Saskatoon real estate: Week in review (April 6-9 2009)
Saskatoon real estate agents reported sixty-four firm sales of detached houses and condominiums to the Saskatoon MLS this week. While down by twenty-two units compared to the same week last year, sales were lower by just ten units compared to last week and were certainly above the average for recent weeks. Not too bad, considering that it was a short week with just four full days of MLS service.
The short week didn’t prevent agents and sellers from finding time to list Saskatoon homes for sale as one hundred and forty nine properties in the house and condo categories were offered for sale. Listings for the week were up nine units compared to last week but continued to lag well behind on a year-over-year basis. This same week in 2008 saw 200 new house and condo listings. Total active residential real estate listings managed to push higher again closing the week at 1,451 units, up fifty-two over last week when they sat just below the 1,400 mark, and sharply higher than the 619 properties which were sale during the same week last year. As of this morning, there are 890 houses and 472 condos for sale within the city of Saskatoon.
Click the image for a larger version of the graph.
Saskatoon home prices remained fairly level compared to recent weeks but continued to lose ground using year-over-year comparisons. Again, this was a period of sharp and steady increases through 2008 while the current trend over that same period this year is, at the very best, holding the line. The average selling price for the week crept up just about five thousand dollars over last week to finish at $278,498. The six-week average gained approximately seventeen hundred dollars over last week, closing at $268,726; nearly twenty-eight thousand dollars lower than the number reached for the same week last year. The four-week median held steady compared to last week at $260,000 but fell further on a year-over-year basis to finish $31,750, or eleven percent, below last year’s number.
Click the image for a larger version of the graph.
The average underbid recorded this week increased from $12,180 to $13,141 and amounted to an average discount of 4.5% of the asking price, up from 4.3% last week. The lower price categories on the underbid chart look a lot like a typical week with about sixty-three percent of Saskatoon home sellers accepting an offer within ten thousand dollars of the asking price. There are some big differences in the upper end price categories though as the $10,001-$15,000 category increased from fourteen percent last week to nineteen percent, the over $25,000 expanded in a big way from four percent to sixteen percent, while the $15,001-$20,000 category disappeared from the chart and the $20,001-$25,000 represented just two percent of sales compared to eight percent a week earlier.
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 12:50 PM
Nice activity and I have a question for all. Is it worth it for me to refinance my current rate is at 5.49% and have i think a little over 2 years left. Not sure what to do I know ill pay a penalty which is around 2500but will the savings greatly outweigh the costs.
April 25th, 2009 at 12:51 PM
Watching the week in review is a little like watching a horse race which makes it interesting. However real estate like stocks, bonds, gold and even tulips will have there ups and downs. Home ownership has never been viewed as a great investment so much as it has been viewed as a great forced savings plan. Home ownership is a lifestyle choice not an investment choice. The first home I ever purchaed was 53k + 8k reno. with 5k down, I sold it 9 years later mortgage free for 66k, hows that for a bad investment, however in those 9 years I enjoyed the home and walked away with 66k which was more then the 5k I walked in with. Hows that for a good savings plan. I guess my way of thinking is if your thinking rental real estate try to buy lower and do your math,take your capital gain if one materializes later. Have you ever heard Warren Buffet’s investment advice, makes you wonder how a guy could get so rich offering basic advice that most of us already know, go figure!
April 25th, 2009 at 12:51 PM
Norm, the average underbid in Area 3 of $24,900 is interesting. Granted, it’s only on 4 houses, but based on the prices of the units sold (and the underbids) in the other areas, it seems as though the mid-range priced houses may being seeing the most downward pressure.
Good article on Greater Fool today: “The Trap”
http://www.greaterfool.ca/2009/04/11/the-trap/
“As I’ve said before, those waiting to sell their homes until prices rise will be idling for many years. So, sell now. Take the hit. Move on. Those rushing to buy a house because rates have crashed and prices have declined 15% or 20% will do much better in a year – lower prices and still cheap mortgages. Those young buyers gobbling up homes because loans are so cheap are gambling with their futures. Real estate will not have appreciated much (if at all) in five years, while mortgage costs could have doubled. This is how a home becomes a wealth trap.”
April 25th, 2009 at 12:51 PM
Armoth, Potential Buyer posted some incredible mortgage rates yesterday (not sure through which financial institution, though). I would probably look at the 5-year (3.85%), 7-year (5.05%) or 10-year (5.25%); all are lower than your current 5.49% rate (provided you’re able to qualify for any of these). Personally, I’d avoid anything under 5 years as I think we’re going to see higher interest rates inside of 2 years. And if I really wanted to hedge my bets the 10-year rate is really attractive (only a month ago that rate was closer to 10%!).
April 25th, 2009 at 12:52 PM
Armoth,
Talk to a broker about exactly what the savings would be in your situation, but on $200K the difference between 5.49 and 3.85 over five years amounts to more than 10 grand, so a $2500 payout would be peanuts in comparison.
Rick,
You make some great points. I agree that people shouldn’t buy a home as an investment. That said, big gains are fairly easy to take. If the real estate market happens to move in the downward direction after you’ve purchased it could mean many tough years getting out of the hole.
Jason,
There was one property in Area 3 that sold at a 7% discount, but that discount amounted to $55K. One condo sale was under by $28K. The other two deals were fairly close.
April 25th, 2009 at 12:52 PM
Jason – Here is the link Norm posted for mortgage rates. That is where I found those rates.
http://mortgagegrp.com/site/SK/rates.asp
April 25th, 2009 at 12:53 PM
Tea leaves readers, crystal ball readers and tarrot card readers have just as much a chance of being right as any real estate guru. Doesn’t take much knowledge ro realize that with this kind of inventory prices are not going to rise at this time. However a person may be wise to take caution in accepting their own predictions regarding predetirmened prices at a future point in time.
April 25th, 2009 at 12:54 PM
Rick,
“Tea leaves readers, crystal ball readers and tarrot card readers have just as much a chance of being right as any real estate guru.”
How true! All of the ingredients have been in place to score a “gimme” on a prediction of pretty strong declines. Throw in some governments who are desperate to get the economy going and interest rates which can only be described as ridiculously low and I have to wonder if they won’t have some success at getting things going again.
April 25th, 2009 at 12:55 PM
Armoth,
I can’t remember where i read this but the BOC is thinking there might be one more drop left. BOC is at .5% and they say it will probably go down to .25. Not sure if you want to wait for that extra or not but just letting you that’s possibly out there. I think if it does go down that extra your payout penalty (assuming your bank charges higher or IRD or 3 months) will go up a tiny bit as well but probably worth it to do.
This last month has been quite the month in investments. you could have picked stocks with a dart board and made 20%. If you were risky enough to toy with an ailing bank of america you’d be up 200% (35% just on Friday).
April 25th, 2009 at 12:55 PM
Armoth,
Since you only have 2 years left on your mortgage were only talking a savings on 40% of that $10,000 on a 5 year term. That alone is more than the $2500 penalty. I think the better question is where do you see interest rates at the end of the 2 years you have left on your mortgage? I think it’s a no brainer.
Have a great Easter all!!!
April 25th, 2009 at 12:56 PM
Hey Armoth,
I hope you’re doing well. You might find this site helpful- it’s a mortgage savings calculator on the Industry Canada/Office of Consumer Affairs website:
http://tinyurl.com/csq6n6
“* If interest rates fall, should you “break” your mortgage and go for the lower rate?
* What will you save if you prepay?
* What are the costs and savings of a shorter or longer amortization period, or a higher or lower interest rate?
Our calculator answers these questions!”
Hope this helps. Happy Easter!
April 25th, 2009 at 12:56 PM
If we don’t top next weeks sales numbers it looks like it could be another 5 weeks before we have a shot at it again. My guess based on this years sales is we won’t but for sure its a coin toss. Anybody like to forward there guess?
April 25th, 2009 at 12:57 PM
Rick,
I’m going to guess that we will at least match last year’s numbers. The fact that the MLS was closed Friday will provide some overflow for reported sale next week. May even be the highest volume week of the year.
April 25th, 2009 at 12:58 PM
Happy Easter everyone! Great stats Norm, nice to see things “coming along”. :’)
April 25th, 2009 at 12:58 PM
Armoth – I know you’re a smart guy, so I have a suggestion for you. Find whichever one of those calculators you like best and plug in your current payment at the new rate you can get today, and see how many years you’ll save at the end of your mortgage. It won’t save you any money on your payments, but it will definitely save you time in paying it off. It might suck to have to pay that penalty out of pocket and see no savings in your regular mortgage payment as a result, but looking ahead to a possible early retirement, it would be great to have that mortgage taken care of sooner rather than later. Just a suggestion – I know there is also a comparison to be made if you invest the difference between then old and new payments, but I’m sure YOU of all people have already done that!!
Also, have you considered that refinancing may be a little tougher now than it was last time you did it? Prices up there have taken a hit, and you may no longer hold 20% equity to avoid all those nasty CMHC fees. Norm’s co-conspirator has me hooked up to their feed on actual sales vs. listings in confed (I have property up there we were trying to sell last year), and they’ve taken quite a hit since last summer. Just a thought. Good luck to you!
April 25th, 2009 at 12:58 PM
I would second your guess Norm, I think your guess is better then mine, further I would trust your opinion on all things real estate before my own, for sure. In the event we have good weather and accounting a 6 day reporting week and we don’t pass last years sales, yikes!
April 25th, 2009 at 12:59 PM
Rick,
I’m just taking a wild-ass, semi-educated guess.
Weather permitting, six day week and a pretty weak performance for the same week last year. Should be a gimme.
April 25th, 2009 at 12:59 PM
Interesting blurb from the Automatic Earth re: interest rates, and one take on why we may see them start to rise as early as Q2 2009 (apologies for the lengthier post, it’s impossible to hyperlink to sections in TAE).
Is it reasonable to forecast zero inflation and historically low interest rates for this year and the foreseeable future?
While the credit freeze of the fall of 2008 triggered powerful deflationary forces, especially in commodities and real estate, we expect the impact of monetary expansion to have a measurable inflationary effect as early as the second half of 2009. The U.S. government needs to roll over $2,596 billion of outstanding Treasury bills and notes coming due in 2009 before it can add any new borrowing to finance the expected deficit. In previous years, foreign investors have invested most of their trade surpluses – to the tune of $200 billion to $500 billion per year – in Treasuries and agency debt. We cannot expect this trend to continue as we go forward, especially given that China, Japan, and the Middle East are experiencing a sharp decline in their exports and have indicated that they will have to support their own economies with massive stimulus packages. These actions will further reduce their propensity to buy U.S. debt.
The Treasury Department recently reported that in January 2009, international sales and purchase of U.S. assets showed a net outflow of $148 billion. This could be a sign that “the times, they are a-changin’.” Assuming that foreign investments will not represent a large source of financing for the $4 trillion plus of U.S. Treasuries our government needs to sell this year, we will be forced to rely on domestic institutional and private investors. The problem here is that a great deal of institutional and private money has already fled from riskier categories of assets into lower-yielding Treasuries. If anything, these funds will be looking for higher-yielding investments as soon as possible.
April 25th, 2009 at 12:59 PM
Armoth,
Our situation is was a little diff but we are in the process of refinancing right now. Our penalty was interest rate differential which amounts to about 11k. However we would be saving 15k. Is it worth it? I don’t know if that was all, but we are keeping our payments the same as Ringo suggested, and shaving 5 years off the mortgage. That’s about 70K right there. We also have a very flexible payback option and a few hundred a month extra will shave some more time off the mortgage. Check the numbers but in our case it was definitely worth it.
April 25th, 2009 at 1:00 PM
Jason,
If you are right and inflation is right around the corner (I personally think it is 3-5 years away still) doesn’t that make real estate an amazing asset? What could be better than owning something solid like real estate while your fiat denominated debt gets effectively wiped out by this new inflation onslaught?
For example, you buy a 250,000 revenue property with 20% down, leaving you with $200K in mortgage. You lock in your mortgage at 5.25% for 10 years. Later this year price inflation sets in as you predict. Now normally inflation probably wouldn’t go too high but given the incredible increase in the FED’s balance sheet along with their commitment to do “whatever it takes” including buying their own bonds, things go haywire. Currenices start to devalue and price hyper-inflation sets in. 30, 40, 50% price inflation. At some point this is going to have to translate into rent increases right? So you keep making your 5.25% payments on your 200K mortgage while rents are going up by a much higher rate. Seems like a good investment to me.
April 25th, 2009 at 1:00 PM
Hi Peter, I subscribe to the theory that we’ve already experienced hyperinflation. So an increase in interest rates (regardless of how severe), is not going to necessarily lead to massive inflation in all asset classes or costs of goods and services for the simple reason that the average consumer is already leveraged to the hilt. This time around I think we’re going to see reductions in incomes lead to serious affordability issues, making borrowing even more expensive (even prohibitively so) and leading to higher costs of living. This will lead to a further decline in housing prices – not appreciation. So no, solely as an investment vehicle, I think housing is a losing proposition. 5-10 years out, maybe a different story.
April 25th, 2009 at 1:01 PM
“I subscribe to the theory that we’ve already experienced hyperinflation.”
So do I. And that quote from TAE nails it. Central banks (specifically the US Fed) are merely pushing on a string with their alphabet soup programs.
April 25th, 2009 at 1:01 PM
“I subscribe to the theory that we’ve already experienced hyperinflation.”
I don’t understand this statement based on the definition of hyperinflation. Could you elaborate? I can’t see how we have already experienced this. Everything I read states that inflation will be a force to be reckoned with in the next few years, not right now, our economy is still contracting.
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“So an increase in interest rates (regardless of how severe), is not going to necessarily lead to massive inflation”
Not sure what you meant…But just so everyone is clear:
Raising interest rates NEVER leads to massive inflation. Rather, raising interest rates is the central banks RESPONSE to rising inflation. They raise the rates once they realize inflation is leaving or about to leave their comfort zone of 2-3%.
April 25th, 2009 at 1:01 PM
L.oki, the original article that I posted from TAE was on interest (not inflation). Peter’s post was specifically on inflation, and on how he felt real estate might be a good investment/hedge against it. The_Chartist and I have both indicated that we feel we’ve already experienced a period of hyperinflation (more on this shortly).
With respect to your clarification, this time an increase in interest rates may not be linked to inflation, but rather, the US government’s inability to raise the $5 trillion that it desperately needs just to keep the lights on this year.
As for hyperinflation, I’d say the period of 2006-2008 saw a run-up in prices on almost everything, from oil to commodities to agriculture. And of course, housing. Hard to argue we didn’t see anything there.
April 25th, 2009 at 1:01 PM
Good point on the run up of commodities and house prices affecting inflation. However, I wouldn’t call that a period of increased inflation or worse, ‘hyperinflation’. By definition, hyperinflation is an extremely high rate of inflation. I am not aware of our inflation rate exceeding the banks target 3%.
But one could definitely argue that the ‘run up’ affected inflation. But a lot of other things were reducing inflationary pressure. One key sign hyperinflation was not present was our increasing dollar value.
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“US government’s inability to raise the $5 trillion”
Yup, and it has been suggested (by China) that the USA is trying to induce inflation in order to pay down its debt. They are accusing the states of trying to devalue its dollar. Ironically something that China has done for decades.
April 25th, 2009 at 1:02 PM
Inflation,
I’ve made my points on this before… I think this is right around the corner. The U.S. can’t borrow any more money as other countries are tightening and private money from within the country is running thin. The Fed will have no alternative but to print paper to pay these debts.
This will definately happen by summer of 2010. Something major will trigger it. My guess is either a state will go bankrupt triggering mass panic in government debt, or a significant natural disaster, (I’m open to other suggestions). My prediction is that the U.S. dollar will be worth 1/2 of it’s current value within 2-3 years. Although I still think there’s some short term strength left in it.
Things will eventually get so bad for the U.S. that a restructuring of their currency may be in order. Kind of like the Mexican Peso back in the 90′s. Possibly even the introduction of the “Amero”, if Canada gets dragged in to this as well (which it probably will).
April 25th, 2009 at 1:02 PM
Lots of good discussion going on here! I’m not sure I get the idea that hyperinflation has happened, though, Jason- could you try to elaborate a bit more? If so, the fact that wage inflation didn’t co-occur and people needed to become indebted to maintain the same standard of living was the problem, yes? Are you saying you think another inflationary period is coming that the taxpayer will not be able to lever out of? I do find the idea very interesting.
Peter, you’re right that during very inflationary periods that real estate is an excellent place to invest, assuming that wage inflation is occuring at the same time as your asset inflation. With real estate one can borrow with comparatively little down- no other asset class offers as much leverage. Your timing would need to be spot on, however, especially as credit continues to contract and jobs continue to be lost. If real estate values keep falling for some time you’d be in trouble (and as Jason has mentioned this could conceivably happen even in an inflationary scenario under certain circumstances, again particularly if there was little to no wage inflation.
April 25th, 2009 at 1:03 PM
Jason/Chartist,
I would agree that the US is pushing on a string as far as it’s efforts to increase lending / consumption. However, quantitative easing and this newer announcement to repurchase their own treasuries are absolutely going to water down the dollar. There are a lot of people talking deflation right now and I have no doubt that that is the natural order of things but we don’t have nature here, we have the govnerment. The government, especially the US government, does not want deflation since that just makes their debt more expensive. They want/need inflation and they do have the power to make it happen. If the US printed $100 trillion and distributed it across America do you doubt that prices would go up and the dollar would go down? They are going down that road albeit by smaller dollar figures and more cunningly. The only question is at what point their printing presses override the consumption and debt deflation that is happenning.
Now most of what I described above referred to the US government but I don’t think Canada goes unaffected. As this plays out and the US dollar devalues it is quite possible that Canada and the rest of the world for that matter will have to get in on the currency devaluation game themselves.
I am just trying to provoke discussion so if possible could you also include what you consider a good investment given your view of the future?
Northstar/LOKI,
What do you see as a good CURRENT investment against this potential for inflation?
Crikey,
You are absolutely correct on the timing issue which is why I still haven’t committed. In fact I don’t think I have the guts to do it. However, I think we are entering an environment where it’s do or die. If you leave your money in bonds or cash you are ultimately going to get wiped out (and yes I know they have been amazing investments for the past couple years, don’t mean a thing).
What I am thinking right now is to invest in REIT’s. I hate giving up control, but at least you can have the leverage and diversification without the personal bankruptcy risk that exists with personally purchasing properties. Worst case scenario you “just” lose your initial investment. However, like I said, I just don’t think there are too many other alternatives. I would rather own an income producing asset like real estate than gold.
April 25th, 2009 at 1:03 PM
Northstar,
I agree with the idea that inflation will become a larger and larger problem as time goes on.
Earlier posters stated that they believe that hyperinflation has already occurred. I also believe this to be true. In order to understand this statement one has to look at the price and value of fiat currencies as two separate things. During the seventies inflation ran at a high rate and the price of the stock market went up in the following years. However it was only in price not value. The DOW Jones industrial average did not buy you more in goods than it did previously because the value of the DOW did not increase only the price did. Over the years stock markets have already experienced a silent crash. If you chart the DOW in constant dollars The Dow has lost something like 90% of its value since 2002.
While I agree with your conclusion that the U.S. dollar will fall when valued against the US Dollar index. It may not fall by as much as would think. Currencies are all relative. If you picture all currencies like boats tied up in a harbour the big boats will be higher in the water than the small ones, but as the tide goes out all boats get lower in the harbour, but relative to one another nothing has changed.
The point being that if all countries are debasing their currencies the price of the dollar may not fall by 50% but the value most certainly will. A large price drop in the dollar is not necessarily a condition of inflation only a drop in the value is.
Nix
April 25th, 2009 at 1:03 PM
Peter: GOLD
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Nix: See link from statistics Canada.
https://www.phn.com/Portals/0/Images/FinancialAdvisor/EconomicOutlook/2008%20Q4/bondQ408_2.jpg
Hyperinflation is not here.
April 25th, 2009 at 1:04 PM
Here is a good website that explains how the calcultion of the CPI is both manipulated and has been changed over time.
http://www.shadowstats.com/
Nobody really believes that the CPI is accurate. The CPI allows for substitutions. If steak goes up in price to much then switch it to ground beef. If Colgate toothpaste goes up switch it to noname. I also believe that the price the CPI uses for cars has not changed since 1997 because the technology is better. Airbags, ABS, and GPS all make cars more expensive but they are better so they don’t factor into the CPI.
This is why people are in debt they cannot keep up.
Nix
April 25th, 2009 at 1:04 PM
L.oki/Crikey, certainly. I think we’ve seen a period of hyperinflation that falls outside the normal economic definitions (because as L.oki pointed out – our currency didn’t lose value even while many goods and services saw substantial increases). The Consumer Price Index (CPI) doesn’t accurately reflect this, because it’s constantly adjusted to discount those items whose prices are rising the fastest. Take Shelter. It’s indexed at only 26.6% and comprises rent, mortgage interest, property taxes, insurance and utilities. The fact that mortgage terms have been extended 10-15 years isn’t reflected anywhere and essentially masks a massive increase in housing prices (and the true purchase cost of a new or used home is not factored into the equation).
Crikey, yes, I absolutely agree that wage inflation didn’t co-occur, and that in order to maintain the same standard of living we became over-leveraged. I actually see a period of deflation now as the economy continues to worsen as employment and profitability in business declines. So while wages may remain relatively flat, disposable income will be drastically reduced through higher interest rates and the inevitable tax increases. This will result in people having less (not more) money to spend. And with the inability to borrow this time around (due to credit requirements or rates), anything non-essential is going to see a substantial drop in value.
Peter, we may not see currency devaluation, since governments may be able to finance their deficits by luring investors with high interest rates as opposed to printing money – and I think they’ll try that route first. I’m not convinced we’re going to see inflation (beyond, perhaps, core goods and services). But I think any asset outside of cash, gold and equities is going to experience severe depreciation (and I’m not convinced we’ve seen the bottom of the market yet, either, so emphasis on the first two). We’re already seeing depreciation with cars and houses – two big ticket items that were overproduced and manufactured. Personally I can’t get excited about REITs; I think there’s far too much risk for too little reward. I’m with L.oki (GOLD!).
Nix, good analysis – I agree with all of your points (in particular, the one about how all currencies are relative). I’m currently reading a very interesting book on a return to the gold standard (and how it’s inevitable at some point). They’re also seriously talking about a new “super currency” to replace the US dollar. What’s your take?
L.oki, I know – it’s already past.
captcha: stock belongs
April 25th, 2009 at 1:04 PM
Nix, couple things…
1) Why would stats canada manipulate this value. What do they have to gain?
2) Yes the CPI has substitutes. But they are used to improve the accuracy of the CPI. If beef goes up, people buy chicken or pork. When pork and chicken goes up, people switch back to beef. The point is, people are still eating meet. The idea is to try and measure overall environment while ignoring cyclical fluctuations. A difficult task!
Unfortunately, you and I will likely continue to disagree on most of these topics as is my experience over the past few months that we have tossed around some constructive arguments. Anyways…good discussion Nix!
April 25th, 2009 at 1:05 PM
Jason,
Whether it is a gold standard or a basket of goods: Gold, Silver, Oil ect. I believe currencies will not be only backed by the full faith of the government that issues the currency.
Look for a few commodity backed currencies to be issued later this year or early the next. I would be looking to the middle east or a Chinese currency backed by commodities. At the recent G20 meeting we saw grumblings from Russia and China over the U.S. dollar reserve currency that has granted them such hegemony over the last 40 years.
I believe that the inflation we have experienced since 2002 was all in an attempt to prevent a deflationary spiral. Make no mistake the world needs and wants the inflation which can be described by the Kondratieff Winter(deflationary cycle). The fed took the inflation as far as they could with 40 to 1 leverage and the trillions and trillions of dollars of derivates created. However, at a very important point in the cycle were the inflation they were creating was not enough to combat the deflationary backdrop of the K winter. They needed special powers to be allowed to expand the balance sheet of the Fed to levels never before seen.
This was the time frame that the U.S. risked going Icelandic. If they would not have been granted the special powers(unlimited balance sheet) and convinced other nations to cut rates and also expand their balance sheets the Amero would have been on the table.
The introduction of the Amero in my opinion been greatly reduced because of their success.
The Fed managed to get the added authority and hence the second leg of inflation has begun to combat the K winter. Quantitative easing whereby federal reserves buy government debt to debase their currencies. Britain started then the U.S., Japan is now also using quantitative easing to debase their currency it is only a matter of time before Canada and Australia and the Euro follow suit.
All of this money printing will anger the creditor nations and that is why I think they will release a few currencies back by hard assets.
Nix
April 25th, 2009 at 1:05 PM
L,oki,
There are many reasons to manipulate the CPI!
1.) The CPI prevents the so-called wage price spiral, people would not accept 3-3-3 if they new real inflation was 7-7-7. (We all can’t be nursesJ)
2.) The doctored CPI keeps people stupid, most people believe that inflation is the CPI. This is horribly incorrect. Inflation is an increase in the money supply.
3.) It lowers government liabilities for such things as pension and wage increases for public employees.
I am not saying that substitutes are not an acceptable, but where does it stop. If we substitute chicken for steak and then pork for chicken, why not spam for chicken and then no name spam for spam. We are still eating meat (I think). Substitution should only be allowed when it reflects the needs and wants of society not because it doctors the numbers lower.
I also enjoy the discussion!
Nix
April 25th, 2009 at 1:06 PM
Nix, I definitely think something with the Chinese is at-hand. And I think when (not if) we see a rise in oil prices again the Middle East will be moving away from the dollar (perhaps to the Euro). That should be interesting…
I think the US still runs the risk of going “Icelandic” at some point. There’s an interesting article on Iceland in TAE that you’d probably find interesting (or already have).
April 25th, 2009 at 1:06 PM
“They’re also seriously talking about a new “super currency” to replace the US dollar. What’s your take?”
See bottom paragraph of my last post.
Great discussion overall!!!
I agree, and have been stating on this blog for over a year now that gold is what the majority of your portfolio should be in. Especially physical gold and silver in a safe in your house. Small denominations (5 oz coins and under).
Nix,
I have to be a fan of Kondratiev as his work serves as a base for Martin Armstrong (who I believe is a modern day economic genius despite his personal issues). One thing to remember about Kondratiev is that his principals exsisted in a gold standard era. We now have a floating exchange rate system.
Here’s a good read for those who want to.
http://www.contrahour.com/ItsJustTimeMartinArmstrong.pdf
April 25th, 2009 at 1:06 PM
This real estate blog has turned into a forum for gold bulls.
One thing to remember is people always got to eat and sleep. With an increasing world population, real estate will always be a safe choice. They stopped making land a long time ago.
And remember folks, in order for people to rent, someone has to own. That is the main reason why I do not believe renting is the answer to all of our problems (or specifically Jason’s)
April 25th, 2009 at 1:07 PM
No gold bug here, but I am from the Austrian School of Economics, which defines inflation as an increase in money supply and credit. Prices increasing is just a result of all money supply and credit in the system.
As a chartist, I sit here and look at a chart of crude futures everyday. The run-up in crude prices over the last few years is enough evidence for me that we’ve already experienced hyperinflation. Heck let’s just throw in natural gas too and you’ll see what I mean.
I’ve said this before and I’ll say it again: The US Fed and other central bankers can print all they want at this point. The money is going into a black hole. You can’t make banks lend and borrowers borrow.
April 25th, 2009 at 1:07 PM
Chartist,
It is no longer about leverage, borrowing and lending.
At this point in the cycle it is about dollar devaluation. That is how the inflation will be created.
Only central banks have the ability to create and destory money, so the only way a black hole for money can exist is if the central bankers abandon the money printing orgy.
Nix
April 25th, 2009 at 1:07 PM
Nix you make a valid point. But I don’t think the US Fed is printing enough to offset the deflationary forces that are in play. The Fed’s balance sheet was actually shrinking up to a few short weeks ago. It’s only been in the last few weeks that it has expanded again.
But here’s the rub. Once the treasury starts to borrow heavily again, and it will in a number of weeks, then and only then will we be able to see if the US Fed will step up to the plate and print like mad. I’m watching and waiting . . .
April 25th, 2009 at 1:08 PM
All,
Gold has certainly done well so far this cycle, I think it is up 4-fold from it’s bottom in the 90′s of some $250. However it is still basically flat since the early 1980′s. It doesn’t product any income and it’s value is affected not only by inflation fears but by jewelry demand and mine production. As such I don’t find it a good investment albeit an acceptable hedge against disaster. There must be some better way to inflation hedge.
Any other ideas?
April 25th, 2009 at 1:08 PM
Fascinating article on Bloomberg today, wholly related to this discussion:
http://tinyurl.com/cr8gmg
April 13 (Bloomberg) — Federal Reserve Chairman Ben S. Bernanke is siding with John Maynard Keynes against Milton Friedman by flooding the financial system with money.
Peter,
“If you leave your money in bonds or cash you are ultimately going to get wiped out”
I think I get your point, but you could’ve said the same thing eighteen months ago about stocks, yes? If you had invested all your money in the markets then, you would have been down hugely by now, if not “wiped out”. There are enough wacky economic and financial games going on right now that just about anything may be possible. I do think it’s important not to get too invested in any particular outcome, and to keep your eyes and ears open. I’m staying away from REITs for now- I still see CRE getting clobbered in the near term. I’m still overwhelmingly in cash and fixed-income, but recently dabbling in largely Canadian equities, and a very small amount each in US and international equities. I guess we’ll see whether or not that works out.
April 25th, 2009 at 1:08 PM
L.oki, not so – what I indicated was that housing was a poor choice solely as an investment vehicle. As your primary residence, ie: a place to live, raise a family – different story. Even so, I think prices still have a long way to drop which is why I’m a big advocate of renting now and buying later (over the next 1-2 years).
Yes, someone always has to own in order for someone else to rent, but I think we’re going to see a lot of speculators and secondary homeowners become accidental landlords. It’s already happening.
April 25th, 2009 at 1:09 PM
Norm if you could offer some insight on what Jason is saying. I’m new to this and I’m wondering now if buying a property is a bad idea at this point? I’m looking to buy a house as my primary residence, however, I also am looking at it as an investment in the future, maybe 5-7 years down the road. I would hope to maintain and improve the house along the way, putting money into improving the houses resale value, but is this an unreasonable decision to make given the current housing situation in Saskatoon? Given the fact that the low rate I’m getting is going to likely double in that timeline?
April 25th, 2009 at 1:09 PM
Sask a Look,
On the one hand saskatoon real estate is struggling and likely to continue to decline. This in spite of the large drop in interest rates.
On the flip-side, as you have noted, interest rates are not going to stay low forever.
If I were in your shoes I would at least get pre-approval on a mortgage. Once you are pre-approved the rate can only go down. If you look around, some banks give 4 months of rate lock in (some might even give longer). I would lock in the rate with the pre-approval and watch the market. Chances are 4 months will go by and rates will be even lower at which point you can lock in again at the new rate. Repeat and watch the market (via this site) until either rates start to go up or housing prices start to increase or at least stabilize. At that point you can make your call.
April 25th, 2009 at 1:10 PM
Sask a Look, the best advice I can give you is this: work out several scenarios with your planned purchase, including best-case and worst-case scenarios (ie: prices plateau and start to recover, interest rates remain flat for the foreseeable future… or… prices continue to drop – perhaps as much as another 10-20%, and interest rates increase by at least 1-2 points). Also assume no raises for the next few years and to play it safe, reduce your household income by 10-20% during the same timeframe. If you can still make the worst-case scenario work from a financial/disposable income standpoint you’ll at least have the ability to assess any potential risks and plan ahead. Last piece of advice (old adage): location, location location. It’s better to have a more expensive house in a prime location than an average or cheaper house in a poor one. When it’s a buyer’s market it can make all the difference between getting out (even at a loss) or not getting out at all. And Peter has a good suggestion about getting pre-approved (note that changes to employment status or income can nullify this, though).
April 25th, 2009 at 1:10 PM
Hey Saskatoon and Looking:
Quit listening to the percentages and the what-if’s and the gloomy-guss’s. Do what’s in your heart and you’ll be allright. I rarely post a comment on Norms blog but I’ve been born and raised in Saskatoon and if you’re as savvy as you sound you’ll make the right decision.
April 25th, 2009 at 1:11 PM
When checking out a house, leave your emotions at home.
April 25th, 2009 at 1:12 PM
Saskatoon and looking,
This is a decision that only you can make, and I agree that you should be thinking about long term affordability. If you’re confident that you’ll have a job and income that can carry you, you’re probably okay doing what feels right as Al has suggested.
I am feeling far less bearish in recent weeks. Hopefully I’m not sucking myself in but I do really think that rates are ridiculous right now. To be clear, I don’t think that there’s much danger that prices or rates may rise in the near future, but a mortgage at two percent higher than today’s rates would require a price at 20% lower than today’s price to produce the same payment. I would be looking to make my move while rates are still low. I think Peter has given some good advice on getting yourself pre-approved so you’re ready if you feel the time is right.
Good luck.
April 25th, 2009 at 1:12 PM
Saskatoon and Looking,
I would do what Peter said, no rush to pull the trigger. April 23 should see another rate cut to .25.
Variable rate will be looking mighty fine!
Interest rates won’t be going up until governments get a handle on deflation. We have seen bankruptcies,falling prices, higher unemployment, less credit, lower profits which I believe has put us into a bit of a deflationary spiral. Governments have thrown money at the problem and if it works it will lead to higher interest rates down the road. 1-4 years? And if it does not work? Hello Japan.
Good luck. Tonnes of selection.
April 25th, 2009 at 1:12 PM
xcellent, thanks everyone for the advice. I have been pre-approved and actively looking for a property. I will be able to sustain my income and I think buying now, given my situation is going to be the right thing for me. I definitely recognize that emotion needs to be left out and bottom line facts are what matters, especially in the market today. Good to hear about the location location too. I was wondering about that, if paying more in a better neighborhood is really worth it, thanks for addressing that.
Interesting about the 2% interest hike and pricing needing to be 20% less to equal payments. I think there will be some people getting a wake up call in the next few years.
Again, thanks guys!
April 25th, 2009 at 1:13 PM
Saskatoon and Looking, with every property I’ve owned it always had a great location going for it and that ensured not only a timely sale but one at/close-to/or-over list price. One tip I’ve learned when renovating a home for an investment: stick to neutral colors and design for what people are looking for as opposed to what you may like; you’ll find it has much greater appeal. And don’t forget: this is a buyer’s market, which places *you* in the driver’s seat (don’t let anyone tell you otherwise!) – so don’t be afraid to drive a hard bargain! (but try to be reasonable, too – sellers typically don’t warm to ‘take it or leave it’ offers) All the best in your endeavors!
April 25th, 2009 at 1:13 PM
Sask a Look,
My advice to you is don’t let money run your life. Renovate your house how you like it, buy in an area you want to live in, and enjoy life!
Will any of this really matter when you are 85 years old? Will you remember saving 5grand? 10grand? Will your quality of life be better if you own your house and can do as you please? or would you rather rent and ask someone permission to hang a painting? Would you rather a lower rent payment, and instead spend some extra money on good food and clothing? Do you have a family? Do you need a big yard? a garage? Do you want to be close to schools? Bike to work? Close to your church? There are so many variables besides prices and interest rates.
Don’t let this blog fool you. Life is more complex than interest rates and house prices. No one knows the answer to your question, it is a personal question, and it is up to you. Regardless of what ANYONE tells you. A house is only worth what someone will pay for it. Keep your emotions with you, don’t leave them at home. You are not a drone! This is your life!
April 25th, 2009 at 1:14 PM
L.oki,
An interesting and refreshing perspective. One which I generally live by, but feel far less safe sharing lately.
“Don’t let this blog fool you.”
Blogs don’t fool people. People fool people.
April 25th, 2009 at 1:14 PM
L.oki,
I agree, that is a refreshing perspective. I’ve heard Loc, Loc, Loc before and I’ve wondered what constitutes a good location. Isn’t that completly dependent on the buyer? If location is everything, who is living in all the houses that are not in a “good” location?
And did you hear? Colour is the new taupe…
April 25th, 2009 at 1:15 PM
L.oki,
Hear, hear! You only live once… might as well make the most of it. Since I move frequently, I’m certainly guilty of renovating for someone else (a future buyer), but I’m sure looking forward to settling down so that I can buy a long-term house for ME, and fix it up just the way I like.
I’ve learned a lot about my preferences in my various moves, and the most important thing really is finding the right location (MY right location, as cyn_d points out). After that, get a big enough lot/house to accommodate your needs in the foreseeable future. The rest can all be changed to suit. I never really understood that cliche (location, location, location) until I bought a few houses. I thought it was financial advice, which it is, but I think it’s really lifestyle advice. The right location makes your home a joy. The wrong one will grate on your nerves more every day while you’re waiting in traffic, putting up with noise pollution (barking dog? traffic? airplanes? the bar crowd?), or looking at your dead-beat neighbour’s weedy over-grown lawn.
April 25th, 2009 at 1:15 PM
L.oki, “Don’t let this blog fool you.” just a bit amusing coming from the ‘God of Mischief…’
Sask a Look had presented this as an investment 5-7 years out, so I stand by my suggestions (from a investment standpoint). The key is to strik a balance between paranoia and blissful ignorance.
Cyn_d, Areas 1, 2 and 3 in for starters… Cul-de-sacs, Crescents and down from there. Ideally somewhere with good access to amenities but not necessarily directly adjacent to them. Typically you can’t find the “best” locations in any given neighborhood (these often don’t change hands), but you can find better ones. As mentioned, expect to pay a bit more of a premium for this.
April 25th, 2009 at 1:16 PM
S&L, interest rates will be down for the foreseeable future, don’t feel pressured in, rates aren’t going up fast, and prices and rent are already more affordable than half a year ago when many bought for “low interest rates” and rates are lower too
buy if you must, but with the understanding that prices are still on the down slope and that growing inventory will keep making sellers look stubborn for refusing to slash price with all that competition, it sure looks like a buyers market, just not price wise
April 25th, 2009 at 1:16 PM
Hey Norm,
Appreciate your Twitter daily updates, works for me!
April 25th, 2009 at 1:16 PM
Norm,
I have been following you on Twitter recently. The number of sales that you have been reporting seem pretty good this week. But the average price seems really low. This week might shape up to be another slide in prices.
April 25th, 2009 at 1:18 PM
Wow, a look around on Saskhouses etc really reveals to me how much prices have dropped for existing houses and the ones clearly stick out who haven’t accepted the fact that their house is worth 60k less than they think it is. Reality will set in and and soon these people will only dream of having their new 1200 sq ft house sold for 280k. More likely 220 k will be the norm a year from now….
April 25th, 2009 at 1:18 PM
Rick,
Thanks.
Roger,
I’ve made a mistake with yesterday’s numbers. Just sent this update.
Seems I have made an error in yesterday’s update. It should read “19 sales at an average of $274,353.” and not $227,353. Sorry folks.
The average for the week is just under $250. Still a number of sales before she’s over so anything could happen.
At the mid point of the month, we’re showing 157 units sold at an average of $263,670 for April. Actives pretty much stable at 1,431.
April 25th, 2009 at 1:19 PM
“Reality will set in and and soon these people will only dream of having their new 1200 sq ft house sold for 280k. More likely 220 k will be the norm a year from now…. ”
I have heard a lot of comments like Fred’s in the last while. I wonder how interest rates will counteract with the drop he is suggesting??
Can’t blame people for trying to sell for as high of a price possible though…..
April 25th, 2009 at 1:21 PM
“An interesting and refreshing perspective. One which I generally live by, but feel far less safe sharing lately.”
Why so Norm?
April 25th, 2009 at 1:21 PM
Northstar,
“Why so Norm?”
I don’t know, but I’ll definitely be thinking about the why. Thanks.
April 25th, 2009 at 1:21 PM
I got bad news for you Fred. You can’t build 1200sq.ft. houses for 220 k if you want a lot to put it on. And builders have to make money, they are a business after all.
The norm will not be 220 k for a 1200sq.ft. That is absurd.
————————————————–
You should read my above post. You might find it helpful.
April 25th, 2009 at 1:22 PM
L.oki,
I also doubt that we’ll see $220,000 for that house but you only have to go back to Q1/07 to see more than a dozen new homes at 1300′ plus for $225K, or less.
“I got bad news for you Fred.”
Question for you. How do you know this isn’t good news for Fred? Why do we assume that because Fred thinks something may happen that he’s hoping it will?
Potential buyer,
“I have heard a lot of comments like Fred’s in the last while. I wonder how interest rates will counteract with the drop he is suggesting??”
I think that low interest rates are driving the market already. In other words, we wouldn’t be selling the number of units that we are selling if it weren’t for the low rates we’re seeing right now. I’m going to guess that spring will be quite “normal” in terms of unit sales but inventory will still be key as to whether or not prices continue to fall as they have over the past year. I’m also not confident that low rates will, or won’t stop values from dropping on a longer term basis.
April 25th, 2009 at 1:23 PM
L.oki, not yet – but soon… Apparently you can get lots for as low as $80k, and since the lot is typically about 1/3 of the total cost for a new build you end up at around $240k (so Fred isn’t that far off). If we see interest rates increase, housing prices are going to come down. And if we continue with deflation, prices are going to come down. Either way, incomes aren’t going up, people will have less disposable income and housing prices are coming down. There’s nothing to artificially sustain another housing ‘bubble’ this time around.
April 25th, 2009 at 1:23 PM
Heard that CTV local had a brief bit on the news last night, with the University of Saskatchewan citing economic problems, and that cuts in costs/staffing will likely be necessary.
This could affect the RE market, as the U of S is Saskatoon’s biggest employer. Could make a lot of people nervous about making changes at this time.
April 25th, 2009 at 1:24 PM
Deflation?
US prices drop for first time since 1955
http://tinyurl.com/dzrm6v
April 25th, 2009 at 1:24 PM
If you’re interested in the inflation/deflation debate, check this out:
http://tinyurl.com/d8q6j
Those (hyper)inflationary scenarios may be some time in coming.
April 25th, 2009 at 1:24 PM
Sales numbers this week look impressive, like house over location buyers it appears that they don’t know or just don’t care that prices are likely to be lower later, the other possibility is that for lifestyle reasons they gotta have a house now,,,,or, prices have declined from being outragous to merely rediculous. Prices don’t unravel in a month, but we are in the same bubble as America, but like most things were way behind the curve. When the U.S. and eastern Canada emerge from this economic slowdown we’ll probably be in the tank. The idea that Saskatchewan is the last into recession and will be the first to emerge is strange, how is a resource economy going to leapfrog in front of a manufacturing economy. Potash, our finance minister says countries will buy it because they have to eat. What is he talking about people sadly have been starving to death since the beginning of time. For wood frame walkup condos with surface parking , take away momentum investing and flipping and who really wants to live there for any length of time, sure there is some, but is there really enough to take up the slack at current prices. If we look at comparables in Arizona, Florida, or most any other state even states with economy’s doing ok, it’s a little sobering about what people are paying for homes in Saskatoon. With that being said in a up or down market houses always sell quickly if priced right. When the market here becomes priced right the current inventory will begin to clear
April 25th, 2009 at 1:25 PM
There was a story on this in the S-P today- here’s the RBC housing report with some area specific graphs and tables:
http://tinyurl.com/lzpzk