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Sunshine Coast Real Estate: A Seller's or Buyer's Market?
03-07-2014, 08:25 PM, (This post was last modified: 03-14-2014, 07:39 AM by Skook.)
#1
Sunshine Coast Real Estate: A Seller's or Buyer's Market?
It has been assumed by some that I am a renegade real estate agent - that's a not! This post should help remove any doubt.

Before involving myself with VanPeak, I had never, ever looked at real estate sales stats. When I started looking at the REBGV’s monthly stats package for Sunshine Coast data, there were more than a few items I ignored because I didn’t understand them. Slowly, I’ve gotten a handle on a few like the HPI and Benchmark Price; well, as best as one can get a handle on that esoteric data.

With January and February’s stats packages, I decided it was time to figure out what the Board was conveying with the “% Sales to Listing” figures. I did a Google search and that only brought up info on the ‘Sales Price to Listing Price’ ratio and that didn’t seem right; so, I posted a question on our sister site, Vancouver Condo Info. Unfortunately, they’re awfully busy HAMing it up, so I thought maybe I would check the REBGV website - duh. After looking around the site, I thought I would give FAQ (Frequently Asked Questions) a shot. I scanned down the list and based on what I had gleaned via my Google search results this caught my eye: “What’s the difference between a buyer’s and seller’s market?” Bingo!

Here’s how the REBGV answers that question:

Quote:The real estate market is cyclical – which is why you may have heard the term, “real estate cycle.” Several key factors influence this cycle, including interest rates, employment growth, investment growth, construction and even immigration. All influence whether there is a buyer’s market or a seller’s market.

A buyer’s market is when there are many more homes for sale than there are buyers. As a result, prices may drop over time as home owners become eager to sell their property.

A seller’s market is when interest rates are low so there are many qualified buyers and not many homes for sale. Buyers must make quick decisions and face multiple offers on the home they have chosen to buy and prices can rise.

To measure market activity, the Real Estate Board has a unique tool. It’s our Sales-to-Listings ratio which measures the balance between demand and supply.
  • a ratio of three sales for five listings means we are in a seller's market (also known as a ratio of 55 – 60%).
  • a ratio of less than 7 sales for every 20 listings means we are in a buyer’s market (also known as a ratio of less than 35%).

The REBGV has offered simplistic answers to what spurs both a buyer’s and seller’s market; however, they needed to keep it light for brevity’s sake. The Board’s explanation for either is worthy of discussion on another day.

My interest for this post is the Board’s “unique tool” - its Sales-to-Listing ratio measuring the balance between demand and supply. When I read that quote, my first thought was there must two ratios; however, after playing with the numbers, my conclusion is that it is one ratio that can be treated in two different ways: one will determine a seller’s market and the other a buyer’s market. I will show you what I mean.

I am going to use the Sunshine Coast February detached sales data. According to the REBGV, there were 23 detached home sales and 112 new detached listings. If I divide 23 by 112 = 0.21 x 100 = 21% which is the Board’s detached “% Sales-to-Listing” figure. So far, so good.

So, there were 0.21 sales per 1 listing. If I multiply both by 5, I get 1 sale per 5 listings. According to quote above, 3 sales for five listings signifies a seller’s market. Nope, February was not a seller’s market on the SC.

If I take 0.21 sales per 1 listing and multiply both by 20, I get 4.2 sales for every 20 listings. This is definitely less than the magic “7”. So, in February, the SC was a buyer’s market.

So, according to the ratio, in February the supply of new home listings far outstripped demand. It seems so obvious. I patted myself on the back for a job well done and then thought, “Hmm, I would like to see this “% Sales-to-Listing” ratio in a chart. So, I grabbed the percentage ratio numbers going back to 2010 and added both a 35% and 60% horizontal line to really make it interesting. Below is the result.

[Image: attachment.php?aid=776]

Oh, my golly gosh. Look at that - only four months in 4 years offered a seller's market. Now, the Board says 55-60% signifies a seller's market, but lowering the 60% bar to 55% in a market the size of SC isn't going to make the pill any easier to swallow; so, it would give us 11 months out of 50 - whoopee do.

Okay, that was fun, but what if I go back even further like say to 2002. What would the chart look like if it included both the detached sales and new detached listings? Well, let’s find out.

I first had to collect all the data and here it is in nice, neat tables with only three months missing - not bad. The S=sales, L-new listings and S:L=Sales-to-Listing ratio. Check out the ratios from 2002-2005; as the BC Oracle would say, “Wow.”

[Image: attachment.php?aid=777]

Yes, in those early years of 2000, demand was high and supply was low and homes were cheap. Is it any wonder that developers came swooping in to buy up land and begin developments. Those who got projects on stream in 2004 and 2005 did very well; but look at 2006 - the ratio is beginning to dive.

The aftershock of world events was beginning to kick in. The attack on the World Trade Centre (2001) led immediately into the war in Afghanistan (2001). Then the US invaded Iraq in 2003. These middle east adventures impacted the price of oil and it began its precipitous climb culminating in a price of $145/barrel in mid-2008. Americans were feeling a lot less secure and moved back to within their own borders especially as the value of their dollar dropped. Those rising fuel prices led to rising BC Ferry fares and in mid-2005 fuel surcharges kicked affecting tourism and the cost of living on the SC.

In mid-2006, US Home prices peaked and then crashed and the world banking system teetered on the edge of the abyss as all those packaged sub-prime mortgages circulated throughout the world. By late 2007, the US was in recession and western governments were throwing money into the maw to keep their economies afloat. Canada did that, too; but, we went further - we changed CMHC mortgage rules by upping the amortization period, decreasing the downpayment, extending the insurance to second homes and recreational properties and more, much more. Canada would ride out the economic storm by building, buying, selling and flipping homes. Alas, in small markets on the periphery to major markets, the results created a false sense of security and masked growing weaknesses.

On the Sunshine Coast in 2007 and 2008, developments like Trail Bay Estates, Silverstone at Sechelt, Oracle Heights Phase 2, Georgia Crest Phase 2, Farrington Cove, Whittakers, Pender Harbour Landing were throwing parties but no one was coming. Other developments were put on hold like The Trails and others went into foreclosure like Silverback at Porpoise Bay. The Sunshine Coast real estate boom was over; but, the strange thing is prices kept rising (sounds familiar doesn’t it?) with the Benchmark price actually peaking in July, 2010.

Here now is the data from the tables above put into chart form. The first chart cover 2002 - 2007 and you can see the ‘% Sales to List’ ratio (green) is for the most part keeping above the 60% line. In the next chart, years 2008 - 2014, the situation reverses.

[Image: attachment.php?aid=780]

As you can see, the ratio is actually dropping further over 2012 and 2013 and now into 2014. Why? Here are my thoughts: all those who bought property as ‘investments’ prior to 2005 are trying to cash out. Now, couple that with those entering their late 60s and early 70s who want to pull the equity out of their homes. Then, add in those who moved to the coast for construction jobs and who bought into the dream and took on big mortgages but who now can’t find work and have to sell and move. What do was have? We have trouble that starts with “t” and rhymes with “p” that stands for pooped.

Yes, me thinks we’re pooped and I bet I’m not the only one thinking that. How about asking the developers of The Wharf, The Parkland, The Mews on Gerussi Lane, Soames Place, Blue Heron Village and all those who cleared land, put in services and paved subdivision roads up there in Pender Harbour and elsewhere who are now watching the alders grow and Scottish broom take over on their once cleared lots. Yep, pooped.

And, ask the owners in developments like Wakefield Beach who have lost one to two hundred thousand or more as their duplexes and townhomes drop in value. Yep, pooped. Or, ask the owners of million dollar plus properties who can’t find buyers; or, ask the owners who bought homes above $500,000, want to sell and can’t find buyers. Yep, pooped.

As a last word, I hope anyone who doesn’t agree with my interpretation of this data will join the forum and point out the errors of my ways. This invitation includes Sunshine Coast real estate agents who should be far more an expert than I at making sense of these numbers. The same holds true for anyone who agrees with this post, but has more insight to offer. Everyone is welcome.


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Sunshine Coast Real Estate: A Seller's or Buyer's Market? - by Skook - 03-07-2014, 08:25 PM

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