Be Glad You Don’t Live in U.S.A.

February house sales in the United States hit a 100 year low! A sobering statistic to say the least. But when you consider that the American population is significantly greater than a century ago, and the population is more mobile than a century ago, the statistic becomes even starker. Compounding the malaise south of the border is the estimate of 4 million more houses facing foreclosure by 2013.

In contrast we are ticking along quite nicely. (See the attached Bar Graph) Although first quarter sales are down 18% over 2010, prices are stable – 2010 average price, $287,000 – 2011 average price virtually unchanged at $286,000. The immediate question that jumps to mind is – if sales are down 18%, why are prices not going down? For those readers who remember any of their Economics 101 lectures, decreasing demand will result in a decrease in price, except if supply decreases in concert with the flagging demand. Your professors weren’t lying – the number of listings taken year-to-date are down, wait for it….. 18% over first quarter 2010. The supply decrease equal to the demand decrease has acted to buffer potential price easing.

What has been occurring is that the spread between what sellers are asking for their home and what they eventually get for their home is increasing. Known in the industry as the List to Sale Price Ratio, it has gone from 94.1% in quarter 1 of 2010 to 91.6% in the first 3 months of 2011. The lesson to be taken from this statistic is that sellers pricing too aggressively are been shunned by the market. It’s not that they are “losing money”. The average price has not changed. It’s just that price inflation has taken a temporary hiatus. You can’t simply add 3 or 5% to the price of what your neighbours sold for last year and expect to get it. Moderation of seller expectations is prudent at this juncture in the economic cycle.

This type of market is also kind to buyers. Although there are sporadic outbursts of competing offers, in general, buyers can shop for a property and have some time for sober second thought before stepping up to the plate with an offer. Moreover, they can purchase a home with the confidence that an imminent price “bubble” isn’t in the making due to year over year run away housing inflation.

With the Canadian jobless rate down again in March, low inflation, stable interest rates and good consumer confidence, it appears that 2011 will be a solid year in real estate – for both buyers and sellers. And that seems fair all around.