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The BCREA Blog is a platform for sharing the latest education news, economics statistics, issues relating to the profession and links to valuable resources for REALTORS®, stakeholders and the public.

For Local Housing Markets, One Ratio Does Not Fit All

Published Jul 25, 2014

REALTORS®, market analysts and economists frequently describe the housing market as balanced, meaning that the supply of listings and the demand from potential homebuyers is in equilibrium. Measures have been devised over the years as a guidepost for that balance, usually taking the form of the ratio of home sales to new or active listings. The attractiveness of these ratios, in that they are simple to calculate and understand, has meant that analysts often take one-size-fits all type approach when analyzing markets. However, as the popular saying goes, all real estate is local. 

Of course, housing markets have some common drivers. For example, interest rates are uniform across cities and provinces and are determined based on national factors like inflation and economic growth. However, other market drivers like demographics and income trends have significant variation within a province. This variation, as new research by BCREA economists shows, can lead to very different dynamics when it comes to local housing markets. 

In particular, our research shows that the commonly used rule-of-thumb for a balanced sales-to-active listings ratio of 15 and 20 per cent does not hold for all markets. In fact, taking "balanced" as meaning home price appreciation in line with inflation, balanced markets are defined by a diverse set of sales-to-active listings thresholds, as outlined in the table below.

Ultimately, our research confirms that real estate is indeed local and our statistical guideposts for market balance should be updated to reflect differences in market dynamics.

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