I would say that up until fall of 2006 most Saskatoon real estate agents had no idea what an “out of province real estate investor” looked like. These kinds of inquiries started happening during the last couple of months of 2006 and inventory was already precariously low.

Who doesn’t know somebody who moved back here through ’06 or ’07? Speculation definitely contributed to ridiculously low levels of inventory through 2007.

I should have worded the first sentence of my response different. What I meant to say is that there was not a shortage, in my opinion, because of migration to Saskatoon, as you suggested (“the 5000 plus new people in Saskatoon would happily be living in tents in the park”), but rather a false shortage by property being temporarily taken off the market awaiting investor flips.

A shortage nonetheless, but in my opinion, it was a false shortage that either intentionally, or unintentionally, drove prices through the roof.

Another point I will make is to look back further than 2007. Even in late 2005 we started to see increases in the range of 15-20%. 2006 marked the year where the smart investors bought the first bits of property. It was the 2006 speculators that created the bidding wars/housing shortage in 2007 – the supply was removed from the market at that time. From my research, 2007 increases were not so much a result of speculation, but from market shortages due to flipping and market hyping by realtors (sorry Norm, it has to be said – but again, like in my other post, this excludes you – you’re one of the honest ones), and over anxious, over-extended first-time buyers.

Conclusion: I can agree with you, SK Economist, that there was a shortage, I just don’t buy the argument that it was because of migration demand or people actually looking to own their home, but rather from speculation.

I do think that we will see downward price pressure, and that’s ok. However it still doesn’t add or take away from the point that governments should probably not insure mortgages. Furthermore, it still doesn’t take away from the fact that people, if they so choose, should be able to build a house on thier own and have the freedom to sell it within four years without have the City of Saskatoon take $50000 dollars from them. A house price is a function of the inputs used to create it (land, labour and material). Which of these have taken the biggest jump, labour and contracting costs. This draconion policy does not apply to those that buy a house through a contractor or a home building company. Only to an individual that doesn’t want to give excess amounts of money to a general contractor. I liked your comments, good debate.

yes supply was scarce and demand was very strong in 07.

But what really was the demand? Was it true demand? With about half of the listings speculators selling of their flips it shows that the demand was mostly from speculators.

Take away 0 down, 40 year mortgage and the easy access to credit in 07, the bidding wars would not have been here. Supply and demand would not have been so out of whack and the price would not have run up like it did.

All I know is that with inflation forecasted to hit over 4% by the BOC ( it will be higher), mortgage rates will be going higher. Mortgage lending practices tightening up, huge speculation and tonnes of inventory on the housing market, we will see a big drop in housing prices. And this is if we have a strong economy here in Saskatoon. If the economy cools off, oh oh.

There never was a shortage in supply as you would have us believe. The supply shortage arose from foreign investment speculators purchasing supply to flip (turn around time being roughly 6 months to a year). This has become even more apparent now when new developments, such as stonebridge, are coming onto the market where demand is satisfied. If there was such an increase in demand and a supply shortage, we would expect the new developments to be snapped up right away. We are not seeing that right now.

This could be done in any market, not just real estate. Say Saskatchewan has 10 barrels of oil. I want to create a false shortage of oil so that the price will increase per barrel. I purchase 7 of those barrels, leaving three on the market. Supply being 4 barrels, the price now rises due to the shortage. Months down the road, with the price now being higher, I place those barrels back on the market, and all of them sell at the higher price.

Yes, it’s a terribly simple example of what in my mind happened in Saskatoon, but I believe the example to illustrate the point myself and other posters have made here. There was enough supply on the market to hold prices post-2006 but for foreign investments taking supply off the market to flip at a higher price. We would have seen a gradual increase of at least 15% over those two years had the investors not got their grubby hands in there. But prices increasing by 150% is clear market manipulation by speculation.

Take away 0 down mortgages, 40 years, not being able to get 2 or 3 more properties and if this 50,000 city mortgage was in place in 2006 we do not see the huge run up in prices the last couple of years. There would have been few if any bidding wars. Bidding wars and speculation were what caused most of our price runup.

Our market was ripe for speculators last year, but if they could not get into the market we would have a very healthy market right now. Hovering in the low 200′s I would suspect.

Good to see George has the crystal ball. Ever heard of zero sum (research it, a house is a commodity, especially in light of past bidding wars), speculators are good for a market. Your missing my point as I am speaking of building versus buying, but thats ok. I don’t want a forty year mortgage, nor would I go with zero down. Thats my situation, but if someone is willing to sell one to someone (prefereably without the government backing, which is absurd – look at the consequences around us)let the tranaction occur. Perhaps George has many rental suites, it would be nice to be able to keep the tenants paying over a $1000 a month in rent instead of into their own real estate although I would encourage then patience.

There are millions in the US, thousands in Calgary right now.

Not sure what the numbers are in Saskatoon, but anybody who bought within 15% of the peak and try to sell will prove to be amateur. Probably anybody who bought Feb 08 and on and are trying to flip.

Amateur = money loss

I appreciate what you’re saying about the potential for harm resulting from government intervention, but isn’t that what really happened when CMHC created “mortgage insurance” which allowed people to buy homes without having to save more than a 10% down payment? Didn’t it happen again when they allowed people to buy with just 5% down, and again went they went to zero-down, and again when they went from 25 year amortizations to 40? Don’t get me wrong as I see some value in some of these programs, but the recent change in mortgage rules is not “regulation” interfering with a free market.

There is no such thing as an amateur speculator! If so, who are they? If a person believes that there exists economic rents to be earned (namely high margins for general contractors) let them assume the risk. If your analysis is correct, why is anyone building, (even via a contractor)? You make your decisions based on your information set. You can try influence others decision through debate not through regulation. There is no room for civil government to try curb the incentive unless you believe they are beyond making bad decisions. This is merely a blatant attempt to try sustain high housing prices, a clear example of political rent seeking. A boom doesn’t go wrong. Supply eventually catches up. Let the market bring about the necessary supply response from individual or from builders.

What happens to those who want to general contract there own home and for external reasons (career promotion, etc) they need to move. Why should thier location decision come at a $50000 additional cost. See the spillover problems from arbitrary goverment regulation.

This new regulation is a good thing. It will save many amateur speculators from being bend over financially. No more runup of prices like 07. If someone is buying a lot to build and flip for next year, they will be out tonnes of money next year. That is guaranteed.

If I am right, Stonebridge will be Saskatoon’s poster child of the housing boom gone wrong. Willowgrove a bit as well, but it has been around for 5 years and is more established. Stonebridge has too many houses bought at the peak and too few houses bought when it was still affordable for the average homeowner.

There are quite a few neighborhoods in the States that started their boom at the end of the US housing bubble and now these areas are in serious trouble. I see the same writings on the wall with Stonebridge.

Do I have to live in the house built?

There is a four-year residency requirement for the purchaser, beginning from the date the lot is completely paid out. A $50,000 forgivable mortgage will be placed on the property and will be exercised for those not maintaining the residency requirement or the two-year construction requirement. The $50,000 mortgage will be removed from the property after both requirements are met.

True north strong and free – ha ha ha

Will be interesting to see how low Saskatoon can go.

I agree that supply and demand isn’t cut and dry. It certainly is a great excuse allowing greedy people to sleep better at night after overcharging for the services/products. (ie. contractors and their $225/sq ft, hah!) Now the tables have turned giving buyer’s more power. Supply and demand must play by the same rules, it’s only a matter of time. (and of course there’s more resistance on the way down)

But again, I think you have a better chance of being right than me. I just know that supply+demand doesn’t paint the full picture.

I’m going to disagree. Similar to the laws of supply and demand which we are ALL too familiar with now, when less options are available for mortgaging a home, less people will be capable of buying in. With less first time buyers there will be more inventory on the market. With more inventory and less buyers comes price reductions. People can’t hold onto properties forever. I’m confident prices will correct more than enough to offset the 5 years lost on those mortgages. (in accordance to where the market peaked anyway – I doubt prices are going errode back to anything I’d still consider “reasonable”)

Elli

Hahaha! Good point!

Not even a little bit. I can even understand why it might appear to be sneaky.

When I hear “price reduced,” I think “so what.” If the price is right after the adjustment you don’t have to brag about having reduced it and I would rather not draw attention to the fact that we were wrong to start with.

I hope you weren’t offended by my comment. Sneaky was a poor choice of word. I think it’s smart not to draw attention to it the price drops like I stated. I just wanted to state that there may be more price drops than people think.

In my experience, sellers are often opposed to the use of such promotional wording and that’s who the seller’s agent takes their orders from.