a month or 2 ahead of the crowd by taking action before the ratio turns above or below 6.

Click the link to view Vancouver and Richmond homes currently listed for sale. 

Outlook for Greater Vancouver's real estate market for 2010 and beyond

Below is a quote by James Schouw, James Schouw & Associates, Published on January 02, 2010 in The Vancouver Sun:

"Greater Vancouver's real estate market will continue to be driven by the growing number of people that simply need homes. Speculation, the catalyst of a 'bubble', is largely absent from the market due to lingering fear from the lessons of 2008. A bubble will only materialize if overconfident developers and speculators manage to oversupply demand".

Read the full article here>.

A review on current home prices and the market fundamentals are telling us that home prices at current levels are economically unsustainable.

Housing market dynamics

The supply and demand for resale and new homes are driven by market confidence. Home prices rebound due to ultra-low interest rates, and limited supply of homes. A case in point for Richmond, B.C, showed that in November 2008, there were 2,495 homes listed as compared to just 1,275 homes listed for sale in November 2009. The supply of homes was down by half!

The market dynamics may change again when market confidence is affected by external events beyond the control of the market players. A repeat of the housing correction that happened in late 2007 may happen again when there is a loss in market confidence. When signs of a market turning south are apparent, more sellers will want to sell, accelerating the price decline.

Cheaper to rent than to own

Buyers can opt to rent than to buy when they find home ownership is not affordable. A jump in mortgage interest rates will swing buyers decision, and will result in many of them staying on the sideline. Home prices are too high at current levels, as renting make more sense to many prospective home buyers.

You can view Vancouver and Richmond homes currently listed for sale.