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I was interested in graphing the total sales per month versus the inventory per month, to see whether the number of sales is increasing proportionally with the inventory of resale and new housing stock available in the Victoria Real Estate Board area.

After completing and looking at this graph, it's clear sales are not keeping pace with listings. While the annual lows in sales volume that happen each winter are accompanied by lower inventories, a quick glance at the graph shows that sales are basically following a flat trend during the time in question - January 2005 to May 2007 (so far). At the same time, the total volume of inventory is showing higher highs and higher lows during this period. If the trend continues, the new high in monthly inventory this year looks like it could be over 4000 units. I base this conclusion on the fact inventory usually continues increasing until the fall, while sales diminish in the same timeframe. If this happens, there will soon be more than 4 months inventory available in the Victoria market.

The available inventory is growing despite the touted affordable mortgage rates in the past two years . With rates now going up around 1.5% in the late spring of 2007, some impact on further sales activity should be expected - whether a temporary boost in sales from those using pre-approvals at lower rates, or a bump in inventory from those who need or want to sell rather than to renegotiate expiring terms that were set at better initial rates. That tug of war should be over in 90 days or less, at which point higher interest rates will begin biting into the housing prices in Victoria*.

Is this the top? Will inventory continue shooting up even faster than sales for the remainder of 2007? Or are sales going to catch up and absorb the excess inventory this summer or fall?

My vote is yes, this is the top* - prices will begin falling by Autumn 2007. Expect to see inventory increase significantly between now and then, based on unit completions of new construction, and the beginning of a scramble of investors, flippers, and opportunists to exit the market at the peak, realizing their paper gains.

Differing interpretations on the meaning of this volume chart are welcome as well; post your comments here. I will update the chart through the summer, and into the fall. Source of the statistics is VREB.

*not investment advice on when to sell or buy a particular house, of course - draw your own conclusions on that matter!