When that title caught your eye, what were some of the thoughts that went through your mind?
Maybe you felt that all shoes and boots of the market have dropped and our market has hit rock bottom.
Or maybe that little twinkle of happiness came to your eye knowing the market will now work in your favour as a buyer.
Regardless of your reasoning to check out this article, stay tuned, because even though sales have declined, the pricing might not be what you expect.
So shall we dive in?
Aggregated Absorption Rates
In the month of July, we saw:
The number of listings decreased 4% from last month to 5,512.
Sales dropped month over month by 21% to 2,257.
The absorption rate drop 9% month over month. The fourth straight month of declines.
Now at first glance, the reduction in the market activity that we see above would be something welcomed by today's buyers.
Fewer sales mean more listings for you to choose from and more sellers willing to negotiate more on price.
I hear you, that would be my first inclination as well. But when we look at the numbers deeper, we find that the sales activity is what is driving the decline in activity. It's not due to sellers suddenly flooding the market with new inventory.
This past month we saw a decline of new listings by 4%. This is the first time this year that the number of listings has dropped, showing signs that sellers are entuned with the current conditions and are now starting to hold rather than sell.
Although the number of listings is declining at a significantly lower rate than the sales, as this continues to happen through the summer months, the absorption rate will continue to suffer.
Compared to this same time last year:
Listings are down 26%
Sales are down 3%
This shows that a lot of the reduction in sales activity has come from the summer months and not so much the change in the interest rates for buyers. In my own experience, buyers are very educated on what the market and interest rates are doing. They are more conservative with spending in Calgary, therefore keeping the impact of higher interest rates more in check.
A 26% drop in listing inventory can be attributed to the higher inflation numbers we are seeing with the costs of nearly everything we use going up. This, along with the idea of a higher cost of borrowing has caused sellers to take a second look at their financial goals and if it's worth moving or upgrading right now.
However, where things become interesting this month is centred around how prices have reacted to the lower activity in our city.
Median Prices - All Segments
The segments that saw the greatest declines this past month were the Attached and Detached markets. Moreso the Attached segment will a drastic decline of 11%.
But that isn't the main story for pricing in our market.
This month's decline of 2% in the single-family detached market marks the 5th straight drop in pricing from the peak of the pricing in February.
From February to now, we have seen the detached market drop by 8%. Further declines are expected as we continue into the summer months.
This is a significant number for two reasons. First, it shows that the impact on borrowing costs (interest rates) has had the desired effect on our market. And two, the impact has not been as drastic as we have seen in other major centers.
And this is the important factor both sellers and buyers need to see clearly. Yes, our market inflated significantly in the early parts of the year however, that increase and this decline have not been earth-shattering shifts to our real estate market.
There isn't a monumentous shift coming to drastically drop our home prices by 20%. When a shift like higher interest rates happens, other components, like in this case, inventory levels also shift to ensure the market remains stable.
This can only happen when the market is acting responsibly and not impacted by gluttonous purchasing and overleveraging.
Pricing may continue to see declines, and generally, we see a shift of higher inventory levels starting in the fall, but the shifts will continue to be small increments.
What is more important for buyers to ensure they keep in mind, is not the home price, but all the additional costs of home ownership that are creeping up. Things like interest rates, insurance rates, maintenance and supply costs.
Not the imaginary shoe to drop on pricing.
Where Are We Heading?
Some of you might remember that I had a couple of great years at CIR Realty before coming back to RE/MAX. I had the great fortune of meeting the marketing director for CIR and she had this great post on Instagram that I just had to share.
It sums up perfectly what the market is doing right now.
Our real estate market is always in flux. It's changing constantly and there are so many external factors that in an instance can change how real estate is bought and sold.
But the resilience of the market is what is important to understand. As it changes, there are factors at play to keep things in line.
As Kirsten so eloquently put it, our real estate market is heading to where things are normal.
A 41% absorption rate is a slight seller market. At this rate, it's about 2.5 months of inventory.
As we continue to normalize and get close to the 30% market where we are now balanced, the market will start to open new possibilities for buyers and continue to provide returns for sellers.
As always, thank you for taking the time to check out this update. I hope it has been informative for you and has given you some wonderful takeaways.
Feel free to join our real estate network and get an update each month along with many other great articles to keep you in the know for all things real estate and mortgages.
Cheers. - Aly
PS - I've removed the breakdown for apartments. If you are interested in seeing how this market has shifted, shoot me an email by clicking here and I can send you the chart and a breakdown of the market.