Days on Market (DOM)

This post will explain why Days on Market (DOM) is not a great indicator of market trends. Bob Truman has mentioned this a few times on his widely viewed blog so I thought It would be worthwhile to dig a little deeper here.

From DailyStats.ca (what's new):

Jan 24
15% of the single family homes listed this month have already sold or conditionally sold. Average DOM was 11.

Jan 23
Homes are now starting to sell faster. Days on Market(DOM) last week was down to 48. It was as high as 62 during the last week of December.

By Jan 24 the days on market for properties listed and sold in the same month could not possible exceed 23. If they were all listed on Jan 1 and sold Jan 24 that would be 23 days on market. I would expect that this average would end up being half that as the listings and sales being distributed through the month. So average DOM of 11 is not very meaningful.

Without even looking at the stats I can say that all the homes listed in July that have sold in January have an average DOM of over 150.

Days on Market only includes properties that have SOLD. It does not include ones that remain on the market. If there is a a low level of sales and high inventory it is possible that the new listings are selling more often while the others sit.

Days on market can be reset by relisting on the MLS. Its no secret that this is occasionally done to make a listing appear fresh and increase the chance for a sale.

Also, consider the report from Comfree Edmonton.

Ave. Days on Market: 64

But looking at the unofficial stats from "leendart" posted on the bubble blog shows Active Average DOM on Dec - 29 to be 111. Also this number would be higher if data collection started earlier and becomes more accurate over time. See unofficial stats weekly and monthly.

It's a great time to generate a commission

In November 2006 the National Association of REALTORS (NAR) south of the borer launched the notorious "It's a great time to buy or sell a home" campaign. I was surprised the corpse of this effort was re-animated in Calgary.

Exhibit A:

Exhibit B:

New Real Estate Boss Takes out Crystal Ball

Q: What is going to happen this year?

A: That's the crystal ball. Employment is great, net migration is going to be down . . . but it still shows a great number which supports demand, interest rates (are good as is) the general economy of Alberta and the energy sector, inventory (of homes) is coming back down from a high standard. . . .

Using the basic principles of supply and demand, we're moving towards a balanced marketplace . . . 2008 is going to be a great year of opportunity for both sellers and buyers.

Q: Will 2008 be a buyer's or seller's market?

A: It's going to be a great market for sellers and buyers. In my opinion, a balanced market is a good market for both the sellers and the buyers.

Q: What is your advice to buyers in this market?

A: Buy as soon as possible. Buy now.

. . . From the buying perspective, there's no question in my mind that 2008 is going to be an excellent year and I believe that the prices will increase. So buy now while there's selection.

Q: What is your advice to sellers in this market?

A: Sell now. The reason for that is because we've got product.

If the high inventory is temporary and offers a great opportunity for buyers now, why wouldn't a seller wait for inventory to decrease and prices to increase like the CREB suggests? They do say that if you are selling then you have to buy so the selection is to your advantage. This fails to recognize the 30% of vacant listings or those that have already signed a contract to build that will not buy resale after they sell. The fact that buyers' "choice" makes it more difficult for a seller is not mentioned either. Anyway a similar message requires a similar response. Enjoy this spoof of the original NAR ad from patrick.net.

CBC Marketplace Video

Marketplace did a special about the pitfalls when buying a pre-construction condo. Bottom line: Developers and marketers optimize profits by being technically legal and morally bankrupt.

What you should know before you agree to buy a condo

Also, I added a new link in the blogroll:

Radley77's Calgary Real Estate Market Blog

Edmonton Comfree Stats - December

Where are they?

Update: Comfree stats posted Jan 16.

The 40-year mortgage

Longer amortization is becoming more popular in Canada. Here is what RBC had to say about longer term mortgages.

Longer amortization mortgage products are a large and growing share of monthly mortgage originations, particularly in the high ratio mortgage segment. This development has unfolded within the past year and a half as the market has gone from standard 25-year options towards 30-, 35- and 40-year mortgages.

With a 40-year mortgage the amount of equity built through payments is very low. With a $300,000 loan at 6.25% it works out to about $3,600 after 2 years. Probably less than property taxes an owner would have to pay. Also combined with a high ratio mortgage it takes YEARS to pay off the insurance using a 40-year mortgage. With $30,000 down the CMHC insurance is $7,800 for a 40-year and $6,000 for a 25-year.

Not building equity too quickly paying mortgage insurance for 4 years.

Edmonton Journal's Take

The Edmonton Journal gives The Edmonton Real Estate Board too much credit in the article: Declining supply firms up prices at year end

EDMONTON - Edmonton home prices are up 12.1 per cent from one year ago after gaining 1.5 per cent in December....

Those figures were close to Pratt's prediction last January that prices would rise 15 per cent by year end.

This year, she foresees low interest rates, a strong economy, full employment and a good year for real estate.

However the same author quoted Carolyn Pratt in the following article written in April: House price hits $500,000 in Edmonton.

In only the first three months of this year, average home prices have climbed 12.4 per cent, so Pratt has abandoned her earlier forecast of a 15 per cent increase for the full year.

"We're predicting that prices will continue to rise until August, at four to five per cent per month, then at two per cent per month," she said today.

The author also wrote an article in September quoting a two year old study stating Edmonton was affordable: Average up 27% in single year despite $10,000 hit

Economist Carl Gomez, at TD Financial Group, in the latest issue of his quarterly Housing Bubble Watch, has written that "Edmonton still remains the second most affordable" large Canadian city in which to own a home.

He compared home prices to rents, saw "little evidence of speculation" and found a "very low" risk of an Edmonton housing bubble.

TD "Bubble Watch" Study from July 2005

CREB: Motivational Analysis

The Calgary Real Estate Board provided some analysis of 2007 sales in their December report.

“As we can see from the final numbers in 2007, sales have definitely held steady. In my opinion this can only point to two things; consumer confidence and stability in the market place. Calgarians continue to have confidence in our economy and real estate market”, remarked CREB® President, Ron Stanners.

Consumer confidence and stability? The chart below show the difference in total sales each month when compared to 2006. For both condos and homes sales become weaker as the year went on. By comparing to the same month in the previous year it shows a decline that is independent of seasonality.

Radley77, a regular bubble poster, contributed some Calgary charts. These really show how unprecedented the recent boom has been. Thanks!