Saskatoon’s home sale market continued to stabilize in February: SRAR
The Saskatoon Region Association of REALTORS® (SRAR) has released February’s statistics for the residential real estate category along with the following information for the media.
When measured against the last two years, which were anomalies, the Saskatoon real estate market has softened. When measured against activity over the last five years, market activity is on par and ahead of sales figures from 2004, 2005 and 2006. Home prices have increased considerably during this time. As a result of the significant swings in prices, demand, and speculation, the greatest challenge facing sellers is to adjust their expectations in this changed market place.
The residential home sale market performed as forecasted in February. Unit sales are expected to soften during the first half of 2009. Demand for property in the month of February remained steady. REALTORS® sold 211 residential units, down 42% from the same month last year when 365 properties were sold. Year to date unit sale numbers are ahead of 2005 and 2006 sales figures.
Year to date, REALTORS® have sold $118,569,000 worth of real estate, down 32% from 2008 when $173,8957,000 had sold. The average selling price remained steady for the month at $281,681, up 7% from 2008 when the average was $263,444. The average selling price was influenced by 25 sales above $400,000. The average price indicates that sales activity focused on the mid to higher price ranges.
Residential inventories remained above average with home buyers having 1,313 properties to select from at the end of the month. Inventory numbers are up 256% from 2008 when 369 homes were available for purchase. Expectations are that it will take the better part of the year for this inventory to move through the market.
Residential sales trends in surrounding areas were on par with city activity. Unit sales softened with 44 properties selling last month, down 56% from the 100 units sold during the same month last year. The average selling price remained steady at $257,465, up 19% from 2008 when it reached $217,012.
Please drop back before the weekend for a peek at our “Closer look at the Saskatoon real estate statistics” which will analyze sales activity in the single-family home and condominium categories for the month of February.
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.
Norm Fisher
Royal LePage Saskatoon Real Estate
60 comments so far. We'd love to hear your thoughts.
April 15th, 2009 at 1:18 PM
Count down to year over year price decreases…
Huge inventory will = price drop
Just not quite yet…
April 15th, 2009 at 1:19 PM
Nick,
You may be right, but as you can see by the news and data we remain a relative solid market compared to the rest of the world. I like how SRAR refers to 2005 & 2006, that is a good way of putting this slow down into perspective.
The question will be can the rest of the world drag us down
April 15th, 2009 at 1:19 PM
A few months ago I posted we would see ZIRP in Canada like Japan saw in the 90′s. We are inching closer.
If they go below 0% and pay people to borrow watch house prices explode
Lending rate near zero
http://business.theglobeandmail.com/servlet/story/RTGAM.20090303.wrates0303/BNStory/Business/home
April 15th, 2009 at 1:19 PM
Regina’s monthly numbers for some of us…
http://www.leaderpost.com/business/Home+sales+Regina+good+comparatively+speaking/1345981/story.html
April 15th, 2009 at 1:23 PM
How many “off-market” condos are there right now? I suspect “real” inventory is much higher than what the MLS is indicating.
Let’s explore that a bit:
Milroy – a few units listed last I checked, actual number much higher;
2nd Ave Lofts – lots of units still for sale, some private sales now, only a few of which are listed on MLS;
King George – still units for sale, not listed on MLS;
The Luxe – are there any listed yet?
Rumley Lofts – still units for sale, token units listed (? – haven’t checked in a while)
River Landing (a.k.a. – the Pipedream) – god knows how many units will be there if it ever gets built.
Various other small condo conversions not fully listed.
I would put actual inventory (both listed and non-listed) somewhere in the range of 2,000 units as of today’s date. This doesn’t include houses that are waiting to re-list for the spring market (lots have already been listed, but much more to come).
My take on the spring market: Tons of inventory; a small sucker’s rally in april/may; further decline through summer to end of 2009. Price reduction after suckers rally in the range of 15-25% YoY.
April 15th, 2009 at 1:24 PM
George, if they lower rates to 0% it will be indicative of much larger problems in the economy. Despite how appealing that may to many, I think the capital “D” word will be floating around prominently and buyers are going to stay on the sidelines. After all, at 0% interest rates have nowhere to go but up from there. I’m with James on a Spring-Summer sucker rally.
April 15th, 2009 at 1:24 PM
–Jason–
Why don’t you tell these “suckers” how long you expect the Saskatchewan recession to last? That way you can prevent them from making a bad investment decision.
Because, as you know, everyone west of Ontario has yet to enter recession territory. Remember, a recession is most commonly defined as two consecutive quarters of economic contraction.
A few questions for you:
1)Do you think Saskatchewan’s economy will contract in 2009? 2010? and for how long should we close our wallets?
2)How many quarters should a buyer wait before they are suckered in?
3)Prices are already below the peaks of 08′. Do you think if our economy does/doesn’t go into recession we will drop below values of 2007? 2006? 2005 maybe?
4)Do you think that lowered house prices will in some way help our economy?
5)Ontario is primarily plagued by a failing US auto industry and lowered consumer confidence. Do you feel that is enough to drag Saskatchewan into recession?
6)If so, which of our main industries will lead the recession charge? Potash, Agriculture, or Oil? (Remember we don’t have heavy oil sands production, only exploration, so all of our current light sweet crude production is very profitable at these prices)
I am interested to hear a much broader outlook from your realist perspective.
April 15th, 2009 at 1:25 PM
James P.,
And that’s not the half of it really. The additional “planned” projects which immediately come to mind would easily double the numbers of those you’ve thrown forward. You’ve got the Coronado and London Flats (?) both well underway in Lakewood. There are a couple of buildings under construction on Preston by Armitage. There’s AquaTerra in University Heights. There’s Villagio in Stonebridge. You might recall RDL tore down a bunch of old buildings on Main Street to build new condos (Silverleaf?). You’ve got that vacant patch of land on College Drive (J.B. Black Estates). Willowgrove Estates in Willowgrove. There are three additional projects at various stages in Hampton Village. Most of these projects include a significant number of units. This is all new construction. Doesn’t include any of the conversion action. Some of these developers have some deep pockets but man, we sold fewer than 700 condos on the MLS last year. Scary.
April 15th, 2009 at 1:25 PM
To add to the condo problem Norm. The whole idea of buying condo’s is really still a ‘Big City’ concept. We still have a lot of available land (and by a lot I mean TONS. You can look in any direction for at least 100 kms.
I’m not convinced we have the downtown and mass transit required to motivate a large mass of buyers into that segment (yet). However, it is a bit of the chicken and the egg scenario. Does effective transit and a bustling downtown come before a dense residential base, or is it the other way around.
April 15th, 2009 at 1:27 PM
L.oki,
I think that the “downtown” condo development has great potential but it needs to be available at the right price. We probably aren’t ready for a $350K+ market in any great numbers. Offer something with a pretty view, secure parking and some half decent upgrades at $250K and I think you have a winner. I would love to see a downtown that’s bustling with people in the evenings.
April 15th, 2009 at 1:27 PM
Loki,
I’m not Jason, but let me take a crack at a couple of your questions, if you would be so kind.
“Do you think Saskatchewan’s economy will contract in 2009? 2010?”
Quite significantly, particularly if there is continuing global demand destruction, and I would say there is a very good chance of that happening, at least until Q1 2010. I’d say agricultural commodities will fare better that oil and gas in the short term, though.
As to being “suckered in”, if buyers have a significant amount of equity and don’t mind seeing some or all of that equity evaporate in the short term, buy away. If you think your employment situation is less than stable and/or you have little to no down-pyment squirreled away, I would wait.
“Do you think that lowered house prices will in some way help our economy”
You may be failing to see how lower house prices can “help the economy”, yes. Falling home prices may not be good for current homeowners who are overleveraged, but if you have a significant amount of equity in a house and ever want to upgrade, you could benefit from falling prices because you may save more on your next house than you’ll lose in selling your current house. It will help the economy when first-time homeowners can more easily get into the market, and consequently furnish and renovate those houses. High house prices have been very unfair to new families, especially those with children. It is very difficult for them to buy at current prices, although this is improving. It will also help the economy when buying a house to rent out clearly makes money, which it only has on fairly lower-end properties recently.
“Ontario is primarily plagued by a failing US auto industry and lowered consumer confidence. Do you feel that is enough to drag Saskatchewan into recession?”
I’m think this is a bit of a non-sequitur. The global economic contraction is what is affecting the auto industry, and that is also what will affect us, admittedly to a lesser degree.
April 15th, 2009 at 1:28 PM
Crikey, thanks for your input, but yes I am looking to Jason on this one. (Crikey: You realize a contraction isn’t a slowdown right? It is negative economic growth)
Norm, do you feel buyers should downgrade their expectations? It seems easy to blame the developers but consider the new river landing development by Lake Placid. It is already half spoken for and condo’s start at $299,900 for 582sq.ft.
The city wants a vibrant downtown, they want development that isn’t square and ugly. They want convenience and style. They want secured underground parking, a beautiful river view, and a nicely upgrade 2 bedroom unit…you can’t buy a Kia and expect Lexus quality.
April 15th, 2009 at 1:29 PM
Loki, sales wise we may be down over 2008 but up over average but …
Inventory wise we’re way up over ANY of the past 5 years for this time of year, and ANY time in 2003 – 2007.
There is a lot more inventory out there, and prices will need to come down to attract buyers for all the empty speculation houses and especially condos out there. By virtue of the huge and increasing inventory alone, the market is Weaker than it has been in several years.
Right now, buying in Saskatoon doesn’t make sense,
Regina, Winnipeg and Edmonton are all a better deal.
As much as I have to admit I’m surprised Saskatoon prices have stayed up, they are above last year (when sales were more than now) and listings/inventory is way up (3 to 4 times more) than the past several years. I’m thinking either prices in Saskatoon fall to sell some of those vacant properties, or we see sales fall further, as buyers chose to move elsewhere, rather than stay in Saskatoon at a premium. Especially when they can rent for cheaper in those same cities while saving up to buy. I did.
(The reason the Regina (or Edmonton or Winnipeg) vs. Saskatoon argument IS relevant. When they are all cheaper to buy/live in/pay more(not Winnipeg for pay) Saskatoon needs to Beat them in something to have people pay more to stay)
April 15th, 2009 at 1:38 PM
L.oki,
“It seems easy to blame the developers”
I don’t blame anyone for anything. If developers can convince buyers to pay $515 per square foot they should be free to do so.
“but consider the new river landing development by Lake Placid. It is already half spoken for and condo’s start at $299,900 for 582sq.ft.”
Oh, how I hope you’re right. However, I fear that $1,000 refundable deposits are not a sound measure of commitment.
“you can’t buy a Kia and expect Lexus quality.”
I appreciate this. A Lexus is an exclusive automobile that everyone would like to drive but few can actually afford to do so. The same principles apply to real estate. The average Saskatoon couple earns around $80K a year. They probably shouldn’t be driving a Lexus or living in a $300,000 condo. My bet is that their bank won’t likely lend them money to buy the condo, especially if they’re driving that car.
April 15th, 2009 at 1:38 PM
The price of Lexuses also didn’t go up more than 50% in one year…
Touche to Norm, a small condo downtown and mediocre family houses shouldn’t be considered Lexuses, obviously some one making $80,000 a year (pretty good job) can’t afford Sask Cres. But now a days, a $300,000 house is almost 4 years of their income, and with USED Kia ammenities.
April 15th, 2009 at 1:40 PM
L.oki,
Sorry, didn’t mean to intrude.
“(Crikey: You realize a contraction isn’t a slowdown right? It is negative economic growth)”
Yeah, I get that, but measuring the contraction after it’s occurred is by necessity a very trailing indicator. It will be another three months before the data catches up with the real world to reveal the consecutive two-quarters of economic contraction needed to meet to definition of a technical recession. By definition, the economy slows down before it measurably “contracts” over the last quarter, yes?
April 15th, 2009 at 1:40 PM
Sad the best comparison some one could think of for Saskatoon was a Lexus. In Toronto they aim for Bentley.
April 15th, 2009 at 1:40 PM
Joke: What’s the difference between an investment banker and a pigeon? A pigeon can still make a deposit on a BMW…
Crikey, thanks for putting a plug in for me!
L.oki, as to your first statement/question, I expect the recession will last until (as a society) we learn to once again live within our means. This also means that a “house” will return to mean “someplace you live” as opposed to an investment. But since you’re most likely looking for a specific timeframe, I think we’re going to be in a depression (that’s not a typo with the “d”, btw) from 2009-2010 followed by 2-3 years of recession; maybe more. I do know what the technical definition of a recession is and I think that when they release the Q1 2009 numbers in late April or May we’ll find that we’ve in fact been in a recession since the Fall of 2008. On to your specific questions!
1. Yes and yes (contract in both 2009 and 2010). How long should you close your wallet? Well, we’re entering a period of deflation, so I think if you can defer any larger purchases so much the better. Obviously one has to live, so there’s not much a person can do with basic costs of living. There was an article in the Globe yesterday that said we can all expect to work longer, harder and for less money with considerably more stress. As recessions tend to see an increase in spending on entertainment, I think this is a great example of where the priority could instead be applied to health, nutrition and fitness.
2. With the housing market? I think it absolutely depends on one’s financial situation. I think you need to weigh the pros of home ownership against these very uncertain economic times. As a first time homebuyer, I’d pass until prices return to at least pre-2007 (2006) levels. For those that have or are willing to pay cash this will be less of a juggling act than for those that need to obtain financing at whatever the interest rates are at the time. Again, you’re probably key on a timeline so I’d say the best deals to be had would be very late Fall or Winter. I think if you assess the market at that time there will also be some very good indications of where housing prices are headed in 2010.
3. Yes, I see prices returning to at least 2006 levels. How quickly really depends on how fast the economy continues to deteriorate and how longer buyers (as a whole) are prepared to hold out.
4. YES, absolutely. A 30, 35 or 40-year mortgage is essentially “rent” as the majority of the payment is in fact interest. Nothing against banks, but this essentially sucks a huge amount of disposable income out of the general economy as people make sacrifices and choices for their home payment.
5. Ontario in itself? No. But I think a collapse in oil and commodity pricing will.
6. Barring adverse weather (knock on wood…) I think agriculture has the potential to emerge ahead of the pack (people always need to eat). I also think that anyone who farms has been through quite a few economic and environmental cycles (including the last Great Depression and droughts in the 80′s), and I think they’ll be more self sufficient. Oil next (while we may not be running out of oil, we are running out of the “cheap” kind) followed by commodities (including Potash).
April 15th, 2009 at 1:41 PM
“Saskatoon’s demand fails to keep up with new listings”
April 15th, 2009 at 1:41 PM
Nick, Crikey, thanks for jumping in!
Star Phoenix headline today: “Economy on the skids”.
Norm, I think it’s safe to say that we’ve certainly overbuilt certain ‘types’ of housing, condos in particular. PS. Don’t forget “the second parking stall” Norm, very important! Yes, it would be nice to see a downtown bustling with nightlife, and it occasionally is (just not the type I think you’re alluding to). Culturally I think you’re drawing an analogy with Europe where this is very commonplace. Then again, you can buy lofts cheaper in the UK than you can in Saskatoon.
L.oki, River Landing is not 50% sold; they sold out the first phase of the development which I guarantee was not 50% of the total units available (maybe 20-25%, tops). And as Norm has pointed out, a refundable (or not) $1,000 deposit is hardly “sold”. 25% down then we’ll talk.
April 15th, 2009 at 1:41 PM
Norm/L.oki, one thing I do agree on is that it would be great to see a vibrant downtown. I think Meridian has done an excellent job renovating the King George and even the Luxe (albeit these tend to be more on the upscale side). It remains to be seen if the River Landing goes ahead (doubtful). One of the best examples of “missed opportunities”, though, has to be the 2nd Avenue Lofts. They had *so* much potential and in the end were done very cheaply when compared to the Rumley or some of the other heritage conversions downtown. I know that it was an excessively long development which certainly didn’t help.
April 15th, 2009 at 1:45 PM
Or…Star Phoenix headline today:
Sask to lead country with 1.9 percent growth in 2009.
http://www.thestarphoenix.com/business/fp/Sask+lead+Canada+economic+growth+2009+Conference+Board/1349109/story.html
A far cry from contraction.
That’s from the conference board, same as Scotia predicted very recently. No matter how you cut it, the amount of infrastructure spending alone is worth a few points of gdp. That stuff is a done deal.
Beyond the next few months, I think the majority of economists now believe inflation is far more likely than deflation. Too much money being printed and spent over the next year to result in anything but inflation once it takes hold.
“buyers are going to stay on the sidelines. After all, at 0% interest rates have nowhere to go but up from there.”
Meaning…what…they’ll wait for them to go up?
Not sure I follow. They may wait for one reason or another, but certainly not that.
It seems some bears on this blog are eyeing up a house purchase in the near future. Some suggest fall, winter might be the time for the best deals. Even though sales are actually pretty good (in Regina, we’re ahead of all recent years except last year), I think a lot of buyers are still on the sidelines right now. My prediction, we may have a quiet spring, but many will make moves in the second half of 2009 before rates start rising off historical lows? Could sop up inventory. We’ll see I guess.
Also, when I think of Saskatoon, I always think of those few thousand high paying jobs coming to your area in the next few years. I mean, that’s more than a wild guess. That’s an actual business plan by a company with money to burn.
April 15th, 2009 at 1:45 PM
Thanks for the reply Jason. I enjoy seeing new sides to every argument and I singled you out as someone who is educated on the topic yet holds much different views than myself. So again, thanks for the reply. If I can formulate my rebuttal (in a friendly way), please see below:
1. “defer any larger purchases so much the better”
If indeed we are headed for a “D”epression closing the wallet will be how we get there (or some other sort of protectionist mindset which brought on the 30′s depression)
2. “With the housing market? I think it absolutely depends on one’s financial situation. I think you need to weigh the pros of home ownership against these very uncertain economic times.”
Well said. This is either a great time to get in, or a bad time. I know you will argue bad, but like Buffet says…”Buy while there is blood in the streets”
3. “Yes, I see prices returning to at least 2006 levels.”
This is a bold statement. That would mean someone who buys a $200,000 house today should expect to sell it for nearly $100,000 in the near future. Even in the states this there are several regions of house price relative stability. Do you think anywhere in Canada could have a relative stable market?
4. “YES, absolutely”….”sucks a huge amount of disposable income out of the general economy”
I agree with your disposable income point and that is a very very good point. But a large drop in house prices (like what you are describing above) is historically a direct result of wide spread job losses and wage cuts. (And you don’t have to look very far back or south to see this). I suppose this was somewhat of a trick question…you are correct, low house prices mean more disposable income. But falling prices, mean falling wages, falling economy, and in general it is way better to see stability in the market and year over year increases with wages following close behind. (in an ideal world)
5. “But I think a collapse in oil and commodity pricing will.”
I believe almost all major sask. commodities are higher than 2005 levels or equal to. I don’t recall such a depression in 2005. But I am assuming you are predicting a nosedive of oil and potash etc. That key factor here is exploration has stopped and people keep driving. OPEC is also cutting supply and they control the prices.
6. “agriculture has the potential to emerge ahead of the pack”
Couldn’t agree more, this is a large SK advantage over many parts of Canada
April 15th, 2009 at 1:45 PM
Mark has a good point on inflation. Guess what happens after an extended period of low interest rates and government cash injections. Housing could be the best defence against deflation (I don’t believe this, but it is possible).
April 15th, 2009 at 1:46 PM
“Housing could be the best defence against deflation (I don’t believe this, but it is possible)”
I think you meant inflation. Housing is a bad place to be in a long term deflationary period.
April 15th, 2009 at 1:46 PM
Ooh! A prediction!
Previous predictions have consistently over rated Saskatoon’s/Saskatchewan’s performance.
I’ll believe it when I see it.
April 15th, 2009 at 1:46 PM
Mark, yes – noticed that online later in the day (the duality of the media). Sorry, I should have clarified: those (cash) buyers looking for a rock-bottom deal may in fact wait until interest rates skyrocket because this will disqualify potential buyers (financing) and could depress housing prices further. Those homebuyers that require financing will probably look for where the lowest interest rates and housing prices intersect before entering the market.
L.oki, and I yours.
1. I think we’ve entered a “cycle of fear”. Just 6 months ago we were the only G7 country that was going to avoid a recession; 3 months ago we weren’t going to be running a budget deficit; less than a month ago the Bank of Canada was predicting a phenomenal growth rate. I think this is a case of “fool me once, shame on you – fool me twice, shame on me”; the various government and financial institutions in this country have lost their credibility.
2. “Be fearful when others are greedy and greedy when others are fearful.” I don’t think we’re quite there… yet. I’d have to have a really good reason (beyond interest rates being historically low) to leverage myself to the hilt in order to become a homeowner. That’s the kind of short-sighted mindset (lacking solid financial planning) that really got us into this mess in the first place.
3. Markets have a tendency to overshoot, and this one is no exception. There may be no logical or rational reason for prices to return to pre-2007 levels, but the same fear that fueled the current housing bubble has the potential to wreak havoc on the downswing as well.
4. With any market correction, it’s only realized when you lock-in your loss or gain so yes, it’s an unfortunate reality that for some this will be a heavy economic setback. Eventually the market will bottom, consumer confidence will return (and hopefully a little wiser, with some valuable lessons learned).
5. I think we’ve already seen a nosedive in oil and potash; the problem with commodities (as a whole) is that many countries now lack access to the necessary credit required to purchase. So until the financial and credit situation change these will probably remain artificially low. Ultimately, though, unless there’s some revolutionary development with alternative fuels, oil will probably see a return to $100+/barrel.
6. Food, access to clean water and abundant energy supplies are the three essentials moving forward.
April 15th, 2009 at 1:47 PM
Mark,
“Sask to lead country with 1.9 percent growth in 2009.”
The story you referenced actually predicts growth of 1.6% and here’s the Conference Board’s prediction of 3.6% from November 30.
http://www.newstalk650.com/story/20081113/8521
I want to believe it but it does get hard to put much faith in these fluid predictions. Seems to me that people are very slowly waking up to the fact that Saskatchewan is not an island.
April 15th, 2009 at 1:47 PM
Mark I did indeed mean “inflation”, thanks for the correction.
April 15th, 2009 at 1:47 PM
I disagree with the idea that a house is a good hedge against inflation. While a house may afford you the benefit of increasing with the rate of inflation in the future, it does nothing to guard against the idea that the inputs to run your household would be increasing at a dramatically faster pace than your house. Who cares if you house goes up in an inflationary period if your cost to heat your house is 700.00 a month. Toothpaste is 21.00 a tube, carrots cost 3.00 dollars each. In an inflationary period there is no advantage to owning rather than renting.
Inflation is the problem not deflation.
Nix
April 15th, 2009 at 1:48 PM
Home buying in Canada expected to increase: Survey
http://www.thestarphoenix.com/Business/Home+buying+Canada+expected+increase+Survey/1352440/story.html
Real estate market prime for first-time buyers
http://www.househunting.ca/buying-homes/story.html?id=29e8c051-6017-4857-8830-3c976c80d7de
With interest rates so low, first time buyers better buy now or forever be priced out….again
April 15th, 2009 at 1:48 PM
Nix,
If the end game for a person is to eventually own a home, a person is better off to own in an inflationary period and rent in a deflationary period.
Inflation helps people, governments pay off their debt with cheaper dollars because there is more money floating around in the system.
Unfortunately because of our society deflation is worse than inflation because of all the debt levels. That is why governments all around the world are throwing billions and billions to keep deflation at bay.
April 15th, 2009 at 1:49 PM
George, be afraid… be very, very afraid.
This latest effort to spin the new interest rates is nothing more than a thinly-veiled attempt to reach for your wallet in the latest “sucker’s rally”; it’s a desperately-needed second chance for those sellers that initially priced their homes too high. I don’t understand if ‘there has never been a better time to buy with interest rates being so low’, why aren’t these sellers instead refinancing and keeping their homes?
captcha: the Georgine
April 15th, 2009 at 1:49 PM
I agree George.
—-
And Nix…your look at inflation is not accurate. I don’t know what else to tell you…If things are inflating, in theory, MANY people believe you want to be well leveraged. Stocking up on toothpaste or being worried about gas bills will not help you in an inflationary time.
The idea comes from the following: Imagine if inflation goes up from the typical 2-3% to say 6% and stays there for a couple years. A $300,000 house, is now worth (or selling at) around $337,000 after two years of inflation (given everything else stays equal…this is strictly an example looking at inflation)
The banks hate this scenario because the debt owning gets paid back but the bank actually ends up with a relative less amount of money (i.e. the money is worth less today than it was 2 years ago).
The reason it spins off and spurs rapid (and uncontrollable) economic growth is because there is more money in the hands of consumers and they are more likely to spend it quickly because they know the value of hard goods is likely to increase as the value of the money in their pockets is decreasing. (i.e. you buy that car right away because you know it will be cheaper today than tomorrow)
As an aside: Saskatchewan is still forcasted to lead country in growth. Can’t wait to see how this year pans out.
April 15th, 2009 at 1:50 PM
George,
Apparently, “A lot of people are going to be kicking themselves for not buying in this market.”
http://www.youtube.com/watch?v=aSTdelX3_gU
You do have to wonder about these rates though. TMG is advertising 3.99% for a five year fixed. Who knows what will happen with rates but it has been pointed out that they have nowhere to go but up. If that same five-year fixed went back to the 6.5 range you’d need to get your $200,000 mortgage down to $155,000 to net the same payment. In other words, prices would have to decline about 22% to net a lower payment at a higher rate.
April 15th, 2009 at 1:50 PM
Norm, I couldn’t agree more.
April 15th, 2009 at 1:50 PM
L.oki, if we run into a period of inflation, houses may not necessarily increase in price; higher interest almost always accompanies inflation, so inflation + higher interest rates = higher monthly payment. This will decrease demand by removing potential buyers from the market, will it not?
I do agree that banks hate this scenario, but not necessarily for the same reason (although I agree with your assessment). By borrowing at 0.5% from the Bank of Canada and loaning at 3% they’re making a 600% return on their investment!! If they have to borrow at 4% and loan at 6% they’re only making a 50% return on their investment. Not only that, but they can sell far more mortgages when the rates are 3% vs 6%.
Norm, yes, and that’s the really scary part, isn’t it? Over the past decade the Bank of Canada rate has ranged from a high of 5.75% to a low of 0.5%, which translates into interest rates of at least 7.75% to 2.5%, and mortgages will usually by a half point higher. The Bank of Canada rate dropped to as low as 2.0% in January 2002 and increased to as high as 4.5% in July 2007. So if we return to pre-9/11 levels, you could be easily looking at 8%+ for your mortgage rate. That’s potentially 2-2.5x higher than the current rates.
April 15th, 2009 at 1:51 PM
Sorry, I couldn’t resist posting this (from the main CNN homepage):
“Thousands of jobs open if you don’t mind moose” (there’s actually no reference to moose in the article, which I was kind of disappointed to find out…)
http://www.cnn.com/2009/WORLD/americas/03/04/saskatchewan.economy/index.html
April 15th, 2009 at 1:51 PM
Jason,
That’s great. Brad Wall is a terrific spokesperson for the province and you can just tell he really loves Saskatchewan. Not sure where the “moose” thing comes from, like you might run into them on a regular basis. Anyway, too funny.
April 15th, 2009 at 1:51 PM
Just a few comments
1. Agriculture commodities have crashed since 07 and part of 08 highs. In the broader sense, most consumers really don’t give a crap about where their food comes from. Agribusiness outsources products where it is the cheapest. Many other countries can produce this food for a fraction of the cost we can in Canada.
2. Europe has done an amazing job at subsidizing and protecting agriculture in its own EU countries. The US subsidizes in a “hidden” way. Ie when dairy cow numbers are too high there is a government buy back at a gauranteed price for an animal no matter the quality. There are many other such programs that provide subsidy to producers that we don’t know about. Sask. actually just came up with a bunch of money for livestock producers as well. According to NAFTA in its tightest definition, these are agricultural subsidies.
3. The only products in Canada that are pretty much gauranteed Canadian grown are dairy and poultry products due to the quota based system. Anyone that thinks the quota is a bad idea – check out what happened to Jamaica when they removed their quota system. Despite being totally self suffiecient pre 80s agriculturally, they now are import dependant. The US would crush us economically with poultry and dairy without the quota system. Beef – we are now competing with Brazil (no way we can compete as it is extensively produced with minimal cost to producers) and look out for when the Ukraine joins the EU.
4. Agrium is laying off workers. Where I come from (BC = forestry) that is symptomatic for contraction. I remember driving down streets that had at least half of the houses for sale. Price declines of 50%.
So Maybe SK is immune to what happens globally. But I suspect it is highly dependent on exports, as the population base hardly utilizes the provincial product. How many cows per capita are there? Bushels of wheat,canola?
Oh yeah, where is the other major producer of potash??????…..hint – another major agricultural bread basket that can produce stuff at a tenth of the cost of Canada.
Sorry, I love SK but get the blinders off!
April 15th, 2009 at 1:51 PM
And I agree,
The blood is certainly not on the streets in SK yet.
April 15th, 2009 at 1:52 PM
Good conversation about debt and inflation! I hadn’t really thought about the consumer product angle, but there is no question that debt (mortgage or otherwise)is easier to pay off in an inflationary period. I’ve found this helpful advice on how to invest in inflationary vs. deflationary periods:
http://tinyurl.com/c592oe
I think the trick is not to get too invested in any particular economic outcome.
On another note, this was in the G&M today:
Mortgage market growth cut in half since mid-2008
http://tinyurl.com/csvxsv
The article makes this news sound bad, and perhaps it is for the banks. For the consumer/potential borrower, it could be good news- more comptetition for business, do you think?
April 15th, 2009 at 1:52 PM
Norm, and I was so looking forward to the “moose” part…
Cindy, all great points. And I heard through the grapevine the other day that the Potash Corporation has not relocated a lot of the laid-off workers to other facilities as they had initially indicated.
Crikey, excellent articles (thanks). “CIBC says that means the industry will have to generate about $55-billion in new mortgages just to compensate for the ones reaching maturity.” I guess this explains why “now is the best time to buy” (for the banks, I mean…
)
April 15th, 2009 at 1:53 PM
L.oki,
I think I have a pretty good idea of what inflation is and what the effects are.
“The reason it spins off and spurs rapid (and uncontrollable) economic growth is because there is more money in the hands of consumers and they are more likely to spend it quickly because they know the value of hard goods is likely to increase as the value of the money in their pockets is decreasing. (i.e. you buy that car right away because you know it will be cheaper today than tomorrow)”
The above statement is completely false and ignorant. Inflation and economic growth have nothing to do with one another. The opposite is true. When you print dollars you are simply printing dollars there is no capital. Capital comes from hard work and savings. You cannot print capital. If economic growth was only dependent on inflation then why not grow the money supply at 100% we would all be millionaires. Everyone wins!
Has it worked for Zimbabwe?
Nix
April 15th, 2009 at 1:59 PM
“Inflation and economic growth have nothing to do with one another.”
Nix, again, not correct…Yes extreme long term inflation can have a very negative result on economic growth.
However, I am referring to moderate inflation. The Canadian government was actually contemplating a ‘controlled’ moderate increase to inflation to help the economy. They didn’t head that route and went for interest rate cuts. The problem can be that once you start the inflation train it is difficult to stop. Below is an outline of some of the possible positive side effects of moderate inflation. I starred a section you should pay particular attention to:
———————————————–
Some possibly positive effects of (moderate) inflation include:
* Labor Market Adjustments: Keynesians believe that nominal wages are slow to adjust downwards. This can lead to prolonged disequilibrium and high unemployment in the labor market. Since inflation would lower the real wage if nominal wages are kept constant, Keynesian argue that some inflation is good for the economy, as it would allow labor markets to reach equilibrium faster.
* Debt Relief: Debtors who have debts with a fixed nominal rate of interest will see a reduction in the “real” interest rate as the inflation rate rises. The “real” interest on a loan is the nominal rate minus the inflation rate. (R=n-i) For example if you take a loan where the stated interest rate is 6% and the inflation rate is at 3%, the real interest rate that you are paying for the loan is 3%. It would also hold true that if you had a loan at a fixed interest rate of 6% and the inflation rate jumped to 20% you would have a real interest rate of -14%. Banks and other lenders adjust for this inflation risk either by including a inflation premium in the costs of lending the money by creating a higher initial stated interest rate or by setting the interest at a variable rate.
* Room to maneuver: The primary tools for controlling the money supply are the ability to set the discount rate, the rate at which banks can borrow from the central bank, and open market operations which are the central bank’s interventions into the bonds market with the aim of affecting the nominal interest rate. ****If an economy finds itself in a recession with already low, or even zero, nominal interest rates, then the bank cannot cut these rates further (since negative nominal interest rates are impossible) in order to stimulate the economy – this situation is known as a liquidity trap. A moderate level of inflation tends to ensure that nominal interest rates stay sufficiently above zero so that if the need arises the bank can cut the nominal interest rate.****
* Tobin effect: The Nobel prize winning economist James Tobin at one point had argued that a moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income. This is due to the fact that inflation lowers the return on monetary assets relative to real assets, such as physical capital. To avoid inflation, investors would switch from holding their assets as money (or a similar, susceptible to inflation, form) to investing in real capital projects. See Tobin monetary model[21]
April 15th, 2009 at 1:59 PM
L.oki,
It is well know that when people talk about inflation they are generally referring to the CPI. However, the CPI by it’s very nature understates CPI. When the CPI is understated inflation is also understated when calculating GDP, making GDP growth look better than it is. ie) There was no growth only inflation. We have seen the horrible blight inflation has had on people. The only way people have been able to keep up is by using there house as an atm and with debt.
Look at the long term charts on inflation the more central banks print the higher inflation goes.
I take argument with your opening statement that you sight Keynesianism. Keynesianism is wrong, and is being proven more wrong everyday.
Nix
April 15th, 2009 at 1:59 PM
You can take all the argument with Keynesianism you want. I’m not here to fight it.
I said:
“see below for “possible” positive side effects of moderate inflation”
———
The important part of that post was regarding liquidity trap and the Tobin Effect (which suggests moderate level of inflation can increase investment in an economy leading to faster growth).
You had said that my statement was “completely false and ignorant” so I wanted to show readers that that wasn’t the case.
I am out of office for a while so I will see you all later on in the month. Hopefully people are not flagging true statements as ignorant when I am back. Cheers.
April 15th, 2009 at 2:00 PM
Gee, L.oki, I (for one) will miss having you around as a purveyor of Truth-with-a-capital-T. In the mean time let me correct one of the plain old falsehoods that you were stating here today.
John Tobin the economist did not win a Nobel Prize… not unless he has another job too, that is. There is no Nobel Prize for Economics — not now, not ever.
Alfred Nobel set up prizes for Physics, Chemistry, Literature, Physiology and a class which is kind of international relations, now referred to as the Peace Prize. The prize you refer to, and most ppl refer to as the Nobel Prize in Economics is actually “The Nobel Memorial Prize in Economic Sciences, officially named The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel”
In other words, the ‘Nobel Prize for Economics’ was created by a Swedish bank.
The prize has come under many attacks over the years as not being impartial and being awarded by main stream economists to other main stream economists.
The prize gets esteem from its association to the name Nobel, but this association was never an official one, indeed the descendants of Nobel are very critical of the Economics prize having the name Nobel.
————
The above post was taken almost verbatim from a forum discussion today on http://www.chrismartenson.com.
Norm, if I might diverge for a moment… anyone who considers themself a realist should head to that site and watch The Crash Course. It’s in 20 sections, and is about 3 1/2 hours long, but it’s amazing work, and a real eye-opener on the general shape of the next 20 years is going to be. I would be interested in connecting and discussing it with like-minded people; not going to leave my email for spam-bots to harvest, but Norm knows how to get in touch with me.
Thanks. Back to real estate.
April 15th, 2009 at 2:01 PM
Where did Loki refer to a “prize” or did I miss something?
April 15th, 2009 at 2:01 PM
I know things are bad and will get worse but there is no sign of it as far as SK commercial/industrial construction goes. Employers I talk to are hiring qualified workers. We presently have hundreds of out of province construction workers here, more on the way this summer. These are financed projects which are underway and will go through to the fall and beyond.
April 15th, 2009 at 2:04 PM
I am a fan of Norm. Does anybody know Winnipeg house market? Is flat or goes down?
David
April 15th, 2009 at 2:06 PM
I’m not sure about the legitimacy of Tobin’s Nobel, but I do think the “debt relief” and “Tobin effect” seem rather questionable in a couple of ways. I understand the reduction in the “real” interest rates quite well, I think, but the current level of governmental and consumer debt (and the interest payments on that debt, as interest rates increase) is the current issue. The following is taken from one of Mish’s posts:
“Inflationists make two mistakes when it comes to debt. The first is in assuming government debt is more important than consumer debt(it will be after consumer debt is defaulted away, but it’s not right now). The second is that it’s not so easy to inflate government debt away either. Those who think it’s easy, need to answer a few questions:
* What would a “successful” inflation campaign do to future costs on unfunded medical liabilities?
* What would a “successful” inflation campaign do to future social security/OAP payments?
* What would a “successful” inflation campaign do to mortgage rates and cash strapped consumers already struggling to make mortgage payments?
* What would a “successful” inflation campaign do to energy costs?
* And most of all, what would increased inflation do to interest on the national debt?
By “successful” I mean produce a meaningful rise in inflation. Inflationists act as if unfunded liability costs and interest on the national debt (and consumer debt) stay constant. Also ignored is the loss of jobs and rising defaults that will occur while this “inflating away” takes place. Tax receipts will not rise enough to cover rising interest given a state of rampant overcapacity and global wage arbitrage.
Yet in spite of these obvious difficulties, the mantra is repeated day in and day out.
Inflating debt away only stands a chance in an environment where there is a sustainable ability and willingness of consumers and businesses to take on debt, asset prices rise, government spending is controlled, and interest on accumulated debt is not onerous. Those conditions are now severely lacking on every front.”
Bookrat,
I recommend Chris Martenson’s “Crash Course” very highly as well. It is incredibly well done and very illuminating. I’d be interested in discussing it too. I know a link had been posted here before, but here it is again:
http://www.chrismartenson.com/crashcourse
April 15th, 2009 at 2:07 PM
“TMG is advertising 3.99% for a five year fixed. Who knows what will happen with rates but it has been pointed out that they have nowhere to go but up. If that same five-year fixed went back to the 6.5 range you’d need to get your $200,000 mortgage down to $155,000 to net the same payment. In other words, prices would have to decline about 22% to net a lower payment at a higher rate.” – Norm
Good Point Norm, I will have to factor that in when purchasing a home this summer….assuming the interest rates don’t go through the roof by August and I’m kicking myself like the Re-max advertisement shows.
Is 3.99 for 5 years the lowest interest rate anyone has noticed for five years?
I’m not familiar with TMG…..will have to check into it.
April 15th, 2009 at 2:10 PM
Potential Buyer,
I wouldn’t worry too much about the message in the Remax ad. I’m guessing rates will probably stay fairly low for awhile to.
April 15th, 2009 at 2:10 PM
David,
Here’s a link to a Winnipeg real estate blog. I didn’t get to look around much but you might find some clues there. Sure not a lot out there for a larger market.
http://www.stewartmann.com/blogs/stewart_mann/default.aspx
Good luck
April 15th, 2009 at 2:10 PM
John,
Today at 3:11 pm, L.oki said, ” * Tobin effect: The Nobel prize winning economist James Tobin at one point had argued that a moderate level of inflation can increase investment in an economy leading to faster growth or at least higher steady state level of income.”
April 15th, 2009 at 2:11 PM
David,
I’m no expert on the Winnipeg market, but I did just recently relocate to Saskatoon from Winnipeg, which necessitated a home sale there. When we moved there in early 2006, it was sheer craziness with multiple bids on each home, highly restricted viewing times (homes would list for 2-3 days only, then the sellers would sit back and examine the six offers) and overbids everywhere. It was a terrible time to be a buyer. When we sold, in September of 2008, the tide was just starting to turn; listings were beginning to increase, homes were staying on the market longer, and overbids were not nearly as common. I assume that this trend has continued, but the prices did not go up as dramatically in Winnipeg as they did in Saskatoon, so perhaps there is not as much room for them to go back down (raw speculation on my part). I suspect that they have stayed more or less flat from last year, but I’m not certain.
As an aside, we have been frequent visitors to Norm’s site since we found out about the relocation. As a buyer, there is little that is more valuable than having access to good information, and this site provides that excessively well. This is not otherwise easy to come by.
April 15th, 2009 at 2:11 PM
A continuation of great discussion. Good on ya Norm. Cindy, you make excellent points. And Daniel, the commercial slowdowns always tend to follow residential . . . it’s just a matter of time . . .
April 15th, 2009 at 2:11 PM
Potential Buyer,
The 3.99% 5 year term is the best I’ve seen, but must be a quick close. (within 45 days) I’m moving at the end of April so this doesn’t apply for me – yet. Hopefully there will be more good offers to come.
The Mortgage Group (TMG) is good, professional, and can find you the BEST rate possible depending on your situation. My husband and I went to a few different banks: TD, RBC, Credit Union, and they just couldn’t (wouldn’t?) compete. The only advantage I can see is having all your banking at one place, and maybe better accessibility to help when dealing with the ongoing mortgage.
April 15th, 2009 at 2:11 PM
By “stabilize” they mean un-checked growth in inventory, sales that continue to trail previous years, a slow but steady drop in prices in response to increased supply and decreeased demand … and eventually, demand falling further – as new Saskatoon graduates remember why all their older sibblings moved to Alberta – higher paying jobs … and now cheaper housing (at least in Edmonton, Red Deer, Lloydminster, Medicine Hat, Lethbridge).
Alberta with higher paying jobs, better business/commerce jobs, a still low unemployment rate and falling housing prices is now the More Affordable alternative to Saskatoon, and it just happens to pay more!
http://www.thebench.ca/?p=313