The 'seasons' of Real Estate are turned on their head. Time to boost buyer confidence by telling you a 13% decline is really a 1.7% increase!

It's been fascinating to watch the daily real estate numbers come out this month.

Normally the summer months of the year are a period of dormancy for Canadian Real Estate. And August can be downright boring.

It's all part of the yearly cycle of Real Estate. Recently I came across a great item on the blog Urbaneer. It was posted in June of 2011 and described the 'Seasons of Real Estate'.

Urbaneer claims to make it their business to understand the dynamics of real estate, including how different seasons can impact the value and demand for real estate. Here is what they had to say:

Much like in nature, there are seasons to Real Estate. While there are four distinct seasons in our Canadian climate, the real estate market has but three, each with its own unique characteristics that contribute to the cyclic nature of buying and selling real estate.

And what are the three seasons of Real Estate?

Autumn, Spring and Summer.

Autumn

The autumn market, which runs three and a half months from September to mid-December, is driven by our fundamental need for shelter. At this time of year, real estate acquisition is often fuelled by pragmatism, prudence, and protection from the elements. Rooted deep in the human condition for survival, buying real estate in autumn is most often about retreat.

Autumn begins by firmly grounding us with its 'Back to School' regimen. The changing leaves, brisk winds and darkening skies signal the arrival of harvest, and the transition to familiar routines - among them getting back to the “business” side of living.

In Autumn, the market is alive and it's a major time of listings and buying.

As the season runs it's course from September to mid-December, the market slows dramatically for the Christmas break.  Once Christmas ends, and the New Year dawns, the next season of Real Estate gets under way...

Spring

Often starting with a New Year's Resolution to move, spring takes root in our enthusiastic desire to embrace change and stimulates the housing market. In spring we believe anything is possible which, in my opinion, is why spring is hook, line, and sinker the best time of year to sell.

The spring market, in particular the months of March and April, is an ideal time for home owners to list their properties for sale. It is in these critical months where the momentum of demand will cycle to its highest while the supply of good housing stock will be at its lowest.

There are a couple of reasons for this. Among them there is the fact that all the buyers active since the autumn who, for whatever reasons, did not secure a purchase. Now they become fully keen house hunters at the beginning of the New Year. Already suffering from buyers’ fatigue from several months of searching, these buyers are highly motivated. The problem for them is not their lack of motivation, but the limited supply of property.

While this group of ‘Autumn Buyers’ is aggressively searching, there is always a wave of new buyers in January, who have resolved to move in the New Year. This group uses the months of January and February to qualify their purchasing power and dip their toes into the housing search. During this time the autumn buyers begin snatching up the new spring listings by out-bidding the newer, less educated buyers.

But as March unfolds, both groups of buyers have now been sufficiently exposed to the dynamics of the market, and to property value, and are now aware of how the purchase process works. Armed with this knowledge, buyers compete, head to head in hopes of securing their spot in a still limited supply of housing. It is during these months when supply is at its lowest relative to the double cohort of qualified buyers.

The short supply of listings through the spring market is both a function of weather and the psyche of sellers. Although the spring market begins in January, winter’s harsh and bitter presence will often linger through March and April, making it too cold for most sellers to prepare their property for sale.

I mean, who wants to clear out their garage, shed or basement when there’s still ice and snow on the ground? Furthermore, unless a prospective seller is extremely organized or highly motivated, it can often take two to four months to prepare a property to be ready for sale, especially if they’ve been occupying it for several years. If they are only just deciding to list in January, it can take time to come to market.

For property owners spring is a great time to sell; the season creates an environment and competition. But don’t underestimate the power of autumn when the cycle typically repeats itself.

The Spring Market runs from January to April and is supposed to be a time of low listings and lots of buyers competing with each other in bidding wars.  

As you know, that's not what happened this year. Spring buyers were AWOL and listings exploded.

As the Spring Market draws to a close, we move into season number 3...

Summer

Summer, with its high humidity, roasting temperatures and long hours of daylight; this sense of seasonal freedom translates into cottage escapes & playtime, reunions & weddings, and beers & barbecues.

And, when it is summer leisure versus business, leisure usually wins - with good reason: we spend all winter dreaming of those lazy days of summer. With this pleasant distraction present for buyers, the business of purchasing property diminishes dramatically. In fact, the demand during summer for real estate can be so limited, many realtors will dissuade their clients from listing or recommend they postpone coming to market until autumn. As a result, the only properties which do come to market tend to be either relocations or changes in household status (the arrival of a newborn, co-habitation or divorce).

However, there can be an opportunity here; if the supply is low, it means there is limited choice for any active buyers looking.

By Labour Day the carefree days of summer fold and dwindle and the market moves back to Autumn.

Of course Summer, so far, hasn't seen the massive withdrawal of listings. The dynamics of the Real Estate 'Season's' have been firmly turned on their head.

Spring was a bust. Sales tanked, listings exploded. Summer has seen sales continue to tank while listings continue to rack up instead of dropping off significantly. The increase has been slow, dramatically slow in comparison to January to April, but it has increased... during a time when listings historically plummet.

A wrinkle to it all has been a surge of sales in an attempt to beat the July 9th mortgage change deadline.  This surge has failed to overwhelm the listings and it is the only thing that has prevented total inventory climbing each and every day this month.

But don't interpret this as a change in the overall trend. We still have not had one single day in 2012 where total sales were higher than new listings for that day.

Mix into this panorama this disturbing fact...

Since July 9th there have been 1,101 recorded sales.  But only 267 of them were executed after July 9th.  All the rest have been pre-July 9th sales caught up in a holding pattern waiting for CMHC approval.

The prognosis for the rest of July and August is clear.

Sales totals are going to be ugly.  The only reason they aren't horrendous now is because of the rush to beat the suddenly announced mortgage rule changes.

The dearth of listings that normally help balance the annual slow sales pace of Summer is not going to materialize.  Sure... it won't grow by the leaps and bounds we have seen from January to April... but they aren't dramatically declining either.

As the dog days of August give way to September, and a flood of Autumn listings prepare to come onto the market, the stage is being set for an absolute disaster in the fall.

For the Real Estate Industry, it will be crucial to have buyers WANT to enter the market.

Buyer confidence MUST be in place. The Real Estate Industry knows this.

So what does the normally dull, boring month of August hold for us?

I think we saw the first salvo from the Industry yesterday.

In an attempt to massage that crucial 'buyer confidence', we saw the appearance of a campaign to tell buyers that "Average House Prices Don't Tell The Whole Story."

The 'average' house price is down all across the country, particularly in Vancouver. This has buyer's retreating, afraid to catch a falling knife.

So what does the Industry do?

They come out telling you that 'average' prices are misleading you. You are told;

"It left the impression that prices in the Canadian housing market had dropped compared to the previous year."

Umm? Impression?

And so the campaign begins.

'Averages', we are told, are bad.

"Averages are a horrible place to go," says Tsur Somerville, who heads up the Centre for Urban Economics and Real Estate at the University of British Columbia.

Gregory Klump, the chief economist at CREA, agrees. Using average prices is "like looking in a funhouse mirror," he warns.

Don't you love it?

And just what should you be using if 'averages' are a 'horrible place to go?'

Why... the Industry's jury-rigged Home Price Index (HPI), of course.

More than 15 years ago, the MLS developed its own home price index to get a clearer picture of price trends. It uses a complex statistical model to measure the rate at which housing prices change over time by tracking price changes in "typical" homes in each market. Each neighbourhood has a typical benchmark home.

CREA, in addition to providing average home price data, also releases MLS home price index data for five major markets: Greater Vancouver, the Fraser Valley, Calgary, the Greater Toronto Area and Montreal. Sixteen additional markets are slated to be added in the future.

"If you really want an accurate measure of what's going on with home prices, you've got to keep the quality of the homes constant," says CREA's Klump. "That's what the [MLS home price index] does. It compares apples with apples over time. It's not subject to a change in the sales mix the way average and median prices are."

What difference do the different approaches make? In Vancouver, for instance, the average selling price in June was $701,141, down 13.3% from last year. But using the MLS home price index methodology, Greater Vancouver prices actually rose year-over-year by 1.7%.

Ahh yes... presto! change-o!... a 13.3% drop becomes a 1.7% increase.

See?

Prices aren't going down. That decline is actually an increase. You're not going to catch a falling knife.

And so the machinery begins to kick into high gear to 'educate' the masses.

But something has changed. In a year when the seasons of Real Estate have been turned on their head, so too has the psche of the real estate buyer. Buyer's don't seem to be falling for the manipulation as readily anymore.

It could be fun watching this next phase play out.

Maybe August won't be so boring after all.

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