After a brief period of time where the market-o-meter merely said the market was hot, we are now back to an assessment of ludicrously hot (which is triggered at residential months of inventory under 2). The market predictor uses Victoria’s history of market conditions and associated price movements in single family homes to come up with a prediction of how fast prices are likely to change. It is based on the data we have from 1996 onward so keep in mind it doesn’t represent all possible market conditions (the crash of the early 80s for example).
With a residential MOI of around 2 we have seen anywhere from 10% to 20% annual rate of appreciation in the past with a median of 15.5%. Last year in February this model predicted increases of 13% which was a bit less than the actual value. That’s because the market continued to heat up in the following months and the predictor looks at the market conditions as they are in the current month.
As unbelievable as our numbers are from an absolute perspective, I will say it again and again: when the market is this hot, there is no such as a price plateau. The latest VREB numbers hammered this home again with the detached average jumping by $50,000 and the median up by $75,000 over January.
As usual, the monthly numbers are noise, so what we want to find is the underlying signal. To get at the signal, we can simply take the trailing 12 month average which will flatten seasonality and show us the trend.
Another way to look at it is by what extent are prices rising on a monthly basis during this upward trend. With monthly averages swinging wildly, how much is the market really appreciating every month?
Still pretty variable, but the jump last spring is pretty clearly evident when detached homes were increasing by nearly $10,000 per month. As is the slower period in the fall when appreciation rates were a mere three or four thousand a month. Will we see another spring of these insane jumps? Well unless we add some more inventory I don’t see how it can be avoided. With a puny 18 additional residential listings in February, we are nowhere near a normal year where hundreds of listings are added in the same time.
The one weakness in the market right now is detached sales. They are down 25% over this time last year while condo sales are keeping pace with last year. I often hear people using the theory of volume analysis to indicate that increasing prices on decreasing volume is a sign of a market top.
However as far as I can tell, a market where there is no shortage of supply like the stock market would not necessarily behave the same as the housing market so I’m not convinced that this translates. What do you think? Does the fact that sales are dropping mean our bullish trend is weakening?