How do we find the bottom of the market
Of course many buyers in the herd these days are still struggling with “when is the bottom”. I have recently video blogged about this and as I have repeatedly mentioned that although the current stats are suggesting we are leveling off one should look at other areas to be sure that they are comfortable moving forward.
So here are the top things to consider when deciding if we are at the bottom
1) Local Employment
Garth Turner in his blog has been incredibly harsh on this and continues to use this stat as the primary reason that we will see continued crashing of the market.
However in Calgary, and Canada for that matter, with the obvious exception of Ontario, the doomsayers will point to the recent rise in unemployment as suggesting that especially because it is a lag indicator that we will see continued dramatic dclines in House prices.
However according to Benjamin Tal of CIBC world markets althugh unemployment is up in Canada and will likely approach close to 10% one must consider these very important facts about the labor market that of course go unnoticed by the media and doomsayers like Turner:
1) Participation rate is at record highs.
This means that more people as a per centage of the overall available workers are in fact working.
2) Job quality is up.
This comes during the worst recession we have had since 1945, so why? Mainly because there are more women in the workforce today then there ever was and they are in high quality jobs, that are turns out largely recession proof. Most of the job losses are males. In previous recessions when the male in the household lost his job then both spouses had no job, but now that is not the case, so families are managing better today with the wifes job.
3) we are closer to the end of this nast recession then the begginning.
4) The market has already factored in the dreary job numbers. There is not news lately that seems to rock the market, because they have already accounted for the worst.
this means that the level of job losses will start to level off.
In Calgary we lead the nation in the lowest unemployment, the highest participation rate, and the highest job quality. The short spike we are seeing in the unemployment will reverse I think quickly in the recovery of 2010.
2) Return to a normal baseline of historical sales
To understand market dynamics one must compare current results to historical averages. The media and many other doomsayers, conveniently continue to compare our recent drops to 2008, 2007 or since the peak in 2006. However what we have seen in Canada, again according to Mr. Tal we have now arrived at the historical average level of activity for the Canadian real estate maket.
3) Reduction of available inventory
This is a big one, especially in Calgary. We have dropped from almost 10 months of supply to four months from September to now. This is significant, with no real signs to a significant increase in supply, and demand edging back this will continue to lead to an improved market
4) Current values versus relacement cost
I think that this is appropriate especially in Calgary. We have seen housing starts fall to a very low 3,000 or so annualized. This is largely to do with the fact that prices are getting dangerously close to the actual coast of construction. If builders can’t make a profit they will just stop building, which they have done in a relatively quick manner.
The challenge this can cause is all the people who are not buying now will pour back into the market when prices and/or interest rates start to edge back up and combined with the natural demand at that time will potentially overheat the market with the lack of supply that is being created, scheduled inflation rising, and jobs pouring back into the market in the recovery …here we go again.
HERE IS THE BOTTOM LINE…
For potential buyers today, finding bottom is less important than knowing it is near. It is virtually impossible for anyone to accurately predict when the market is precisely at the bottom the educated buyer who understands the sins of recovery will already be settled into the opportunity of a lifetime while the rest of the herd is battling with each other over the best listings as the market rebounds and edges back up.
…you have been warned.
