Lower Prices

Regarding the Calgary Herald Article Entry-level buyers now driving Calgary's home sales

The report said that in Calgary improved affordability levels are bringing first-time buyers into the residential real estate market. Close to 60 per cent of year-to-date sales have taken place in the under $400,000 price point - a 20 per cent increase over last year.

My first impression is that a higher percentage of lower priced homes are selling because prices have fallen. At the risk of being painfully obvious I am going to go over an example. Suppose three homes sold in February 2008 at $300/sqft.

1. 1000sqft $300,000
2. 1500sqft $450,000
3. 2000sqft $600,000

In February 2009 three identical homes sold at $250/sqft

1. 1000sqft $250,000
2. 1500sqft $375,000
3. 2000sqft $500,000

In 2008 only one house sold for under $400,000 while in 2009 there were two simply because prices have fallen.

In addition I would like to add some context and insight to a related comment from Bob Truman's What's New page

Mar 5
SFH sales are down 29% over the past 30 days, but for homes priced at $400,000 or less, sales are actually 11% higher than they were last year. With an absorption rate of 3.1, homes in this price range are no longer considered to be a buyer's market but have now moved into balanced market conditions.

The sales price/list price ratio is about 95% so on average a home that sells for $400,000 would most likely be listed around $420,000. Homes listed in the $400,000-$420,000 are not included in the above absorption rate calculation. Also, I would assume the homes that actually sell are priced more competitively than those that do not. The above absorption rate does not include some of the homes that have a list price over $400,000 where the seller has an unrealistic expectation of the market. The problem with the above metric is it uses the listed price of inventory and the sales price of homes that have actually sold.

I do recognize that lower priced inventory sells more quickly, but I believe this has been true historically and does not reflect a new trend in the market.

**March 14th Update and Correction

I made an assumption that the sold price was used in the above calculation which is not the case. As Bob Truman points out:

The absorption rate is based only on list prices, just as it clearly states on the Table. If sales prices were used, the absorption rate would be lower.

The stat is more accurate than I had alluded to. You know what they say about assumptions. So in this case you can disregard my "context and insight"...
**

I will comment on the jobs report soon...