MOI Food For Thought

Months of Inventory is a pretty standard measure of the market.  It is simply total inventory at a given time (usually month end) divided by total sales for month. 1,000 active listings and 250 sales = 4 months worth of inventory.

I get a daily equities market watch email from Weiss Research in the States, and of course the housing market is almost daily fodder.  In today’s issue, along with words like “pig” and “lipstick”, were some hard numbers. Total sales down 8.4%, seasonally adjusted to 6.12%, single biggest monthly decline in 18 years.  Prices are also down. YOY is only 0.3%, but that’s the 8th drop in a row – “…the longest losing streak on record”. Supply is still huge – 17% higher than last year.

Which is where MOI comes in.  Those numbers render an MOI of 7.3, just shy of the high for this cycle of 7.4, reached last October. Remember, those are US numbers, not Vancouver numbers.

Where do we stand as of March 31? 12,452 active listings and 3,744 sales gives an MOI of 3.32. Last March we were at 10,625 and 4,199, or 2.53. 2.53 is obviously a hot market. 3.32 is strong. 7.4 is tough. I’m pretty certain I remember MOIs of 9+.

What would we need to reach an MOI of 5? If sales and prices stayed constant we’d need a climb in inventory to 18,720. If sales volume drops 25%, however, to 2,808, we’d only need inventory of 14,000. That’s close to a 20% increase in inventory combined with a 25% drop in sales. I’m not saying it can’t happen, but I think its fair to say we’re still a a ways off that right now. I think that current prices can probably be sustained, if everything else remains equal, which is the same as saying we’ll need something quite new to make prices drop. Is psychology enough? Is new supply of condos enough to effect the wider market? Should we be worried about something else?

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34 Comments

Filed under Investment Approach, Monthly stats

34 responses to “MOI Food For Thought

  1. Paulb

    I have heard that up to 4 months of inventory prices will climb, 4-9 months supply -flat prices, 9+ prices decline.

  2. Domus

    Rob,

    all you need is people losing confidence in the goodness of RE as a way to save/invest money.

    Many young buyers bought in not just for shelter, but with the conviction this was a wise move in terms of long-term financial planning (i.e. as a future retirement fund).

    Take that presumption away and we will have a crash. Not an adjustment, a crash…..

    In the US unemployment is low, real wages are still marginally growing, credit markets have been generous….and yet, the market is tanking faster than we can describe.

    We are next in line.

  3. Interesting post Rob. This has been my hobby horse all along. Months of inventory tells the story of price changes ahead. The FVREB ended March with 4.2 months of inventory – I’m not sure about REBGV.

    http://langley-financial-planning.blogspot.com/2007/04/march-2007-fvreb-statistics.html

    The numbers you are quoting don’t add up to me. Is it your area? REBGV / FV combined? I’m confused.

  4. robchipman

    The 3.32 should be right, unless my math is bad. March 31 REBGV numbers 12,452 active listings and 3,744 sales.

  5. Anonymous

    Anyone having a guess at the number of expiries we’ll get at month end ?

  6. manosinistra

    I’m just curious:

    At what point will we say that the market is “fair” enough that one can go out and buy something. Or is that even what everyone is waiting for?

    When I go to Brentwood I see a glut of condos that have all come online at once. For me, that is a buyer’s “sub”-market. Maybe they won’t take 15-20% lower than asking now, but in a few months the payments are going to hurt. Last time I checked, there weren’t the mad rush of people waiting to pony up the asking price of $400-$450/sq ft for the 15% or so unsold (by the builder) or yet-unflipped units.

    I remember reading (was it VHB?) that tracking daily RE numbers is like missing the forest for the trees. Or like a daily hit of smack. It’s like when I sold GOOG for $170. I followed that sucker every day, read every piece of analysis. As soon as it down ticked for a week’s stretch, I sold. At the time, GOOG had poor fundamentals, if not a complete lack of a coherent business plan. Now, here we are at almost $500/share.

    Are there some set of indicators (apart from the daily numbers) that help us to take a big step back and give us a big picture reading, telling us we’ve reached the “zone”? Or are we simply waiting for a lot of negative press and sad faces?

  7. homestyle

    I think MOI figures need to be considered in context.

    A 2.5 -> 4.0 YOY change may represent a large increase, but coming off a red hot market like 2006 is not (necessarily) a sign of impending doom.

    The US is at 7.5 MOI, and prices have pulled back, something like 0.7% nationally?

    They still have a long way to go, and the consensus is now what, Vancouver is 18 months behind (it used to be 12)?

  8. coco

    Sales slow June through August, November to Febuary, so if inventory keeps increasing at the same rate into the summer months, sales become even more dismal in September and October, it will be interesting.

    I already see a few panicked sellers out there, lowering the price by 25k -35k if the property doesn’t sell in the first 3 – 6 weeks. These properties are not overpriced and are comparable in price or lower priced than other properties for sale in the same neighbourhood.

  9. $fromasia

    You mean theres sane people buying RE right now but we’d be idiots if we bought Google for $500/share!?

  10. $fromasia

    We are borrowing on tomorrow…hmm what will tomorrow bring?

    My wife and I can work for 3 straight months and qualify for $500k+ Morgage. What does that tell you?

    Not bad for the daily grind, now think of the long haul!

    Year after year. Look at the balance year after year.

  11. Jim

    MOI is trending up.
    Nuff said?

  12. Jim

    homestyle:
    Do some research before you comment. We are almost spot on 12 months behind the US.
    A 0.7% pull back is ominous in that its the first time ever. EVER.

  13. Noname

    Jim,

    It really doesn’t matter what the numbers are today.

    What matters is what direction they are heading and how fast…

    Noname

  14. Noname

    Jim,

    I meant to say I agree with you…

    Noname

  15. Hey Rob,

    I had a look at the REBGV report for March and it indicates 10356 active listings and 3582 sales. This calculates to a 2.89 months of inventory.

    http://www.relocationbc.com/stats/Mar07Vancouver.pdf

    That compares to March 2006 at 8664 active listings and 4033 sales for 2.15 months of inventory.

    FVREB was 2.4 MOI in March 2006 and is 4.2 MOI now.

    One of my other hobby horses has been that we will see the suburban slow down first and this seems to be the case witnessed by the bigger increase in MOI in the Fraser Valley. No worries though, the GV will follow suit shortly!

  16. Johnnyrent

    Homestyle

    It has already been pointed out that the national decline in prices in the US, however small, is a first in recorded history and therfore very significant.

    As is the case in Canada, in the US there are many markets that have not spiked up (and never have) and these are factored into national averages, which accounts for the low quantum decline of .07%.

    On the other hand, there are a number of markets that spiked up beyond all reason, just like Vancouver has been doing. Most of these US markets, like Vancouver, have a history of significant ups and downs. Some of them in the US are off more than 20% from their peak and still dropping. Others are in the preliminary phases of decline. Most of them have strong economies, low unemployment and actually more infrastructure spending per capita than we do here in Vancouver, including the Olympics, gateways and what have you. In addition, their population growth rates are higher than ours (ours being at a very low ebb despite speculation to the contrary).

    The same principals of economics which apply to the US, will apply here, eventually.

  17. robchipman

    coco wrote:

    “I already see a few panicked sellers out there, lowering the price by 25k -35k if the property doesn’t sell in the first 3 – 6 weeks.”

    You may well see that, but overall daily price reductions are very low (less than 2% and often less than 1%) and the amount the price is lowered is also low.

    manosinistra:

    Daily numbers are what make up the bigger picture. Its not that tough to not get derailed by detail. If you look at things from an investment point of view, its easier. You simply decide what returns you’re satisfied with, and if you can achieve them (based on assumptions that are as realistic as you can make them), you buy.

    Buying your own place is perhaps a little different. You essentially compare rent and potential investment with purchase cost, and again, try to make realistic assumptions. In both cases the longer you commit for the easier it is to make it work.

    At high prices, like those we have now, its tougher to find something that pays, whether as an investment or a purchase to own. Will there be signs, or are there big indicators to tell us when its good to buy? I think not. I think its more effective to watch daily numbers. If that bores you (a completely valid position), make sure you understand them and then have someone else watch them and advise you.

    If you need big indicators to guide you, I guess you could look for the opposite of what we have now: 5 years of falling prices, bad economy, high interest rates, and great metrics. Waiting for the first three may take a while. If I see the last one, I’d act whenever possible.

    Tell me something: did you lose money on Google? If not, why worry? The delta between $170 and $500 was never yours. We’ve all got stories about how well we’d have done doing things we never did. Your lesson shouldn’t be to not monitor your asset. If you sold at a profit you did just fine. Many do not accomplish that, because it isn’t easy and it isn’t a given.

    Could you have put some of your profit back in? Sure. Hedge the bet, stay in the game. Is there a lesson to be derived from making an all or nothing decision based on your own analysis? Probably, but before we go too far, once again, nobody lost money selling at a profit.

  18. WoW

    Imagine this:

    remember all that crowing in December related to the 23% price appreciation (June 05 to 06 – property assessments)

    June 05 – house $500,000
    March 06 – house $550,000
    June 06 – house $600,000
    March 06 – house $600,000

    in this hypothetical, price appreciation from June 05 to 06 is 20%….price appreciation from March 06 to March 07 is @10% (people say, hey look, prices are STILL going UP)…but from June 06 to March 07, based on the assumptions above, there is NO appreciation….so does anyone have any comments on what I’ve heard was the peak, June 06? Could the ‘appreciation’ be a lingering effect, that will work its way out, UNLESS prices start going up from here forward…

    appreciate any feedback, thx

  19. Jim

    “We’ve all got stories about how well we’d have done doing things we never did.”
    Truer words were never spoken,Rob.
    Did I mention I cashed out 60% of my holdings in September? Yikes!

  20. robchipman

    Mohican:

    The two numbers come from different print outs. They’re off by a similar amount in each category. I’ve got a call into the stats generator to get an explantion of why. I always use the graph numbers (4 pie charts, maybe you’ve seen them), and not the news release, which has both lower inventory and lower sales. I’ll share the answer when I get it.

  21. robchipman

    WoW: I think that YOY compared on a monthly basis indicated what you’re pointing out. Also, the average price graph and median and benchmark figures (my monthly mailouts showed prices drops in January, December, etc). If you watched you knew it was happening after July. We went through a small trough and are now recovering.

    However, June ’06 average SFH price was $718,687; March ’07 was $785,234. Benchmark prices, resepctively, $649,048 and $682,173.

    Mohican:

    The lower numbers are residential only; the higher numbers add in ICI, land and multi-family. As mentioned, I always use the graphs, so I’m happy with 3.32, but your 2.89 is accurate as well.

  22. WoW

    Based on the benchmarks (calculator not handy) that does not look like june to june 23% yoy….but those were BC wide numbers and your area may be different from the province as a whole…still, lots of appreciation

  23. Thanks for the answer Rob. Interesting.

    Do your daily numbers include ICI, land, and multi-family as well?

  24. homestyle

    Jim, Johnnyrent,

    Don’t get me wrong, I think a drop is in order for Vancouver (real) prices.

    But the run up over the last ~6 years has been fairly orderly (unlike 81/82), so there is a good chance (in my opinion) it will be on the way back down.

    As much as I or anyone else wishes otherwise.

    It could take years for the correction to play out, manifesting itself as prolonged flat nominal prices and “balanced market” MOI numbers.

  25. awum

    Rob, I really like this post. MoI is a good snapshot of current market health, and if you watch the trend, I think it tells you a lot. At least, it’s fun to watch!

    Last year (using your numbers) the MoI in your area increased a good 60% or so from Mid-April to June. If this year followed a similar trend (no worse and no better) we would be look at over 5 months inventory by June 2007.

    That said, the trend in MoI appears to be climbing faster this year. Which means maybe (all the bears say) the pace will continue to grow faster than last year, or (all the bulls say) it will lose steam faster.

    Who knows, you may be smacking your head a few weeks from now over your comment that “its fair to say we’re still a ways off [5 months of inventory] right now.”

    Or maybe not.

  26. I have posted some thoughts and charts on this topic over at my blog today. http://langley-financial-planning.blogspot.com

  27. robchipman

    Mohican:

    I don’t include ICI, but I do include land and multi-family. Multi-family is an obvious inclusion, because we do investment stuff. Land is really neither here nore there, because the numbers are small. Leaving it out you miss vacant lots, and restrict yourse;f to lots with old houses. Multi-family is really duplexes/triplexes, etc, so not a lot of stuff there to sway numbers, either.

    Wow:

    The numbers I gave are not BC wide – they’re REBGV wide. I’m not sure if that’s what you’re referring to.

  28. Skeptic

    Mohican, can you please put some titles on the axes of the first chart on your blog, I don’t get what you are showing ?

  29. Domus

    Skeptic,

    I think he is showing the 12 months in a year.
    I think he is also showing you when you are going to lose you r money……

  30. Domus

    Rob (and everyone else),

    I think you might find this article interesting.
    It touches on issues of affordability, which we debated a while back. It makes a really interesting read.

    Enjoy:

    http://tinyurl.com/28rhtp

  31. Skeptic

    Hey Domus, what are the numbers on the left and right hand side of the chart for ?

    Otto, I’ve never posted under other names. I’m also not a realtor, get a clue.

  32. millionpitfall

    Domus,

    Interesting article, although realtors seem not to want to admit there will ever be an affordability wall. Which is kind of funny. We looked at a house at the top of our price range and our realtor really liked the potential of the house (needed renos). When we mentioned to the realtor, you should buy the house, the realtor said if they bought the house they would not be able to afford to buy the house and do the renos it required. So, even realtors are getting squeezed out of the market affordability wise.

  33. millionpitfall

    And….no this is not a junior realtor or a realtor hurting for money. Has flipped a few houses in the past.

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