Saskatoon real estate: Week in review (April 13-17 2009)
It was one solid week in the Saskatoon real estate market as agents reported sales of ninety-one single-family detached houses and condos to the local MLS, and recorded the strongest number of unit sales since the week of June 9-13, not to mention the first year-over-year gain for unit sales in longer than I can remember. Firm sales increased by twenty-seven units compared to the previous week when sixty-four homes traded hands, and saw a year-over-year gain of twenty-one properties when compared to the seventy homes that hit the sold board during the same week last year.
New listings of Saskatoon houses and condominiums slowed to one hundred and fourteen units, down from one hundred and forty-nine last week and well below the one hundred and sixty-one homes which were listed on the Saskatoon MLS during the same week in 2008. Total active residential real estate listings saw a slight decline falling to 1,444 by the close of business Friday, down from 1,451 one week before. The current residential inventory offers 889 single-family detached homes and 30 semi-detached properties, 465 condominiums, 27 duplexes, 8 vacant lots and 8 mobile homes.
At the close of this week last year, total active listing sat at just 668 units so there’s little question that we have a huge head start on 2008. On the other hand, last April, inventory had started to expand at a rapid pace having already gained just shy of two hundred units month-to-date by this point. Over the following two weeks it climbed further to 844 residential units to start the month of May, up about eighty percent from the final week of March when total actives sat at just 470 units. This year, we see a net gain of just nine properties for the month of April. Is it possible that we could get through the month without a substantial gain?
Click the image for a larger version of the graph.
On the pricing front, it was another decent week for home buyers as the average price of a Saskatoon home fell from $278,498 last week to just $266,054. The six-week average took a four thousand dollar bounce over the previous week to $272,642 as the lowest weekly average selling price for the year fell out of the front end of the six-week equation. Still, it remained down by just under $30,000 on a year-over-year basis. The four-week median selling price slid to $256,589 after three weeks of hanging very close to $260,000 but finished down a whopping $35,000 over the same week last year.
Click the image for a larger version of the graph.
The average underbid slid to $10,376 from $13,141 last week to produce an average discount of 3.8% of the asking price, which is one of lowest percentages we’ve seen since I started crunching this stat. The percentage of offers accepted with a discount of $5,000 or less fell seven points to thirty percent while the $5,001-$10,000 range spiked higher moving from twenty six percent of sales to forty percent. Discounts of more than $25,000 lost some serious ground from last week when they accounted for sixteen percent of sales, amounting to just two percent this week, but the next highest discount categories picked up some steam making up twelve percent of sales compared to just two percent the week before.
See a Google map displaying the boundaries of Saskatoon real estate “areas” here
Data collection and calculation for our statistical reports
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 @Norm_Fisher.
Norm Fisher
Royal LePage Saskatoon Real Estate
74 comments so far. We'd love to hear your thoughts.
April 25th, 2009 at 1:29 PM
91 sales is very impressive. Low rates are being pumped in the media right now, lower prices, and tonnes of selection are helping. Add in that the economy is doing fairly well comparatively speaking to other provinces. In my opinion, I believe 09 is a better year to buy a house than 08 or 07 strictly from a house buying point of view.
“Is it possible that we could get through the month without a substantial gain?”
Yes. And I don’t see much more being added. Even if it is a trickle, we are gaining more people than losing people. And we are losing very few homeowners.
Once realtor, bank, lawyer, cmhc fees and the underbids are factored in many spec properties bought in the last year and a half can not be sold at the moment without the sellers cutting a cheque to the bank to cover the difference.
Many of these prospective home sellers will be frustrated enough to take the properties of the market and become unwanted landlords.
Along with housing starts almost stopping, demand will take a bite out of the high inventory, but the biggest bite will be inventory put onto the rental market creating a shadow inventory that may hang around for a few years.
Great job again on the stats.
April 25th, 2009 at 1:30 PM
What you are reporting in Saskatoon is very similar to Victoria and I suspect elsewhere in the country. Here are my observations:
1. Low interest rates result in first time buyers (FTBs) signing up for mortgage pre-approvals in droves.
2. FTBs once they see something want it NOW. They are novice negotiators and will pay much closer to asking price than savvy, move-up buyers. We are even seeing multiple offers in Victoria at the low end.
3. The move-up market is not as brisk because owners know they will get less for their house than last year. Even though they logically know that they will be buying the move-up property cheaper than last year they emotionally many can’t bring themselves to sell at less than last years price. So they sit and wait and as a result listings are down.
4. Specuvestors that bought in the last year or two that want to sell are disappointed by falling prices and don’t list in many cases. The classified house rentals in our local paper have ballooned in recent months. They are hoping to sell in a year when prices go back up – a big mistake in my opinion. This also results in lower listings.
5. A lot of the action tends to take place in the lower end homes here in Victoria due to FTB purchases. The “smart money” is sitting on the sidelines waiting for the mid to high end homes to fall further in price. I can see this when I do a breakdown of sales/listings in each price range. Lots of inventory at the top end and little in the low end results in aggressive bidding at the low end. At the high end there are some real haircuts because sellers are not seeing many offers at all.
April 25th, 2009 at 1:30 PM
Interesting thoughts Roger.
What do you see as “low end” and “high end” in Saskatoon? Whis the significance of a specuvestor being disappointed and removing his property from the market, other than the obvious fact that it’s no longer in the inventory?
April 25th, 2009 at 1:31 PM
I agree that sales of basic lodging (e.g. small houses, townhouses and condos) are one thing and upscale sales are another. It is much like food during a downturn: the prices don’t necessarily change a whole lot since if you have a need you buy whatever it costs. In fact, food is up 9% year over year as per the Globe today.
As to real estate, while I am not entirely surprised by the continued sales in Saskatoon given the fundamentals in Saskatchewan (after all it was not everyone that paid off 35% of their provincial debt, increased infrastructure spending and gave tax cuts all in the same year) I was not expecting quite the level of sales we are observing, particularly given the diet of doom and gloom we have been served in the media and even at times on this blog (flash back to the predictions of 2500 – 3000 listings which were made not that long ago).
Obviously, regardless of the doom and gloom some people are buying real estate – and stocks for that matter. I say “Cheers” to both. My view is that when the dust settles after the crisis the net result will be a continuuing re-distribution of wealth into the hands of few. The doom and gloom will have been useful in that it will have served to promote a huge buying opportunity for those with cash, whether it was used to wisely invest in the markets or in real estate.
Cheers to Norm and all the diverse contributors to this blog. While the media wasn’t a great service in giving anyone a heads up on getting out of the market, they probably will not be any more useful in telling anyone when to get back in.
April 25th, 2009 at 1:31 PM
Thanks for the response Norm. Here are my answers to your questions.
I consider the low end to be the houses below the median price (275K). This is where 50% of the sales take place. The mid range is probably 275-400K and the high end over 400K (20% sales). These are just guesses because I don’t have access to your raw data.
Why do people list their home? Moving up or sideways, downsizing, leaving city, divorce, death, moving to nursing home, job loss, financial problems. With Saskatoon’s strong economy and a weakening economy in Alberta there are fewer reasons for people to sell.
The significance of the specuvestors is that they are probably not listing this year like they have in the past. They are probably trying to or continuing to rent. These means fewer listings coming onto the market. We are also seeing fewer listings compared to 2008. Homeowners staying with what they have and not moving up also means fewer listings.
April 25th, 2009 at 1:32 PM
I find your points interesting too, Roger. In regard to the last point, have you got months of inventory/absorbtion rate information for low, mid, and high-level properties? I didn’t see anything on your site indicating stratification by price level, but I may have just missed it. It would be interesting to see how things will shake out in this regard in the future, too.
Just by observation, I’ve noticed an unusually high number of SFH’s for rent in this area in the last couple of months. A fair number of them seem to be sitting unoccupied for some time, too.
April 25th, 2009 at 1:32 PM
Saskatoon II,
Thanks for the comment.
I don’t know what to make of the media.
I agree that comments like, “worst financial crisis since the great depression” qualify as needless doom and gloom but I still want to know how many jobs were lost, how spending is affected, etc.
One of my colleagues described the reporting of job losses at Chrylser as “doom and gloom.” Sorry, it may be gloomy but it’s also relevant and useful news. There has been a lot of gloomy stuff happening for real. Pretty hard for the media to put a happy face on a lot of it.
Roger,
Thanks for the lesson in “why people list their home.” Perhaps I can finally find success in the real estate business.
I think I’d pretty much agree with your ranges. For your interest (and Crikey’s) here’s a bit of an overview of current listings, and sales over the past 30 days (single-family detached houses).
– 25 sales and 281 actives (11.25 month supply)
Interesting to me is that when you consider that the same house was at least 10% higher last year, the percentage of sales going to each category is very similar over the past thirty days as compared to last April.
No doubt though that there is one big whack of inventory in the high end market. Considering that it is such a small percentage of sales it will be kind of fascinating to see how that plays out.
The lowest priced category appears to meet most definitions of a “seller’s market,” the mid range is nearly balanced, while the upper end is clearly buyer’s market.
April 25th, 2009 at 1:32 PM
Crikey,
I have detailed data on inventory/absorption but do not publish it on my site. I only post what I think is of interest to most readers. To be frank it takes a lot of time to prepare my existing stuff every month and I make $0 on it so it is limited.
Norm,
Sorry if my last post on listing reasons sounded like a “lesson”. I was just trying to explain why I thought listings were down. Some reasons are still valid while others less so.
Your months of inventory across the low, mid and high price ranges is much like ours. There is a difference in the price levels that define the ranges.
April 25th, 2009 at 1:33 PM
Norm,
Thanks so much for digging up and posting that information! I kind of expected that general distribution, but I’m surprised just how quickly things are moving at the lower end of the range, and conversely, just how slowly properties are moving at the upper end of the range.
I thought I posted a comment last night but it didn’t go through for some reason- does anyone see our current interest rate environment prolonging the traditional spring selling season, assuming employment numbers stay decent?
April 25th, 2009 at 1:34 PM
Roger,
Sorry, I was completely kidding with you. Just having some fun. Thank you for expanding on your initial thoughts.
Crikey,
No problem. Here’s something else you might find interesting. Prior to 2007, there are only 26 reported single-family home sales at, or above $500K. In 2007, there were 78 sales. Another 147 in 2008 and 27 so far in 2009 for a grand total of 278…ever. Right now there are 133 listings that meet that criteria, nearly half the number of total historical sales. Again, I have no idea what that means. Seems like a pretty narrow niche in which few will really be affected but I guess the value thing does tend to trickle up and down.
April 25th, 2009 at 1:34 PM
Crikey — I suspect the spring sales season may be extended slightly this year due to the reduction in interest rates. However, many families like to close a deal in the spring so that they can get the kids used to the area during the summer and ready for their new school in the fall. Others like to enjoy their new home for a few months before the fall and winter months. I think that is why the spring is the peak season for sales across the country. Norm could probably shed some light on this because he sees clients every day.
I think these low interest rates will not last long once there is a glimmer of hope for the economy. Here are my reasons:
- Once the stock market shows that it is not in a bear rally but building on fundamentals many participants sitting on the sidelines will jump in. They will sell their fixed instruments (bonds,t-bills, money market, high interest savings accounts) and buy stocks. This will depress bond prices and yields will go up. Banks will have less deposits and will have to raise the rate on savings accounts and GIC’s in order to meet deposit minimums. Since fixed mortgage rates are tied to bond rates we can expect to see upward changes once this occurs.
- The Bank of Canada and Federal reserve are concerned about inflation. With factories cutting back on production there will be a supply shortage when the economy recovers. Prices and the CPI will increase and the the BOC rate will rise just as fast as it went down. This will drive up variable rate mortgages. Note that certain assets like real estate will continue to drop while the CPI is rising.
April 25th, 2009 at 1:34 PM
Roger,
I don’t think we are even close to inflation or a true recovery nor is that a real concern of the Fed right now. Their main concern is to prevent deflation. The stock market has rallied some 30% it is true but not based on ‘fundamentals’ so much as a slowdown in the rate that fundamentals are deteriorating. Most fundamentals: employment, industrial production, consumer credit are still going down, they are just not going down as fast as they once were. I guess this can be taken as optimism but the fact is the economy is still contracting in spite of massive government spending.
The fundamental issue is STILL that the US has some $50 trillion in aggregate debt (federal, state, municipal, corporate, personal debt) against a GDP which peaked out at 14 T and is probably around 12.5 T now. You are looking at a debt to GDP ratio that is simply unprecedented. Their solution so far has been to try to print and spend their way out of this, this will ultimately lead to inflation but when you look at the money being spent we are still in the low trillions ($750 billion stimulus plus 2-3 trillion in various financial rescue packages if you include gurantees) versus $50 trillion in debt.
To make matters more difficult for the Fed, there is increasing public outrage at the federal bailouts and spending from, ironically enough, the republicans. For example, Texas is threatening to secede if the government doesn’t get spending under control. This outrage is going to hamper efforts to spend their way to inflation.
The buildup in credit has been going on since the late 70′s. The blowup in credit has been going on for about 18 months and given washington’s approach it is debatable whether anything has even been accomplished. The debt has been sloshing around from business to government. People seeing the market rally as a sign that things have bottomed are far too optimistic. This process is going to take years.
April 25th, 2009 at 1:35 PM
in your number on homes sold over 500k, does this count sales from builders to buyers direct? I think it wouldn’t for the bigger builders and be somewhat missleading. Personaly if i am spending that much i would want to have it built for me and to my taste rather than buy an existing spec home so there may need to be some serious price reductions to make them sell.
April 25th, 2009 at 1:35 PM
Rob,
“in your number on homes sold over 500k, does this count sales from builders to buyers direct?”
Only if they were listed MLS which of course, wouldn’t be the case with custom builds.
“somewhat missleading”
I hope people are clear that my data comes from the MLS and does not include stats on builder sales which trade outside of the MLS or other private sales.
April 25th, 2009 at 1:36 PM
Peter you nailed it buddy. This is only the beginning . . .
April 25th, 2009 at 1:36 PM
I think these increased unit sales are a little “blip” in the grand scheme of things and will slow down once the spring hype settles. Not sure how listings will fare compared to ’08. There may have been more speculators enter (and promptly leave) the market last year than I had even imagined! Glad to see average price is continuing to drop though. Keep up the good work buyers!!!
April 25th, 2009 at 1:36 PM
@Norm: “…comments like, “worst financial crisis since the great depression” qualify as needless doom and gloom…”
I don’t understand this at all, Norm. You go on in the next sentence to say that you don’t think that ‘facts’ qualify as doom and gloom (using the potential closing of Chrysler as an example)… so why are some facts okay but not others?
From everything you have ever posted here, you take justifiable pride in assessing how things ARE, not how you wish they were or want them to be. The fact of the matter is, this IS the greatest example of wealth destruction since the 1930s, and potentially since the 1870s. And it’s not over yet, and won’t be for a while… so why is it ‘doom and gloom’ for someone to say that? Because it might hurt someone’s feelings?
I continue to believe that home prices will slide — slowly, and maybe less in Saskatoon than other places as an absolute percentage, but maybe not too. Things got out of whack, and now they have to get back ‘into whack’. Yes that will spell bad news for some, and ruin for others … but it will spell hope and opportunity for a lot more.
How is that ‘doom and gloom’? I thought we called it ‘realistic assessment’ around these parts… so why doesn’t that apply to the global market too, Norm?
April 25th, 2009 at 1:37 PM
Bookrat,
“so why is it ‘doom and gloom’ for someone to say that? Because it might hurt someone’s feelings?”
Gee, obviously I’ve hurt your feelings! With due respect, I think you’ve read far more into my comment than I ever intended to convey.
“worst financial crisis since the great depression” leaves the impression that we are headed for 1930′s like depression. This is not a fact, it’s media rhetoric. I have no idea what is to come but as the son of a man who grew up during the dirty thirties I’m quite confident that our current situation doesn’t warrant that kind of comparison.
Further, I didn’t even suggest that a belief that “house prices will continue to slide” is a doom and gloom mentality.
April 25th, 2009 at 1:37 PM
Q & A with Premier Wall in Canadian Business
Cover story on the April 27 issue: Real Estate – This could be the buying opportunity of a lifetime.
The opposite of “doom and gloom” in the media is “pumping sunshine.” Not available online.
April 25th, 2009 at 1:39 PM
Heard something about a possible interest rate cut announcement in a few days…..Heard that on Canada AM. Time will tell I guess.
April 25th, 2009 at 1:41 PM
Potential buyer,
Seems to be some consensus that rates won’t be cut further tomorrow.
April 25th, 2009 at 1:41 PM
Didn’t hurt *my* feelings, Norm — just surprised me.
By any objective and accurate measure, this IS the worst financial crisis since the 1930s. So why is saying so ‘needless doom and gloom’?
Reading into your comment, I’m guessing that you’re comparing things in an absolute sense rather than a relative one: someone whose net worth has gone from $10k to $5k has lost the same percentage as someone whose net worth has gone from $500k to $250k. True, the second person is still much better off, but they did both lose 50% of their net worth.
I guess maybe we differ on the definition of ‘needless’. Perhaps you think it is needless to liken things to the great depression because we all still have so much more than our parents/grandparents ever did… and I would definitely agree with you on that aspect. I do NOT think it is needless, however, because the great depression went on for 10 years, and only really ended when the world hit the ‘reset’ button on the economy and started WW II. We are… what? a year? two years? in to these events, so pointing out that the last time anything like this happened the world took a decade to recover… I call that realistic, grounded, pragmatic, and not ‘needless’.
Just MHO. No hurt feelings here.
April 25th, 2009 at 1:41 PM
“Yes that will spell bad news for some, and ruin for others … but it will spell hope and opportunity for a lot more.”
I find this to be an important statement. I would take it a step further in saying that there’s always opportunity for those who look for it, (even the people in ruin).
I highly doubt we’ll see anything like the 30′s in this situation. The Drought through the mid 30′s is what did the damage, as back then 40% of American Workers were connected to the agricultural sector. Without the Dust Bowl it would have just been a deep recession. It was a perfect storm so to speak.
April 25th, 2009 at 1:42 PM
Bookrat,
“I’m guessing that you’re comparing things in an absolute sense rather than a relative one”
Yes, aren’t the absolute realities what made the 30′s such a difficult time? I was thinking of families sharing bathwater, regular trips to the soup kitchen, etc.
April 25th, 2009 at 1:42 PM
Any truth to the rumor of a bigger developer here in Saskatoon that bit of too much and is now up $*&^ creek? no need to mention names, if true we will find out in the SP shortly
April 25th, 2009 at 1:43 PM
George,
I have heard some rumors but I wouldn’t have seen this company as “big” and I have no idea how serious it is.
April 25th, 2009 at 1:43 PM
Potential buyer,
Apparently the “consensus” was out to lunch.
Bank of Canada drops another quarter point to .25% and BOM follows with a quarter point cut to prime. Their variable is now 3.05%.
April 25th, 2009 at 1:44 PM
Naah, I don’t think it’s the “consensus” that is out to lunch…
Bank of Canada slashes interest rate to 0.25%:
Central bank says recession will be deeper and last longer than thought
http://tinyurl.com/dl62qp
Yet more fun and games from the BOC:
http://tinyurl.com/cs44lo
“This is the week Mark Carney redefines Canadian monetary policy”
Let’s punish the prudent and the savers some more! Yay!
April 25th, 2009 at 1:45 PM
BoC to hold rate at record low 0.25% until 2010
Apparently the text of the report stated that the BOC will be holding this rate steady until June 2010.
http://tinyurl.com/dgrenx
I’m assuming this doesn’t neccesarily translate into bank lending rates holding absolutely steady over the same time period, but this does look like far less potentail volatility in the short term.
Well, this explicit transaparency thing just might work for them.
April 25th, 2009 at 1:45 PM
Crikey,
BofC is basically out of bullets now. Do they really believe their own words, or are they just trying to push confidence upon the public?
I really don’t see rates going up for a few years and I am starting to believe we are headed the way of post 90′s Japan.
At the moment, I am not worried about inflation one bit. Deflation is upon us. In deflation, the value of your cash grows tax free even in 0% interest, so you won’t be punished too much!
April 25th, 2009 at 1:45 PM
“Bay Street economists in a survey by Bloomberg News were nearly unanimous in their prediction that Mr. Carney will become a purchaser of assets, and 13 of 27 said the central bank would buy corporate debt.”
And it starts.
April 25th, 2009 at 1:46 PM
Hopefully the brokers and banks all match the .25% cut. I see you mentioned the BOM dropped theirs .25%, that is great.
Our booming province will take full advantage of this rate cut while there is a recession in the US and Eastern Canada, this is all great news as far as I can see for Saskatchewan!!
April 25th, 2009 at 1:46 PM
I’m with you, George. Inflation is nowhere on the near-term horizon. Thank you for the much-needed attitude adjustment about the cash thing, too. Not losing is the new winning!
Do you think the news about the rate hoding steady will change some people’s minds about using a variable rate? Seems less risky now, no?
April 25th, 2009 at 1:47 PM
George,
I hope you’re right.
I however think inflation is right around the corner, (starting within a year). What’s happening right now is the death of our current monetary system. The architecture of this by the elite is absolutely brilliant. Now they can use their biggest corporation of all (aka government) to buy assets at pennies on the dollar.
The next step is to construct a new monetary system that is world recognized. No longer will the U.S. dollar be the world currency. A new currency or set of currencies will be created. This will be done by devaluing the current currencies (especially the U.S. dollar) and inflating all those assets the government just picked up cheap.
April 25th, 2009 at 1:47 PM
I think you are right Northstar. How else could they manage to get out. The idea is great, and China is already mad.
April 25th, 2009 at 1:47 PM
Northstar,
I see many parallels to Japan post 90′s and even a bit of the Great Depression with regards to stimulus and bailouts. Billions were thrown at the problems but deflation still won out. Down the road, I agree that inflation will come on strongly, 1 year, 15 years? Anybodies guess, but deflation is the problem right now.
We have companies and even whole industries that are teetering on the edge of bankruptcy, job losses are big every month, corporate profits are shrinking, credit may be cheap but not as easy to get like it was, house and car prices are falling.
I don’t disagree that the elite are wealthier because of this crash and eventually a new world currency will come out of this. The US dollar will eventually collapse along with the Can dollar.
When that happens? Next month, next year, maybe a couple decades, but it will happen. Right now I have two assets, my house and cash; (don’t trust the market, it has farther to go down yet)my house will always have some value while cash is really only worth the paper it is printed on. I will get out of cash pretty darn quick if we find out that the bailouts are not working. Maybe I will buy some land in the hills:)
It is hard to play the game when you know it is rigged!
Crikey,
There is less risk going variable than before, but many like the piece of mind of a fixed rate. 5 years at 3.69 is not too shabby.
April 25th, 2009 at 1:48 PM
George,
The problem central banks had during the 30′s is that the dollar was tied to gold ( a note was exchangable for gold or silver). Therefore people wanted to hold their dollars(gold) creating demand for dollars. The Central banks at the time could not print the dollars neccessary to combat the deflation that the demand for the dollars was causing. Because the supply of dollars was correlated to the amount of gold held by the govy. When currencies delinked from gold and silver, problem solved you never have to worry about deflation again. Print, print, and print whatever it takes 10 trillion, 50 trillion, 100 trillion. The printing presses have only started.
Nix
April 25th, 2009 at 1:48 PM
Nix,
you may have to reread your history about the Great Depression and the gold standard. Most currencies abandoned the gold standard during the Great Depression and governments around the world threw money at it but not like today.
http://en.wikipedia.org/wiki/Great_depression#Gold_standard
“When currencies delinked from gold and silver, problem solved you never have to worry about deflation again”
Japan has pumped trillions into their financial system since 1990 through bailouts and stimulus plans ( sound familiar) and has had ZIRP on and off since then. The result? Deflation along with house prices worth half and Nikkei worth a quarter from the peak. Japan is 2nd in overall GDP.
April 25th, 2009 at 1:49 PM
The gold standard was not completely abolished until 1971. Even a partial tie to gold limited the ability of Central banks to really work their magic.
The below is written by a poster on a site I follow he posts as Goldrunner. His explaination is more eloquent than my explaination ever could be.
“It is very important to understand that investors in the 1929 era could hold Dollars due to their constant value as they were convertible to Gold. This created Dollar hoarding, a form of Dollar Deflation as the supply of Dollars was not moving back into the economy. The economy contracted in a waterfall decline in the form of a Depression hampered by massive debt, a falling velocity of Dollars, and leveraged schemes that melted down. It is important to note that the value of the US Dollar was “strong” as we entered the 1929 crash period, and the US Dollar continued to be “strong” throughout the Dow Crash.
Japan entered 1990 in much the same environment as the 1929 Dow. The Yen was rising in value with the level of debt in Japan reaching K-Winter proportions. Great leveraged schemes had been applied to their stock markets for some time. In 1990 the Nikkei price “broke” at around 39,000 and started to fall precipitously. The Yen was not tied to Gold, but the value of the Yen continued higher after the market broke, basically moving sideways in a broad range ever since the 1990 Nikkei top until now. Thus, we’d have to describe the “state of the Yen” as one of “Yen Deflation” as the value of the underlying Japanese currency remained relatively high and stable, basically moving sideways after the top in the Nikkei all the way to the present. Japanese investors in the Nikkei could sell their stock holdings and move to a fairly high-valued Yen all of this time to protect the value of their savings from the falling Nikkei Stock Index. Since the chart of the Yen moved basically sideways, the value of the Yen like the Dollar in 1929 remained relatively stable with a slight upside bias- a state of Yen Deflation. Thus, the denominator in the fraction “Nikkei/ Yen” remained relatively stable so the “Nikkei price= value” as all losses were reflected in the Nikkei price. Thus, like the Dow of 1929 we saw a large fall in the Nikkei Stock index in a period of Yen Deflation.
We have seen that in both the “Deflationary” US market of 1929 and the Deflationary Japanese markets of 1990 the currency in each case presented as “currency deflation.” Those currency deflations created a situation where investors could easily sell their stock holdings and move to stable currencies to protect the value of their savings. The relatively stable value of the currencies in both cases created a relatively stable denominator on the “stock/currency” fraction that relatively approached the number 1. We have seen that in both the US 1929 Crash and the 1990 Nikkei crash that the currency deflation going into the stock market top, persisted throughout the whole stock market decline. In both of these examples, long periods of “price deflation” developed. In both of these periods we would describe the economies as being in “Depressions.” Now, let’s take a look at a couple of Stock Index declines in an environment of “price inflation.”
http://www.goldeagle.com/editorials_08/goldrunner041309.html
Sorry for the length of this post,
Nix
April 25th, 2009 at 1:49 PM
Interesting…
I called PC Financial yesterday about some questions I had about mortgage pre-approval. It left me smiling. Smirking, more like it.
Here’s how the conversation went:
PC: Dual Income?
Me: Yes – $XX,xxx
PC: Debt amount?
Me: $0
PC: Down payment amount?
Me: $20,000, but we’re hoping to save another $20-30K before we purchase.
PC: How much are the homes you have been looking at?
Me: Between $200-250K.
PC: (pause) What are you waiting for? You know how low the interest rates are, right?
Me: Yes, but we don’t trust the stability of S’tn’s market and we want at least 20% down.
PC: For fun, let’s play around with the numbers…With no debt and your level of income, if you took out a 35 year term, you could have…(ticker-tape flowing in the background)…$500,000! You could have your own mini-mansion! Why don’t we pre-approve you today!
Seriously, I had to keep my sarcasm in check. 35 years? Um, not for this married-no-kids family. We want to keep it to 15 years max.
Anyway, just thought I’d share.
Also, he was detering me from taking the 5 year variable of 3.30% and encouraging me to lock in at 4.1% (5yr). He was cautioning me that the rates only have one way to go…
April 25th, 2009 at 1:49 PM
Things that make you think …”huh?”:
Potash, people spurring growth in Saskatchewan
http://tinyurl.com/cdl2wj
“Potash is the key to Saskatchewan’s economic growth this year as most commodity prices remain low, the Canada West Foundation said in a report Tuesday.
The price of potash is likely to remain high, contributing to real GDP growth of 0.7 per cent in 2009, says the foundation.”
Potash set for 50 per cent drop in profit
http://tinyurl.com/cdvolu
“Fast forward a year, and potash prices are flat as farmers hold off on enriching their fields with the relatively expensive nutrient. Their decision to till their soil more aggressively, rather than apply new potash, will have a direct impact on the company’s first-quarter earnings – analysts expect to see a profit of 82 cents a share Thursday, compared to $1.63 in the first quarter last year.
“Potash producers are in pretty much the exact opposite situation that they were in a year ago,” says Erin FitzPatrick, assistant vice-president and industry analyst at Rabobank International. “Demand has really been destroyed because of the financial crisis and because farmers have been able to scrimp on fertilizer to get by.”
Now don’t get me wrong- I love this company, and in the longer term I think their earning prospects are fantastic. I wouldn’t be surprised if Canada West Foundation may be doing some “unexpected” forecast revisions in the near futeure, however.
April 25th, 2009 at 1:50 PM
My variable rate is at 1.45%. Which equates to almost nothing.
I looked at looking it in for 5 years but I would have to go up to 4%.
YUCK!
April 25th, 2009 at 1:50 PM
L.oki,
Would you be willing to share where you are getting such a good rate?
April 25th, 2009 at 1:50 PM
TD Canada Trust variable open mortgage @ prime minus 0.8% (I set this up about 3 years ago)
Not sure, but I think they are only offering prime ‘plus’ packages right now.
April 25th, 2009 at 1:51 PM
cyn
L.oki probably got a variable rate last year when lenders were offering prime -1.x%. Now they can’t cause they won’t make any money. Now it’s prime +.8%.
George,
I agree with your post. Deflation is the issue at this moment in time. I just see inflation becoming the problem sooner rather than later. There’s definately a lot more downside to come. If it happens quickly then inflation will happen just as quick following the bottom.
April 25th, 2009 at 1:51 PM
only problem with the bank of canada promising 0.25% for a year, is no reason at all to buy now, when prices will be lower in a year, and interest rates will still be 0.25%
April 25th, 2009 at 1:52 PM
Bank of Canada readies new weapons to fight record slump
http://tinyurl.com/cmkta6
OTTAWA — Canada’s gross domestic product contracted at the fastest pace on record in the first quarter, reflecting a new economic reality of fewer jobs, lower profits and weaker spending, the Bank of Canada said Thursday.
The economy shrank at an annual rate of 7.3 per cent in the first three months of 2009, a dramatic collapse that the central bank said will force it to adopt “unconventional” methods of monetary policy making if the freefall continues.
Policy makers sketched out such a framework, saying they are prepared to buy financial assets to lower borrowing rates. The central bank stopped short of stating explicitly what it would buy, emphasizing that for now it’s comfortable that its commitment to keep the benchmark lending rate at a record low for about a year is enough to revive the economy.”
April 25th, 2009 at 1:53 PM
Charles Hugh Smith writes an excellent blog called ‘Of Two Minds’. I go there and read what he has to say from time to time. Here is a link to a recent piece of his: “Why a 50% Drop in Housing Is Not the Bottom”
http://www.oftwominds.com/blogapr09/housing04-09.html
His general focus and his numbers are unabashedly US-centric, but much of the piece examines market and investor psychology, and the anatomy of trends, and so is applicable to anywhere that has seen a recent, meteoric rise in prices of any asset. (Do we know any place like that?) Some very interesting graphs and statistics there.
April 25th, 2009 at 1:54 PM
Bookrat,
CHS also has a slightly more recent blog entry about “why housing is not coming back”, at least not to pre-bubble valuations.
http://tinyurl.com/ckp3w7
I have some issues with his secont point (e.g. I would not say that nominal prices are “meaningless”, at least not to 99.99% of the population), but he does bring up some interesting points. I would also argue that shelter cannot be qualitatively compared to non-essentials like tulip bulbs and tech stocks in terms of valuation in bubbles.
April 25th, 2009 at 1:54 PM
Crikey, excellent articles (thanks). A few selected quotes (highlights):
“Perhaps counter-intuitively, deflation also ravages bubble-era valuations. In deflation, debt grows ever more burdensome as money becomes more valuable and wages and income drop. As a result, assets dependent on debt ( that is, real estate) drop in value. In deflation, real estate become a “capital trap” which loses value as cash gains in value. As incomes plummet, so do rents, i.e. the income stream which real estate earns, further impairing its value.”
“Why would interest rates rise? Easy–the U.S. is borrowing trillions of dollars a year and once the rest of the world either runs out of cash or the desire to give us all their surplus capital then interest rates will rocket regardless of what the Fed or U.S. Treasury do.”
“So if the fundamental drivers of insanely low interest rates and insanely loose lending are not coming back, then precisely what forces will reinflate the housing bubble? The answer is: none.”
Game, set and match.
April 25th, 2009 at 1:54 PM
I am trying to make a spreadsheet comparison between renting and owning, but b/c I’ve never owned, I’m not sure what exactly to include (heat, water, sewage, taxes, etc) nor do I know how much these costs would incur monthly.
Have any of you come across any calculating tools that give a realistic cost comparison between the two? Or, would any of you be willing to share what your costs are per month?
Thanks.
April 25th, 2009 at 1:54 PM
cyn_d, there was an online calculator posted at one point (Norm may recall it), but I don’t think it let you change too many of the variables (but you could adjust the mortgage amount and interest rate). For ownership, you’ll want to include the following: mortgage payment (interest, principal and CHMC insurance), utilities (electric, gas and water/sewage), property taxes (and assume there will be a small increase of 10%) and condo fees (if applicable). You should also include an amount for maintenance/reserve for any capital costs, ie: water heater, new shingles, etc. (usually a few hundred dollars each month; most buyers don’t factor this in but homes aren’t maintenance-free forever!).
On 2,100sqft for utilities I was paying: $300 property taxes (they were going up to approximately $420), $250 (equalized) for gas and around $200 (again, equalized) for electric and water. So if it’s a smaller home that you’re looking at, multiply these costs by the difference in sqft (±) and you should have a good approximation. Best of luck!
April 25th, 2009 at 1:55 PM
cyn,
Costs are different for every house due to the state of the house and market adjustments in gas prices etc etc. Also, whether your in a condo or not makes a difference. These are the rough averages off the top of my head for most properties I’ve owned.
Mortgage – x dollars
Utilities – $300
Gas – $200
Taxes – $200 – $300
Insurance – $100
I think everything else you’d be paying if renting anyways.
Also I like to have at least a $200/mo budget for repairs that pop up. Anything I’m missing I’m sure others will remember.
April 25th, 2009 at 1:55 PM
Hey cyn_d,
If you “Google” rent vs. buy calculators, you’ll probably come up with quite a bit right off the bat. This is one of my favorites (that is not US-centric):
http://tinyurl.com/czlnav
Keep in mind that calculating the expected appreciation of the property is tricky, as the property may not be appreciating for some period of time, which is unknown at present. Most calculators will not let you input anything less than zero into this box. Calculating the long-term inflation rate is currently also quite tricky, but has tended to be around 2%.
April 25th, 2009 at 1:57 PM
cyn_d,
I would think that the easiest way to make a fair comparison would be to use a rent figure that wouldn’t include utilities. Those costs will be consistent whether you own or rent, assuming that the house is similar. I believe that it is most common for renters os houses to pay utilities. Of course, the landlord is generally responsible for taxes. Make sense?
Here’s the calculator that was posted at some point.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
April 25th, 2009 at 1:57 PM
Cyn_d,
Gail Vaz-Oxlade has a good arcticle about this – it doesn’t include a calculator – but does discuss some of the financial implications of both.
http://gailvazoxlade.com/blog/archives/201
April 25th, 2009 at 1:57 PM
cynd
I have an average bungalow on the east side 1000 sq feet.
Gas -97 equalized
water and power 135
taxes 200
insurance 75
It does depend on size of house and where you the house is located. Some of the bigger homes in Willowgrove and Stonebridge (750k+) have taxes over 6000 a year ( ouch!) which almost gets into the neighborhood of my mortgage payments for the year.
April 25th, 2009 at 1:58 PM
Thanks, everyone! I knew I could count on you for good information.
April 25th, 2009 at 1:58 PM
Here’s yet another good Canadian rent/buy calculator. I like it because it considers the cost of paying an agent to sell your house down the road (many don’t). It ignores legal and mortgage fees to buy/sell, so you’d have to fudge that in for yourself. Maybe about $2000 to buy, and $500 to sell? Am I way off? By the way, I think George’s numbers for ownership costs match my experiences very well (in 2 diff 1300 sqft homes). About $150 for power/water, 100 for heating, 50 for insurance, 200 for tax.
Also, real estate commissions here are very reasonable (about 3-4%, depending on the price of the home) compared to other provinces and the U.S., where 5% (and in Quebec, up to 7%!) is typical.
April 25th, 2009 at 1:58 PM
George / Heather
Wow!!! $250 for gas/water/power. Are those utilities through Sask power or the city? I pay a lot more than that. I noticed my bills had gotten a lot higher when they came and put that new digital meter on my house.
April 25th, 2009 at 1:59 PM
Heather,
You’re in the right ballpark for legal fees but I must be an energy pig because I’m paying more for utilities.
Again, don’t house renters usually pay their own utilities? If so, wouldn’t these numbers be best left out?
April 25th, 2009 at 1:59 PM
Northstar,
mine are through the city. Its just me and my wife. Maybe our costs are lower cause I shower only once a week:)
April 25th, 2009 at 2:00 PM
Any input on my situation would be great. I have bought a house and am moving from my townhouse. I have an opportunity to rent the townhouse out and keep it for a rental property or do I sell it now
and look for another investment..
April 25th, 2009 at 2:00 PM
Hahaha
Nice
Aby,
All depends on your situation. I’d need a lot more info to give my opinion.
April 25th, 2009 at 2:01 PM
Here’s another mystery.
The close: 7 weeks of gains on the TSX
April 25th, 2009 at 2:01 PM
Norm,
With billions pumped into the economy from the feds and cheaper money ( to borrow) we had better see some gains or else.
The BofC has finally admitted that the recession will be longer and deeper than anticipated and at this moment there are too many industries and companies teetering on the edge of bankruptcy that can not survive being on life support for a couple of years. GM and Chrysler are finished from what we know of them.
Add in the job losses forecasted for the rest of the year I just can not trust the market yet.
April 25th, 2009 at 2:02 PM
Ya it has been a good few weeks and about the refinancing my mortgage my broker told me to refinance the penalty would be 12k but I would gain 1 year so im not too sure what to do 12k is alot to just throw to a penalty. And the power situation im the energy hog cause for power alone with my 3 kids its $175 equalized payment plan and even then we still go over in the winter usually. k done my ramble =o) thx for all the great info tho about refinancing
April 25th, 2009 at 2:02 PM
I mentioned in one of these threads that my monthly bills had all gone down since we bought our place. Here are the current and old numbers:
1400 sq. ft. 1920′s built two-storey.
Natural gas = 148 equalized (Was 188 until rate cut)
Electricity and water = ~155 (down from about 180 since we replaced our furnace)
Insurance = 90 (down from 115 or so when we bought)
Taxes = 210 (down a whopping five bucks this year)
Our utilities are high, with four adults (and three dogs) living under one roof. Our garage is fully heated, which contributes significantly to the gas bill.
April 25th, 2009 at 2:03 PM
George,
“With billions pumped into the economy from the feds and cheaper money ( to borrow) we had better see some gains or else.”
I suppose, but it’s this nearly constant refrain of “things are worse than we thought” that has me wondering how. I headed for the hills as this rally was just winding up and I’m a little sore with myself for running so fast.
Armoth,
That’s not sounding like much of an opportunity. Your payout is what they call an “interest differential.” They pretty much have you paying the difference between what you agreed to pay and what they can lend the money for today. If you were to tack that $12K on to the mortgage it would probably set you back considerably.
April 25th, 2009 at 2:04 PM
notalawyer,
“Our utilities are high, with four adults (and three dogs) living under one roof.”
Anyone who has ever tried to teach a dog to turn off the lights when they leave a room can relate. They are worse than children.
April 25th, 2009 at 2:06 PM
Amazingly, I once had a cat that would jump up and turn out the lights. He did it indiscriminately, though, just for fun. Suddenly you would hear a scuffle and *bam!*, it would go dark! What fun that was.
April 25th, 2009 at 2:07 PM
Crikey,
I’m impressed but not completely surprised. Apparently, cats can be trained to use a toilet so lights should really be a breeze.
April 25th, 2009 at 2:39 PM
Norm,
The market moves always in anticipation of what’s to come, (not on what’s currently happening). A lot of companies will be putting out 1st and 2nd quarter results that will beat market expectations. These results will still suck, but just won’t be as bad as analysts thought.
Unless something significant happens to spook the market, I would expect more upward movement until the Dow hits the low 9000′s by this summer. When it gets there I would suggest shorting everything you can as there is a major resistance level between 9500 – 9700 that I’m 99.99% sure will not be breached. I fully expect to see the Dow between 3500 – 4000 when it finally bottoms.
All in my opinion of course
April 25th, 2009 at 2:53 PM
Northstar,
I understand what you’re saying but like I said, I thought that the latest news was indicating that “what’s to come” ain’t all that great.
“All in my opinion of course”
Your opinions have been fairly accurate over time.
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