As to the seasonal component argument of Radley’s analysis those of you thinking that the drop in inventory is largely to do with the season are missing the fact that never in this same time period did inventory fall 41%.
With respect to supply forecasts for 2009 consider this as a possible alternative to the doomsayers. MOST of the increased supply since mid 2007 was due to speculators (especially in the condo sector), and people who thought they would sell their home for no other reason hen to cash in. So what has changed?
Well number one, builders (who were arguably the biggest contribution to spec construction) have adjusted spec construction. At the height spec building was 15% of total residential construction, now that number is just below 5%. Builder spec inventory and houses they got back from people who did not close have been drastically reduced. Despite what Lesson One is saying there is very little inventory for builders to absorb in 2009. Again, their spec construction is down 10%, and starts are projected by CMHC to be at around 4,500 (down from almost 11,000 during the peak) so less inventory will come on from builders, and the trickle down of more re-sale homes going on from those absorbing the newly constructed homes. For certain people who were selling to simply cash in and get a big payday are re-thinking that strategy and many will likely abandon the idea of coming back to a market that is not going up. I am not ready yet to call it, I want to see both the “new listings added” and “inventory” numbers for January, February, and likely March. If we see them still going down then the market will stabilize and a flat year will be welcome. IF the “bounce-back” happens (some people think that all the listings that came off the market in Q4 will come back in spring for a ‘better market’) then we will see a drop in the neighborhood of 10%-15%.
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