Is Saskatoon real estate overvalued? Another economist says, “yes.”
In a recently released report from RBC Economics, economist Amy Goldbloom makes a pretty compelling case that real estate is “overvalued” in western Canada and “out of whack with the underlying fundamentals.”
Goldbloom takes “a look beyond the standard affordability measure” and delves into “price to rent ratios,” something which I just happened to touch on, though not nearly as eloquently, in the comment thread of the most recent Week in review. 
This report is brilliantly written and equally thoughtful, but one comment left me scratching my head. See if you can identify it.
Goldbloom has this to say about Saskatoon. “Housing markets across the major cities in the Prairies have long been the most affordable in the country. But, the recent pick-up in Saskatoon’s market has quickly changed conditions. Regina and Winnipeg have seen their price-to-rent ratios move up during the last few years after stable valuations through the 1990’s but are still at modest levels. The bigger story is Saskatoon where the recent pick-up has caused price-to-rent ratios to soar. In contrast to Calgary, Edmonton and Vancouver, the pick-up in Saskatoon has been very concentrated in the last year. The sudden and steep acceleration in price-to-rent ratios coincides with the sharpest deterioration in affordability on record. More expensive conditions already appear to be pricing people out of the market. Fifty percent price gains are starting to weigh on demand and softer demand should feed through to cooler price gains ahead.”
Read the RBC Canadian City Trends report here.
Read also: Saskatoon and Edmonton homes most overvalued: Bank of Nova Scotia economist
Read also: Worst quarterly deterioration of housing affordability on record for Saskatchewan: RBC
I’m always happy to answer your Saskatoon real estate questions. All of my contact info is here. Please feel free to call or email.
Follow our daily updates on Twitter @SaskatoonHomes.
Norm Fisher
Royal LePage Saskatoon Real Estate
15 comments so far. We'd love to hear your thoughts.
May 27th, 2009 at 3:23 PM
When I think of the most over-valued real estate I think Vancouver where people are putting 65 percent of their income towards housing. That’s my affordability index. The average for Canada is 41%and Saskatoon is at 38% (for detached bungalos, September 2007). Saskatchewan is getting up there no doubt.
http://www.rbc.com/economics/market/pdf/house.pdf
If I was a home owner though, I’d be way more nervous about my property in Calgary. The price disparity between a house in Calgary and a house in Saskatoon is something like $200k and when Alberta really slows down, those people are going to migrate to cheaper locations. Looking at the AB economy it slowed down a bit such that Saskatoon beat Calgary in GDP growth and look at the migration we felt. Alberta is still doing well and can you imagine what will happen if oil goes into the tank? If the world can ever get out of these damn wars, I think its going to happen.
As for Saskatoon, I definately see some things happening. Mediam price has risen by about 20k in the last month while average price has fallen by the same amount. It’s really weird and I’ve been trying to figure it out. My best hypothesis is that there was a lot of crap out there that people were asking a mint for. People are asking for less for these properties but the good quality ones are still holding their value. I remember Norm saying that even with high inventories, people always complained about the selection of good houses.
Also, with the steep increase in prices its hella hard for most people to afford the payments or the down payments. Anyone interested in a home is going to have to save for a year or more and demand has to come down (unless migration continues). It all depends on migration but I wouldn’t be surprised to see prices come down a bit between now and January.
May 27th, 2009 at 3:25 PM
Doug,
I hope that you’re not getting worried about your decision to buy.
First of all, keep in mind that the “affordability” study you reference is written by the same economist and that this second paper is intended as a “look beyond” or a deeper look at all issues of affordability. I think it warrants being taken seriously.
Having said that, and since nobody is guessing, I’ll point out that the writer said, “softer demand should feed through to cooler price gains ahead.” She doesn’t even suggest that we’ll see prices roll back. I also found it interesting that she was pretty comfortable with the gains experienced in Regina. We’ve certainly gone up more, but even if we lost the difference it wouldn’t likely take long to get back on track.
The latest Scotiabank report, also penned by an economist says, “The further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction,” said Ms.Warren.
“The 1976 and 1989 housing peaks were both followed by some adjustment in real prices. In the past, this adjustment has normally occurred though a period of
inflation erosion as opposed to nominal price declines.”
It’s true that Saskatoon has increased enough that we could see some corrections. I think it’s more likely that a larger gap will occur between condos and single family homes. Either condos go down or houses go up.
Mean time, I think I’ll be keeping my house.
Thanks for your input.
May 27th, 2009 at 3:27 PM
Norm,
That house on 1439 1st ave N. Wasn’t that house on the market a month ago at $159,000? Do you feel $220,000 is a realistic price for that, or is the seller a little unrealistic in his/her expectations?
The reason I ask is that I own a house 1 block from that one. It’s the one in that interview I thought I over paid for.
May 27th, 2009 at 3:27 PM
Northstar,
That property was listed by an associate of mine while I was away last week and I’m hardly familiar with it. In any case, given that it’s listed with Royal LePage it would be inappropriate, unethical and a breach of fiduciary duties to discuss the seller’s expectations.
I am quite willing to discuss almost anything here with the exception of business which involves a client of Royal LePage Saskatoon.
May 27th, 2009 at 3:28 PM
Hey Norm,
I’m not second guessing my decision. It took me three months of looking to find the house that meet my needs – like I say, there is a lot of inventory out there that is just not worth it. I figured things would continue to cool but I also figured the amount of new listings would drop – meaning a harder time of finding the type of house I wanted. I was right on both counts.
At the same time, I know a lot of people who are interested in buying houses but they’re playing the waiting game to see how things turn out. Lots of demand is out there yet, on top of migration and as soon as inventories start to drop and prices are less volatile, those people are going to move. So I don’t see cooling lasting past January.
As for the economists, the thing they don’t take into account is quality of life. Not to bash Regina but you couldn’t pay me enough to move there. Everyone discounts quality of life but it was my number one reason to purchase – this city rocks, the council is making smart decisions, and there is a great culture developing with some cool things happening in film, media, IT, and the general sciences. An economist isn’t going to put a value on that – but if you go through some of your comments, you’ll see a number of people wanting to come back to Saskatoon but they just need the jobs. Why are they looking at job listing and talking about coming back? Quality of life.
Final comment on keeping your house – good idea!
I bought in for the long haul but for those in it for the short term, I wouldn’t be selling untill the spring. Its just too much of a buyers market right now.
May 27th, 2009 at 3:29 PM
Oh, and as for my tip for buyers I would wait as long as possible but every week is likely going to see fewer listings. I would start looking now to learn the market with the intent of buying in December or January. If the right house comes along and you don’t care about the short term then buy it.
May 27th, 2009 at 3:30 PM
Norm,
I understand completely. Would appreciate an update when it sells though. It’s a perfect comp for my property.
Also, do you know of a website to find out the monthly avg home price in Winnipeg? Like what SRAR has looking back through the months.
Doug,
I agree with everything you said. I love Saskatoon too!!
May 27th, 2009 at 3:30 PM
Northstar,
I will follow up with you on that listing after it’s sold. Sorry, I don’t know of a good Winnipeg site that has those stats. The Winnipeg Real Estate Board doesn’t even publish them.
May 27th, 2009 at 3:31 PM
It’s nice to know that Winnipeg is big enough and rotted enough to show investors the door when they show up mewling for their inflated profits.
I despise everything they do to an economy and Winnipeg is the last place that needs these people further ousting some of the poorest people in Canada.
Also,
I was listening to good ol’ CBC and they had a show on where these people were talking about Saskatoon. Kind of an exposee. One of the people they had as someone from Saskatoon was asked what he thinks as a defining quality for Saskatoon. To my surprise he said “the over inflated house prices”. I just about swerved off the road – haha! Anyway, it was almost like as if he had the mute button taped down on him as we heard from other Saskatoon people but nothing further from this man brave enough to blurt such a truth.
Still goes to show, nobody likes bad news, even when it is important that it be addressed. I guess it’s hard to get certain people to recognize the harm they are doing when they’re getting so rich off of it.
May 27th, 2009 at 3:32 PM
Alex,
That’s a hilarious story.
It is amazing how nobody really seems to want to talk about it. When I do my Royal LePage House Price Surveys I always get media calls. I’ve tried to engage several reporters on “affordability” and it’s rare that the topic gets much mention.
The comments section here has seen far less action over the past few weeks as the market softened. Hmmm.
May 27th, 2009 at 3:32 PM
Media can’t be trusted for anything. Just as the CBC story illustrated as do your experiences… Their motivations are never to properly inform. If they did, they’d have turned the house price increase in Saskatoon on it’s head citing the destructive qualities to the young and developing.
Either wya, I still don’t see the change towards affordability. The only change is talk of it changing in the hopes that the talk is enough to will it into being true. Sick sick sick.
Complacency has set in, or Saskatoon has driven away all those who would suffer by it.
The time to solve the problem has come and gone.
May 27th, 2009 at 3:32 PM
I’m a first time buyer And I wonder what this market offers me by way of a quality home at a fair price. If I jump in now at lets say $240,000 where will I be a year from now? I think the question for a lot of people like me is not so much the cost of buying now but the cost of ownership a few years down the road.
May 27th, 2009 at 3:34 PM
Real estate agents, some who are posting here, always push a sense of urgency. “Buy now, or your going to miss the boat.”
I have been thinking of buying a house in Saskatoon, for pure speculation purposes. After reading these reports, I am second guessing this idea. I think my fellow Albertans have already beaten me on the speculating. It appears that I may already have missed the boat and the potential and realisic gains have been realized. I am also starting to think that all the hype about Saskatoon and Saskatchewan is all one big real estate marketing ploy which many Albertan investors and Saskatoon realators have already (or they are about to)cash in on.
“Saskatoon = Lifestyle” – Yeah, ok, whatever. Maybe in BC, and it comes with a hefty cost to live the “dream.” (Vancouver, Victoria, Okanagan, etc.)
$240,000.00 for a house seems like a reasonable price, if you have a decent job and want to live in Saskatoon and your OK with a Calgarian like me making a quick $50K (at your expense.)
May 27th, 2009 at 3:34 PM
Ryan,
Thanks for the comment. I think you’d be very wise to “second guess” yourself on investing here. The last thing we need is another speculative boom. Why not look south where housing prices are in the crapper and rental demand is high? You can buy cheap, maintain a positive cash flow and see some potential for an upside. Buying in a market where prices have risen 50% in the past year seems like a bit of a sucker’s game to me.
May 27th, 2009 at 3:35 PM
Alex,
You are so right about what you say in this blog.The only problem is you have realtors and flip dis house floozies in here who leech off high over inflated prices.I feel Norm is fair,his blog is great.But I have called a dozen realtors or so across Saskatchewan and they all tell me they have no listings available under 100k.(THATS B.S.)So I tell them im on your mls site right now looking at over 45 listings for under 30k.They seem to not have any time for my small town rural interests under 100k.Now just because I am posting this I dont want realtors to use this comment and create a boom in the rural areas.I know the power of media.I also know that it is not a good idea to jump off a bridge,I dont care who tells me to do it.Its just my opinion.And by all the posts ever posted in here I find Alex to be the lone cowboy standing amongst a bunch of little money hungry savages,looking to profit from nothing but a cheap paint job and lamimnate flooring.Its like he is the teacher and no one is listening to this man.He speaks the truth about over inflated houses,I can relate to him,as I too am an intelligent man with an iq of 155.I think its time people wake up and realize there is no economic boom.Its all in your heads.Playing flip this house you are creating your own little niche of far and few customers who are finally slowly learning 1 by 1 they’ve been HAD.