What's next for Calgary's housing market?

What's next for Calgary's housing market? It's a simple question that everyone seems to be “forecasting.” Let’s take a look at some proven research, previous real estate cycle results and January 2015 statistics for an answer.We are now past the six-month mark of the start of oil’s decline – the traditional time that the market begins to reflect a combination of trepidation and fear of missing out. We can see it reflected in the January statistics released by the Calgary Real Estate Board.Comparing January 2014 to 2015 numbers, sales are down 39 per cent, while new listings have skyrocketed by 37 per cent. Not the best situation if you have to sell your property.Source of the listings jumpAt this early stage, into month seven of the oil price drop, the typical increase in listings comes from a few sources:

1. Homeowners who were stretched to the limit when they first bought. Many of these are fearful of being laid off or they already have lost their jobs.
2. Market speculators – those who buy property with value increase as the only profit goal. They have zero back-up plan to hold and carry the property through inevitable downturns. They don’t understand the real market dynamics, and are under the mistaken mindset that values always increase.
3. Homeowners who don’t really have to sell their house but are afraid of “losing money,” and are trying to "time the market."

The majority of people in these groups, however, have no initial propensity to notably lower their selling price to adapt to the rapidly changing market dynamics.Buyers to the rescue? Don’t count on itThis large increase in listings inevitably occurs when buyers pull back from the market. It’s interesting how psychology plays such a large role in the market at this early stage of a shift.You have somewhat fearful sellers, not willing to drop their price by a meaningful amount, coupled with somewhat fearful buyers who probably wouldn’t buy even if the sellers did reduce. Both are looking for signals of what to do. This then pushes up active listings, as the previous month’s non-sales are added to the current month’s unsold new listings.When does the bottom fall out on price? Common assumptions are that average and median sale prices drop right along with the market shift. That’s not what the Calgary stats show from January. In fact, they show no real movement in prices.Average and median sale prices traditionally begin to move downwards two to three months after such a “perfect storm” hits.Why does it take a few extra months? One reason is that properties may have sold (by being put under contract), but the closing date is a month or two following January. A much larger factor, however, is human psychology.The tipping point hits between 9 and 12 monthsIf there are no clear signs of economic improvement around the corner, the tipping point arises. In this current cycle, if oil prices stabilize or fall further, the following two phases will begin to occur in March-April.Phase 1: After a few extra months of trying to sell their property for top market dollar, sellers face the reality of having to lower their asking price. Those who need to sell, start making moves first. A herd mentality then kicks in, and competition increases.Phase 2: Strategic buyers begin to slowly enter the market looking for bargains in roughly the same period of time. This combination of desperate sellers and bargain hunters will move the benchmark prices lower.At this same period of the cycle, home builders may ease off, slowing production. This is when the strategic home builder will sit back to see how long this will play out, which increases the number of layoffs in the region, and the ensuing headlines scare consumers even further. And if oil hasn’t shown some strength by the 12-month mark, we will see another jump in listings, and a larger increase in days-on-market.Bargain hunters enter the market, but are not desperate to buy. Vacancy rates will remain tight, as those who have sold will still require place to live, thus supporting current rents.So, are we at the tipping point yet in Calgary's housing market? Not yet, but we can see it on the horizon. It is playing out exactly as expected. A turnaround in the long term price of oil, leading to rising consumer confidence, could halt this part of the cycle, but at the moment this doesn’t seem to be in the cards.Related reading:Falling oil and gas prices: Canada's gain could be Alberta's painWhat's really happening in the Calgary real estate market