Here is a great chart I received from 'steveb' over at Real Estate Talks. Thank you.
The chart shows the Sales to Active Listings Ratio (green) and the Average Price of a home in the Fraser Valley Real Estate Board area from 1979 to 2006.
We can clearly see that obvious supply and demand relationships are in place in regards to the price movement of real estate. When the sales / listings ratio drops below the 0.2 area, the price pressure is zero to negative. A sales / listings ratio of 0.17 is equivalent to 6 months of inventory.
There have been a few points in past real estate cycles where the sales / listings ratio dropped below 0.1 and this was obviously highly negative for prices. A sales / listings ratio of 0.1 is equivalent to 10 months of inventory.
As per the previous post, we are at 7.1 months of inventory right now, which is the equivalent of a sales / listings ratio of 0.14. If we look on the chart for similar occasions we find that the mid-1980s and late 1990s were sustained periods of high supply and low demand at those type of levels.
The extreme peak for inventory during the 1981 correction was 0.06 or approximately 16 months of inventory. This supply / demand situation resulted in a >30% negative price adjustment over less than 12 months. The other previous corrections saw sales / listings ratios of 0.075 or 13 months of inventory. Some of these corrections saw sharp drops in prices upwards of 20%.
The chart shows the Sales to Active Listings Ratio (green) and the Average Price of a home in the Fraser Valley Real Estate Board area from 1979 to 2006.
We can clearly see that obvious supply and demand relationships are in place in regards to the price movement of real estate. When the sales / listings ratio drops below the 0.2 area, the price pressure is zero to negative. A sales / listings ratio of 0.17 is equivalent to 6 months of inventory.
There have been a few points in past real estate cycles where the sales / listings ratio dropped below 0.1 and this was obviously highly negative for prices. A sales / listings ratio of 0.1 is equivalent to 10 months of inventory.
As per the previous post, we are at 7.1 months of inventory right now, which is the equivalent of a sales / listings ratio of 0.14. If we look on the chart for similar occasions we find that the mid-1980s and late 1990s were sustained periods of high supply and low demand at those type of levels.
The extreme peak for inventory during the 1981 correction was 0.06 or approximately 16 months of inventory. This supply / demand situation resulted in a >30% negative price adjustment over less than 12 months. The other previous corrections saw sales / listings ratios of 0.075 or 13 months of inventory. Some of these corrections saw sharp drops in prices upwards of 20%.
Here is some more recent data.
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