Year of the Inventory

It’s not only the Year of the Rat in 2008, but it will be the year of the Inventory for Calgary’s real estate market. After an unprecedented boom in the last two years, Calgary’s juggernaut real estate market has shown accelerated signs of losing momentum. As the “well” of buyers is drying up (a great volume of buyers were sucked up and fell prey to the hype surrounding buying during the boom), sales have been down substantially year over year.

As inventory increases, there will certainly be a downward pressure placed on prices. This is simplistic market supply and demand forces functioning in the real estate marketplace. Price changes in the real estate market are “sticky” and do not occur over night but take months to reflect the direction and psychology of the market.

If we examine the current inventory levels, Calgary is poised to have all time highs in both condo and SFH inventories this year:

SFH Feb 2008 (MTD): 4638
SFH Feb 2007: 2032
SFH Jan 2008: 3997 (+111% increase)
SFH Jan 2007: 1894

In 2007, the highest inventory levels for SFH was reached in September 2007 at 5562 active listings. As you can see, we are quickly approaching those numbers so early in the year.

Condo Feb 2008 (MTD): 2154
Condo Feb 2007: 654
Condo Jan 2008: 1926 (+117% increase)
Condo Jan 2007: 886

In 2007, the highest inventory levels for condos was reached in October 2007 at 2329 active listings. As you can see, we are also quickly approaching those numbers so early in the year. It shouldn’t be too long until we reach last year’s unprecedented record inventory. Keep in mind, that there are several thousand new condominium units itching to hit the market this year.  There will be alot of sleepless nights for condo speculators this year.

In contrast, as mentioned on the Alberta Bubble Blog, where are all the buyers? Sales are plummeting this year compared to last two years of the boom. Sales are down 30%-40% at the beginning of the year. February sales are projected to be 40%-50% lower than last year at the same time.

The fact that sales are down and inventory is increasing substantially, prices can only go one direction. It will be interesting to see how (or even if) the hyped “spring uptick” will roll out this year. With so few sales happening right now, it just wouldn’t make sense for sales to increase in the next coming months when the perception is that prices will be higher.

Meanwhile, inventory will continue to increase each day. Will the overextended sellers be able to hold on to their multiple properties, taking losses every month? Will desperation set in? Will they start to price competitively to sell their properties before inventory levels reach all time record highs? Only time will tell.  If one analyzes the manner in which the US housing market crashed, the symptoms are eerily similar.  What catalyzed the downturn was when the US market bottom fell out and buyers disappeared.

Being bullish in this current market will prove fatal.

One thing is for certain though, this will be the Year of the Inventory.