In a breakdown piece published by The Huffington Post – Canada, prominent housing bear and veteran industry analyst Ross Kay said that instead of looking at price growth as an indicator of the sector’s health, observers should instead consider the days owned between trades (DOBT) as the primary metric.
“It is impossible for any housing market in the world to even maintain the value of its current housing stock on an inflation-adjusted basis without new entrants coming into the market and stepping up to buy their first home, let alone for house prices to rise and fall over and over again,” Kay argued.
“It only makes common sense that if fewer lower-priced homes (like those in the price categories first-time buyers acquire) are part of the sales mix, that is used to create an average price that the average will rise,” the analyst explained. “The opposite of course also makes common sense in that when more sales of lower-priced homes are added to the mix, average prices will fall.”
In an accompanying graph, Kay demonstrated that Canada’s DOBT index has seen a steady downward trend since 2016, which he said belied critics’ claims that housing bears are “Chicken Littles”.
A closer analysis of DOBT across Canada would reveal that the industry’s touted robustness is but a fragile housing bubble, according to the piece.
“The quicker the percentage of first-time buyers increases, the smaller and smaller price gains will take place -- and if they continue to increase in share, negative gains will be recorded,” Kay stated. “The quicker first-time buyer's share of sales decreases, the higher gains in prices will be recorded. DOBT and selling prices have a negative correlation as a result.”
The continuous growth of prices in Canada’s dynamic real estate sector masks the fact that the country has seen three major bear markets and one minor one since 2006, according to a renowned analyst.