RSS

Is the Buyer’s Market Over? (And a Tangent on Tariffs)

Is the Buyer’s Market Over? (And a Tangent on Tariffs)

In several Greater Vancouver and Fraser Valley markets, the pulse on the ground over the last few weeks has been a massive increase in open house activity and even anecdotal evidence of multiple bids on new listings. But what does that data actually show?

In the real estate world, there are two benchmarks that best gauge buyer and seller demand: the absorption rate and the average number of days on market. I rely heavily on the former and more or less disregard the latter. The average days on market isn’t really that useful since it only gives data on sold properties and doesn’t give any insight on active properties, which is an important part of the supply and demand equation. 

Different organizations use different thresholds to define “buyer”, “balanced” and “sellers” markets - and they even change those over time. For example, the before 2015, the Fraser Valley Real Estate Board defined a balanced market as any sales to listing ratio between 18-22%. Anything ratio below that was a “buyers market” and anything above that was a “sellers market”. Today, they use the 12-20% to define a “balanced market” (as seen pictured below) which is also used by the Canadian Real Estate Association (CREA).

Personally, I think this “nationalization” of definitions isn’t very helpful. Real estate markets are inherently local and the expectations of relative markets are more cultural than they representative by a quantitative figure. Regardless of how organizations and economists define these markets, the fact is that the data itself is quantitative and can be measured and compared over time.

The sales to listing ratio is one way we can understand the “absorption rate”. It can also be put into terms of “months of inventory”. If the sales to listing ratio is 20%, it means that we have 5 months of inventory (eg. 20 sales/100 active listings = 20%, 100 active listing/20 sales = 5 months of inventory). If the sales to listing ratio is 12%, it means that we have over 8 months of inventory. There are some alternative ways of calculation absorption rate, such as replacing the number of sales in the past month to the average number of sale over the past year. This latter metric is often useful for seeing longer term trends.

I realize I’m getting technical. This information, however, is important to understand when gauging how fast the market is moving. Take another glance at that sales to listing ratio graph for the Fraser Valley over the last two decades. Now compare them with the benchmark price of homes in the area:

Putting together, you get this helpful abomination:

Economics 101 tells us that when the number of sellers increase and the number of buyers decrease, the market softens and prices go down. If the number of buyers increase and the number of sellers decrease, then the market picks up and prices go up. This is exactly why the sales to listing ratio is so important to understand the temperature of the market - much more than “number of sales” or any other metric. 

You might notice that I am using two different graphs, seemingly from the same source. Yes, they are both delivered by the real estate board and provide MLS statistics, but they do NOT line up exactly. The black line graph directly from the FVREB statistics package uses slightly different definitions than the colourful “ShowingTime, LLC” graphs. Be aware that the percentages given in one will not be the same as the other since both define a “sale date” and an “active listing” differently than each other.

Focusing on the last 6 years in the Fraser Valley Real Estate Board (which covers municipalities south of the Fraser from North Delta - but not South Delta - to Abbotsford, plus Mission - but not Maple Ridge… don’t ask why), you can see which years were the “sellers markets” and the “buyers markets”, whether you want to use a “18-22%” or “12-20%” threshold. You can also how different housing types have different fates. Townhomes are regularly the consistently most “seller friendly” housing type, partially because of their limited supply throughout the region. There have only been a handful of communities that really have built townhomes on a mass scale over the past two decades, much of which explains much of their population explosion. Interestingly enough, despite Canada’s record immigration intakes, MLS sales have been at all time lows over the last 2 years (the link include a graph of 12-month rolling sales).

Regardless of the differences behind these numbers, what we have seen among all housing types is that there hasn’t been a single month where the sales to listing ratio went under 12% since January 2013. Even throughout the the ups and downs of the last decade, the slump of 2019 or all of 2023 as interest rates rose, the sales to listing ratio throughout the Fraser Valley held above 12%. This is one reason I really don’t like the “12-20%” definition of a balanced market.

So, in a way, I tricked you with my headline. Technically, we have not been in a buyers market in the Fraser Valley - at least according to a certain definition- in 12 years (the GVR, on the other hand, has had some more volatile numbers). 

But in another way, I didn’t trick you. I’ve been selling real estate since 2010 and, as I mentioned before, the previous threshold for a balanced market was 18-22%. You can see this in the FVREB’s December 2014 statistics package: 

For some reason, in January 2015, they changed this. I don’t know why. Yet, I actually still use this since I feel it is a better representative of our local market. I also like it better because most of the time that I’ve seen this ratio dip into the 12-16% range for multiple months, I do, in fact, see prices soften in most markets. If this is the case, then the Fraser Valley would be defined as being in a “buyers market” since July of 2024:

At the end of the year, the detached home market continues to lag around the 15% mark, whereas townhomes had a ratio of over 24% and the apartment market was up at 19.6%. Since September, when the ratio hit a low of 12.5%, the sales to listing ratio has been trending upward, but still in the 16-18% range. The benchmark price among most housing types in most local markets have continued to decrease during this time.

This trend is fairly common when we’ve seen a market in decline. Buyers at some point start waking up to recent affordability as values have been declining. This transitionary market phase is when the most buyers capitalize on the lowest home prices before critical mass takes over. 

So amidst all this data, let’s revise the original question: based on an archaic, but potentially more useful definition of a buyers market, has the market shifted in favour of sellers? And if so, does this mean that we should see price increases in January 2025’s figures and beyond?

As I write this on January 23, 2025, my speculation is yes on both accounts. I believe we are seeing the upswing on buyer demand where we will start to see the benchmark price increase in most markets in the region. As we have often seen with prolonged sales lulls in the past, pent up demand can come back quite rapidly. This was the case in 2015-2017 and 2020-2022. With consecutive interest rate drops in 2024 and a barrage of new mortgage rules that are making it easier for buyers, especially first time home buyers and purchasers of newly built homes, market activity is already bouncing back early in 2025. 

Brad’s Tangent on Tariffs:

Due to uncertainty with global affairs there is, of course, still hesitancy in the marketplace. Impending likely tariffs on Canadian goods to the United States and the retaliatory trade war could certainly affect bond rates in both countries. This could drive interest rates back up which would likely stall the market - at least temporarily. At the moment, however, it does not appear that this is influencing the decision making of buyers and sellers, especially considering we’ve been here before back in 2018 when Trump slapped tariffs on a multitude of Canadian products.

Alberta is likely the most affected by potential tariffs, which is one major reason for Premier Danielle Smith’s break from an otherwise pretty aligned Canadian front. Albertan oil extraction is the most American-dependent industry in the country, accounting for 22% of the province’s GDP. Of course, the sector also accounts for around 5% of Canada’s GDP.

I am not an economist, but I would advise Canadians to refrain from buying into doomsday scenarios. Without sounding “pro-tariff”, Canadians should respond with strength beyond retaliation. We should use this opportunity to support Canadian-owned businesses and Canadian-made products. We should foster protection of small businesses that have often been overtaken by large American corporations over the past 40 years. Pushing for economic resiliency within Canada will also require further diversification of our trading partnerships with Pacific Rim and European nations. We should be using this trade conflict as an opportunity to reduce the economic complacency and lack of innovation that Canadians have found themselves in since, essentially 1994’s NAFTA agreement.

Comments:

No comments

Post Your Comment:

Your email will not be published
Reciprocity Logo The data relating to real estate on this website comes in part from the MLS® Reciprocity program of either the Greater Vancouver REALTORS® (GVR), the Fraser Valley Real Estate Board (FVREB) or the Chilliwack and District Real Estate Board (CADREB). Real estate listings held by participating real estate firms are marked with the MLS® logo and detailed information about the listing includes the name of the listing agent. This representation is based in whole or part on data generated by either the GVR, the FVREB or the CADREB which assumes no responsibility for its accuracy. The materials contained on this page may not be reproduced without the express written consent of either the GVR, the FVREB or the CADREB.