June 2009 Projections

[Johnny Horton]

High interest rates and low growth.

Brrrr-innng it!
I would love it.
It will shake out a lot of wannabe's.

[KopyrightKlepto]

Months of inventory and price increases are highly correlated. At 4 MOI we will most likely see 2% price increase. I've posted the graph before - study and learn

You seem to be assuming that there is no correlation between average price and benchmark price, or at the very least that the correlation between MOI and benchmark price is much greater than that of average to benchmark. I suspect you'll find that this is not a very good assumption.

[eyesthebye]

Thompson"

As people discussed before, the quality of average data is never good enough to represent the market because of the fluctuation due to the small monthly sample size. That's why the benchmark price is used for the market measurement instead of average price. It can be seen very clearly from history that the bentchmark price was more accurate than average price to describe the market condition. For example, in Nov08 average was $745,778 and benchmark was $666,525; in Dec08 average was $829,508 and benchmark was $648,421. According to avearge data we had a huge "winter bounce" last year. Obviously that wasn't the case, bentchmark price told the truth.

So, if you, VD, find a 2% up or down in KK's forecast, I suggest you treat it as a fluctuation or noise

KK - I'll just quote Thompson on the explanation b/w avg and benchmark. What a lower average could mean is that there are more lower end sold
than upper; but it doesn't mean people aren't paying more for the same home at the lower end than the month before.

of course there is a correlation b/w avg and benchmark - but it's just that, a correlation. if you separate the data you're collecting into
different areas you might get a very high correlation. As it is...compiling Van West with N. West is going to create some comparison issues -
and the data will not be reliable.

[fishguy15]

As it is...compiling Van West with N. West is going to create some comparison issues - and the data will not be reliable.

How so? I would imagine that the same "comparison issues" would come up when the benchmark for GV is established.

[KopyrightKlepto]

of course there is a correlation b/w avg and benchmark - but it's just that, a correlation.

Yes. And so is MOI to Benchmark, which was my point. Your choice to ignore one correlation, and rely on the other is cherry picking data to suit your preformed hypothesis.

[KopyrightKlepto]

As it is...compiling Van West with N. West is going to create some comparison issues - and the data will not be reliable.

How so? I would imagine that the same "comparison issues" would come up when the benchmark for GV is established.

The benchmark does a better job of accounting for this. It attempts to factor in features such as lot size, number of rooms, age of the home and neighborhood. The average can most definitely be swayed by a shift in product mix. ie. a shift in sales mix increasing in Van West (high price) away from Van East (low price) will increase the average.

This is one of the reasons why CREA reported higher average sale prices this month -- sales volume was up in Vancouver, and Calgary, and down in other less expensive cities and provinces. As a result, a higher country-wide average price, even if in each of these same cities prices were down year-over-year. Of course, I think the impact country-wide is more severe than within Vancouver or any single city, but the sources of measurement error are at play.

[KopyrightKlepto]

My tally of REBGV numbers for June is in. All credit for these numbers goes to Gavin Hughes for publishing daily MLS sales, listings and price information at http://www.nvcondos.ca. REBGV stats usually have a small deviation from this data due to sales that did not complete as initially recorded.

Clearly sales this month are very strong, and the flood of listings has not appeared. Inventory has been slowly declining for the past two months and MOI is heading back toward 2007 levels. Nevertheless, SFH average prices dropped even in the face of strong sales and decreasing inventory which is contrary to past trends. As usual, the wait now begins for the REBGV to publish their benchmarks. I'd expect to see these by July 3.

Projection from 30-Jun-2009 : 22 of 22 days Complete

Listings: 5227 (-21% yoy) (+10% mom)
Sales: 4298 (72% yoy) (+22% mom)
Sell/List: 82% (44 pp yoy) (+8 pp mom)
MOI: 3.3 (-57% yoy) (-21% mom)
Actives: 14,357 (-26% yoy) (-4% mom)
Rate of Increase: -5 per day
Avg Price SFH: $817,230 (-9.6% yoy) (-1.7% mom) (-11.2% from peak)
Avg Price Condo: $417,849 (-3.7% yoy) (0.0% mom) (-7.2% from peak)
5-day Average SFH: $807,422 (-1.2% from current month)
5-day Average Condo: $431,849 (+3.4% from current month)

Median Price SFH: $672,864
Median price Condo: $364,824

[KopyrightKlepto]

I've run a regression analysis to determine the strength of the relationship between Benchmark and Average prices, using data from Sept 2006 - April 2009. This analysis has shown a reasonably strong correlation between nominal average and benchmark prices. However, the correlation between MoM Avg % Change and MoM Benchmark% change is actually quite weak. QoQ average to benchmark is better, but still not a strong predictor. It looks like MOI wins out as a stronger predictor of prices.

I note that recent data from Oct-08, Nov-08, Dec-08 and Apr-09 are the largest outliers in the dataset, which is indicative of additional volatility between benchmark and average in the past 6 months. If I can (easily) dig up data from earlier than Sept-2006, I will re-run the analysis with a more complete data series.

001_Avg_vs_Bench.png (4.82 KiB) Viewed 1235 times

002_Avg_vs_Bench_MoM.png (12.18 KiB) Viewed 1237 times

003_Avg_vs_Bench_QoQ.PNG (11.83 KiB) Viewed 1236 times

[KopyrightKlepto]

So, with an average price of 817,230, I can predict
with 80% confidence that the benchmark price will be between $667,391 and $737,288.
with 95% confidence that the benchmark price will be between $647,906 and $756,773.

[Taipan]

Taiphoon:

Im sitting here today with a $25m deal on the table for a 25 year lease to a blue chip multinational

...all show and no go. Who are you kidding? The great majority of these deals do not go. So who are you trying to impress?

Some of us know better so we'll just point it out.

No Johnny you know shit all. Youve never been in a seat like this. Its a seat you believe you have been in, but reality shows you have existed around the fringes, but never in a decision making position. Enough to absorb some of the jingo, some of the concepts but that is all.

25 year deal. Where will interest rates be in 8 years time? Where will be inflation?

Of course you dont know, but real people in real positions have to make a judgement call. If they are right they continue on. If not you will see them under some cardboard, with their friends and family deserting them.

Yes a call can be made, but it is a huge call. On 18m of debt you dare not get that call wrong.

And you whiskers, have never faced that, let alone been the one making the decision.

[eyesthebye]

As it is...compiling Van West with N. West is going to create some comparison issues - and the data will not be reliable.

How so? I would imagine that the same "comparison issues" would come up when the benchmark for GV is established.

GV benchmark I take with a grain of salt...you need to look at specific areas to see what's happening in the market. For example, in May, Vancouver West was up so much it was the oxen pulling the cart - and represented a large portion of the % increase in greater Vancouver

[fenster]

Thanks for all the hard work klepto. If you get a chance please drop me an e-mail.

fesnter668@gmail.com

Note it is fesnter

[jesse1]

KK exercising Minitab-fu. Averages and medians have low signal-to-noise and your CIs are going to be meaningless; the benchmark and months of inventory correlation is a better measure of market trends from what I have observed. I would put the June benchmark at $690K.

[KopyrightKlepto]

KK exercising Minitab-fu. Averages and medians have low signal-to-noise and your CIs are going to be meaningless; the benchmark and months of inventory correlation is a better measure of market trends from what I have observed.

Agreed, I came to the same conclusion. As I said, "It looks like MOI wins out as a stronger predictor of prices. " In truth, I had expected that average to benchmark would have a stronger correlation, but my analysis disproved my hypothesis.

I would put the June benchmark at $690K.

Out of interest, can you provide the confidence interval based on the MOI regression? Or (better) a link to your data so I can roll my own? I know excel doesn't make it easy, which is why I exercise Minitab-fu for regression analysis. I'd like to consider adding a benchmark projection to my regular posts. Since MOI is the best predictor we have for changes to the benchmark, then I should be using it.

[KopyrightKlepto]

So, with an average price of 817,230, I can predict
with 80% confidence that the benchmark price will be between $667,391 and $737,288.
with 95% confidence that the benchmark price will be between $647,906 and $756,773.

I probably should have noted previously that the centre point of these prediction intervals was $702,340. The Actual SFH benchmark released today by the REBGV was $701,384. I got lucky this time.