No major strains in Canadian housing markets: Scotiabank
According to a recent Real Estate Trends report issued by Scotiabank, Canada’s housing market is “moving towards more balance, but there won’t be a bust like we’ve seen in the U.S. housing markets.” Yet, there’s little question that the heat has come off in a fairly significant way. Resale activity across Canada has “fallen for four consecutive months and is running about 15% below last summer’s historic peaks,” the report’s author, economist Adrienne Warren said. The average resale price of a Canadian home registered its first “inflation adjusted” quarterly decline in seven years.
New home construction is also experiencing change as residential building permits saw “sharp declines” and inventories of unsold new homes are trending higher.
Warren goes on to say, “Canada’s recent record of price appreciation, averaging an annualized 10% from 2002 to 2007, was unsustainable, and a return to more historical norms is a welcome development.” In explaining her confidence that the market is unlikely to see major declines like it did following the last two Canadian housing booms, Warren makes the following points.
- Home prices in Canada are not substantially overvalued
- There is little evidence of widespread speculative home buying that often accompanies the later stages of a housing boom
- Canada’s real estate market is not overbuilt
- Canadian households are not overleveraged
- Overall mortgage quality is still sound.
“From a regional perspective, the cooling in overall activity is most notable in many of Canada’s hottest urban housing markets in recent years, including Calgary and Edmonton. Both centres have officially moved into buyers’ territory as soaring prices weaken demand and fuel new listings. More generally, however, economic conditions continue to favour the resource-rich markets in the West over manufacturing-dominated centres in Central Canada hampered by a strong Canadian dollar and softening U.S. import demand. Regina and Saskatoon are currently in the strongest sellers’ position nationally, supported by good affordability, rising population inflows and tight supply.”
Read the Scotiabank Real Estate Trends Report here.
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.
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Norm Fisher
Royal LePage Saskatoon Real Estate
12 comments so far. We'd love to hear your thoughts.
May 12th, 2009 at 11:02 AM
“Good affordability”??? These guys just don’t give up! Were they saying similar things about Calgary? Afterall we’re at the same level of affordability.
No worries Scotia Bank, Saskatoon is going right into a buyer’s market, just like what’s happening with Calgary and Edmonton. No amount of propaganda is going to stop it.
May 12th, 2009 at 11:03 AM
I particularly like the statement that there’s no speculative buying.
May 12th, 2009 at 11:04 AM
And I’m going out into the sunshine now: enough of this evil internet!
May 12th, 2009 at 11:04 AM
Heather,
Yes, I wonder how high we have to go before there’s no longer “good affordability” here.
jrochest,
I think she actually said “little evidence of widespread speculative buying” and she’s talking about Canada, not Saskatoon.
You guys will love the CMHC report I just posted.
Have a great weekend.
May 12th, 2009 at 11:05 AM
That`s absolutely true that Canada housing market faces a great decline comparing to previous year but as being a Toronto realtor I think that the slowdown has positive effects as well. First of all, the first-home buyers don`t need to make hasty decisions as the competition is not tough and they are able to consider their choice of mortgage plans. The number of foreclosures has risen as well as result of the uncapability to pay mortgages.
May 12th, 2009 at 11:05 AM
West Toronto,
It’ll be a welcome change for sure! :’)
Norm,
Have you thought about getting HTML clearance on this blog?
May 12th, 2009 at 11:05 AM
Heather,
Yes, I’ve thought about it.
May 12th, 2009 at 11:06 AM
There was more bad news about the Canadian housing market this week. The Canadian Mortgage and Housing Corporation (CMHC) have warned that the number of property sales could fall as much as 40% this year. The announcement came just days after the Housing Minister Monte Solberg’s refusal to attend a national housing meeting with provincial and territorial ministers and then inadvertently revealed that the Government believes there will be a 5% to 10% drop in prices this year “at best”. Meanwhile, mostly economists at banks and building societies – believe the falls in prices will be limited to low, single digits. But while the jury’s still out on whether there is going to be a crash or a modest decline, there does now seem to be a broad consensus among the experts’ that house prices will be lower at the end of the year. So, is it finally time for first-time buyers to crack open the champagne and celebrate? If you’re a homeowner, should you be crying tears into your pillow? Who are the real winners and losers when house prices fall? The most obvious winners are first-time buyers. Not only are prices becoming more affordable, but it’s a buyer’s market now, with properties taking 50% longer to sell than this time last year and asking prices dropping, on average, around 27% before a sale can be agreed.* First-time buyers are in a particularly strong position because they are chain-free buyers. So far, so good. But are all first-time buyers winners when house prices fall? Since the credit crunch, it has become much more difficult to get a mortgage, with lenders pulling deals left, right and centre. Even if you can find a cheap mortgage deal with a low rate, you may not be eligible for it. It all depends on the size of your deposit. Due to the increased risk of negative equity when prices fall, mortgage lenders are becoming increasingly wary of lending to borrowers with small deposits. While you can still get a mortgage with a 5% deposit, you’ll have to pay a higher rate. According to the Royal Bank of Canada (RBC), the average two-year fixed rate (taking into account the fees) is now almost 7%, compared to 6.3% last July. On the plus side, those that can save are benefiting from rising savings rates, as banks compete desperately to lure in your cash during this economic downturn. The most obvious losers, you might assume, are homeowners. After all, when prices fall, they lose money.
May 12th, 2009 at 11:06 AM
Doug,
Where did you pick up on this story?
May 12th, 2009 at 11:06 AM
First of all I believe Saskatoon has a huge spike in value and heres why.
Saskatoon is a great city and im glad to live here (East College Park). The reason why prices have skyrocketed over the last 3-4 years is not for reasons of prosperity but reasons of investment. Alberta investors in real estate have been swallowing up property heavily over the last two years. Then when prices almost double they trickle them back on the market for huge profits. Just look around you. How many businesses do you see that are new that arent retail?? People have the same crappy jobs but are spending more on housing/energy/food … its called inflation and no one is spared. This is turn will eventually close businesses and in turn people get laid off and can no longer afford their homes. Then they try and sell those homes only to realize that thousands are trying to do the same and WHAMMO huge declines in housing prices. OH and for those commodity driven people who think because we are a huge resource rich province we will be safe from such reactions , think again. Those resources help the coffers and select workers NOT the whole city. We are in better shape than the USA but beware good times dont last forever.
May 12th, 2009 at 11:07 AM
Well if you think about it, it’s been about 5 years since my roommate bought her house. It’s gone up 178% in 5 years. Normal appreciation would be under 6%, but houses were undervalued previously. A reasonable appreciation would have been say 10%/yr to correct all the way to what prices should be. That compounds to about 61% – so to me houses are currently about 2.78/1.61 = 1.73 so 73% overvalued.
So that means that a house on my street (West Side) should cost on the order of about 90,000*1.61 = $144,900, and is listed at $250,000.
Is that possible? Well let’s see. 5 years ago new construction on the cheap was about 60$/sq.ft.(and I’m told it still is in New Brunswick) – the going rate is now 160$/sq. ft due to demand and material prices. However, the price of materials has recently plummeted due to the housing crash in the states, material demand dropped a lot which resulted in the price drop. I understand that there is a lot of new product coming onto the market that isn’t selling. Let’s check some ratios. 160/60= 2.67 which is pretty close to what housing has gone up by in general. Apply the same inflationary increase to the cost/sq.ft and you get to 60*1.61=97$/sq.ft. . I don’t know if you can really justify 10% inflation on construction since inflation is actually more like 2.5% over the last 5 years, and like I said materials are way way down. So this shows you that the cost of housing is directly related to the cost of construction which is I believe going to drop. 100$ per sq. ft. is a reasonable price for quality construction and humble but decent trim. It should drop to around 115$/sq. ft from 160. I don’t think it will come down all the way because there are so many big industrial construction projects on the go.
At that price, a 1050 sq.ft bungalow in Stonebridge should go for about 85000 lot + 1050*115 = $205,750 and currently sells for around $300,000. So on that aspect I would call it 300/205.75=46% overvalued. I’d say the difference there is in the fact that the city jacked up the price of lots too.
So long story short, I expect the price could drop up to 50 to 70% as more product hits the market than sells. As of October 5% down is the minimum and there will be no more 40 year mortgages. The average household income in Saskatoon is 61,000. On a 40 year term, they could afford $221,500 including closing costs with zero down, at 35 years with 5% down the most is probably 95% of 215,600 or about 205,000. That alone should cause a 5% drop in pricing.
Driving around, I noticed that there seems to be quite a few Coldwell Banker for sale signs in good neighborhoods. Aren’t those are foreclosures? The flippers may be losing their shirts. If the flippers dump their product and stop buying up the properties, then there will be more surplus and the price will go down further.
May 12th, 2009 at 11:07 AM
Hey Drew,
Thanks for the comment.
Your statements seem to be at odds. Using the conservative side of your overvaluation estimate (50%) would suggest that an average selling price of $145,000 would be more appropriate for Saskatoon. That would take us back to 2004 levels and well below 6% annual appreciation for the preceding 20 years.
Lots of flipper activity but “foreclosures” are virtually non-existent here, at least at this point.