Saskatoon real estate: Week in review (January 19-23 2009)
Eighty-five Saskatoon houses and condominiums were offered for sale this week, down eight units from the previous week, and up five from the same week last year. An additional seven properties (duplexes, apartment building, etc.) brought total listings for the Saskatoon real estate market to ninety-five this week. Presently, there are a total of 710 single-family detached houses and 406 condominiums for sale on the local MLS system. Total active residential listings sit at 1,192 units, up just one from the week before.
Residential unit sales reached seventy-one units including sixty-nine houses and condos to claim the best sales week in terms of overall unit numbers since the week of September 22-26 of last year. I should point out that sales of houses and condos for the same week last year reached 91 units so while “units” are showing some signs of improving we have been down for three of four sales weeks that fall into this year. At this point there is little doubt in my mind that we will fall short of matching last January’s record breaking sales numbers of 300 units, but with a total of 166 properties already reported as firmly sold, and weekly sales showing some solid improvements it seems likely that we will be able to produce sales sufficient to claim a “second best January.” The previous best for a January prior to 2008 was just 219 residential properties. In spite of all of the doom and gloom surrounding the economy, and real estate in general, home sales in Saskatoon are better than average over the past two months. No doubt, some of you will find my optimism grossly offensive, but demand for Saskatoon homes is strong. Cuts to interest rates and price drops over the last quarter have improved conditions for buyers and they are clearly responding. Naturally, inventory continues to be the wild card which will influence future prices as well as days to sell. Wise sellers will realize that they have their challenges ahead of them, likely for some time to come.
Click the image for a larger version of the graph.
Over the course of the week, a total of 45 price changes were recorded on the Saskatoon MLS. Additionally, 25 listings were canceled and re-listed, most of those offered at a new lower price. The average selling price of houses and condos dipped down $10,000 from the week before to finish at $268,072. The six-week average increased slightly to $274,026 claiming a gain of nearly $20,000 over the same week last year. The four-week median price slid $3,000 to $262,000, remaining up just $7,000 from the same week a year earlier. The median sale price for the week was just $247,000, down significantly from recent weeks when it topped $270K. Clearly, like the weekly average, this number is subject to wild swings on a weekly basis. We’ve seen it move from $195K to $285K from week to week over the last quarter.
Click the image for a larger version of the graph.
At first glance, the underbid activity looks very similar to the previous week. The average underbid saw little change and maintained some stickiness around the $13K mark. The percentage of sellers who struck a deal within $5,000 of their asking price held steady at 35%, while the $5,001-$10,000 range took a slide from 27% last week to 22% this week. The buyers lost from that category stepped up to the $10,001-$15,000 which gained five percentage points to finish at 20%. The higher discount categories showed little change over the previous week.
At second glance, and upon closer inspection you’ll see something occurring here that hasn’t happened in awhile; a full 10% of sales from this week traded at or above the seller’s asking price. Four above list price sales generated an average “overbid” of $11,550.
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.
Norm Fisher
Royal LePage Saskatoon Real Estate
138 comments so far. We'd love to hear your thoughts.
April 20th, 2009 at 1:02 PM
Hmmm. Interesting. I still think that I will take a wait and see attitude in regards to buying. Since I want to ‘buy up’ into a bigger family home I think that further price drops would benefit me even though it might hurt the resale of my current smaller home. Does this make sense?
April 20th, 2009 at 1:02 PM
Padhraig,
Makes sense to me. I suspect that higher inventory levels will continue to put downward pressure on prices over the next year. Your current home won’t escape that either, so I guess it all depends how badly you need the extra space.
April 20th, 2009 at 1:02 PM
Norm, the trend this week of returning to overbidding is a more than a little bizarre given the current economic conditions. Was it a single sale in Area 5 or were both unusually high overbids?
Thus far, with the exception of the “burst” of listing activity at the beginning of January, we’re tracking pretty close to the 2007 numbers (both in terms of listings and sales). We saw some gradual increases in February and then all bets were off in March as new listings clearly outstripped sales. February should be a good indicator on where the Spring and Summer may take us, but my gut tells me we’ve only scratched the surface in terms of new listings.
I think all bets are off again this year once we surpass 1,500 listings.
April 20th, 2009 at 1:03 PM
Norm, here’s a thought… if the numbers reported for underbid/overbid actually reflected the *original* list price, how would the sale information then be interpreted? For instance, a home listed for $350,000 that’s been reduced to $315,000 and then sells for $310,000. At first glance it appears as though the sellers only moved $5,000 off their price when in fact they actually discounted $35,000 additional. While not technically an “underbid”, the difference is fairly substantial.
April 20th, 2009 at 1:03 PM
Norm, fairly (positive) article on one realtor.
http://www.greaterfool.ca/2009/01/24/realtors/
Padhraig, you might find the second half of the article of interest.
April 20th, 2009 at 1:04 PM
Jason,
I definitely wouldn’t have used the word “trend.” Just found it interesting since we haven’t seen anything like that for a while. Area five had two overbid sales, one at $28,000 and the other at $11,100. I agree that it will be another challenging year for sellers, to what degree will be determined by the number of listings.
On your point regarding price adjustments. Certainly true. I’d just point out that they weren’t marketable listings before the price came down. In other words, I could price my $400,000 listing at $1,000,000 and it wouldn’t change the fact that it’s a $400,000 listing.
April 20th, 2009 at 1:04 PM
Jason,
Garth is much more opposed to liars than realtors in general. I heard him speak at a CREA conference years ago. At that time he said that his realtor had made him more money than any other professional he uses.
April 20th, 2009 at 1:05 PM
I agree, I wouldn’t say that Garth Turner has anything against realtors per se… the bubble-blowing behaviour of the mortgage lending industry draws ire much more frequently. The issue comes when you have either an individual, or in particular a professional organization that seeks to put its own financial interests ahead of the best financial interests of the public they are supposed to be serving. Any organization will have people like this in it, of course. Once trust in any organization is lost though, it’s not so easily gained back, as I’m sure they will find in the future.
Anyway, it’s interesting to see that sales are keeping up the pace. Going forward inventory and employment numbers will be the things to watch.
It may be much too early for interest rate rises to be on the radar, but looking forward, when interest rates do rise, asking prices usually must decline to compensate, yes?
April 20th, 2009 at 1:08 PM
Crikey,
“It may be much too early for interest rate rises to be on the radar, but looking forward, when interest rates do rise, asking prices usually must decline to compensate, yes?”
If “affordability” is one of the fundamental factors of real estate, then yes, values would be impacted by rising and falling interest rates. Mind you, lower rates don’t seem to be doing much for values in the United States. I think I read recently that affordability is better than it has been for decades. People are still waiting for the bottom. It will be interesting to see if Obama can help restore some confidence down there. Jobless numbers aren’t helping but it has to be a darned good time to buy in the U.S. if you have a stable income.
Employment: Read in the paper today that PCS has a job for many of their laid off employees. They have to go to Rocanville to get it but their announced expansion is now underway and they’re saying that they can give many of these people another job to tide them through the temporary lay-off.
April 20th, 2009 at 1:09 PM
I think people in the US stopped waiting for the bottom a while ago. I think their reluctance now has more to do with anxiety — about buying in a neighborhood filled with foreclosures and the problems that come with that, about non-mortgage debt, about losing their jobs, about the local economy weakening and making it impossible to sell, and other assorted anxieties.
There may still be people who sold at the top of the market and are sitting on a big pile of money waiting to buy, but I think many of those people have already bought in places like LA.
It’s a healthy sign of possible sanity that the prices are dropping, but listings are still too high for anything to stabilize. I still think we’re going over 2,000 listings this summer: in fact, I think we’ll probably reach 2,500. People are just starting to believe that we’re in a recession.
April 20th, 2009 at 1:09 PM
Norm, I should have said “anomaly”. What I was getting at were houses that may have been listed at $450k-$475k (last year) may only sell for $400k this year. For anyone who bought at the peak, that’s not a comforting thought…
The issue with press releases is that they tend to be reported as “newsworthy” when in reality they’re very much self-serving. The real estate industry being entirely commission-based is (in itself) at the very root of the problem.
The US will soon see a second wave of mortgage defaults, so I don’t think we’ve seen anything yet. Imagine what this will do to the US/Canadian economies… I also think one main problem in the US is that people no longer either qualify for financing or the lowest rates.
http://ca.youtube.com/watch?v=5IeixTAzhjE
jrochest, I don’t even think 3,000 (including private listings) is unrealistic, either. So here’s the million dollar question: if we had over 2,500+ MLS and private listings, what would we see average housing prices drop by?
April 20th, 2009 at 1:10 PM
Jason: I don’t know, because don’t have a crystal ball.
I’m still betting that prices will end up at the same level they were at before the massive spike in 2007: that is, where they were in Dec of 06. That’s an average (including condos and SFH) of around 180K.
This is massively bearish, of course — but I base it on two points. First, every previous RE bubble has eventually reset to the level it started from: it takes a very long time, but it happens.
Second, the number of condo conversions will make condo prices tank badly, and this will pull the overall average down: there’s just too many units available. The spike in rents that the conversion boom produced (by lowering the number of units available to tenants) will be undercut when these units come back on the rental market. This will mean that they will not cash flow, which will push prices down further, and so it goes. This is already obvious for certain blocks and certain areas (there’s a reason there’s been no condos sold in Area 4, for instance). It’s just going to spread. I figure the price for a unit in a former rental building will be around 100K (in a decent building) and below that in less desirable units or areas. Yes, that’s less than some companies paid for them, so there will be much shrieking and rending of garments.
April 20th, 2009 at 1:12 PM
jrochest, sorry, was just thinking out loud.
I don’t think you’ll be that far off. Massively bearish now, perhaps, but you’re absolutely correct about the RE bubble (it will eventually reset). I’ll go you one further and suggest that yours could be a *conservative* estimate; under the right economic conditions, prices could roll back to 2000 levels (which was in the $125k range). Impossible? They said that in Arizona and Nevada, too…
Not only that, but economically we’re also due for a financial correction. And a massive one, at that. This recession should have happened post-911, but the consensus at the time was to spend our way out of it. And we did. And now we’ll all reap the economic whirlwind as we watch our country sink an additional $100B into federal debt. Unless oil jumps into $100 territory again, I don’t see a lot of additional tax revenue filling provincial and federal coffers.
I think we’ve set the stage for an economic disaster on an unprecedented scale. Just as with the Titanic, even glancing blows have the potential for catastrophe, and it’s what’s lurking *under* the surface that has me very concerned.
April 20th, 2009 at 1:24 PM
jrochest,
“First, every previous RE bubble has eventually reset to the level it started from: it takes a very long time, but it happens.”
Every RE bubble, every single one? That is completely ridiculous.
As one counter example look at the alberta real estate boom in the 70′s, it certainly never got back to the levels it started at. In fact prices barely fell at all, they just stalled out for years.
April 20th, 2009 at 1:25 PM
Matt, you’re kidding, right? We’ve seen three housing bubbles in as many decades (although arguably the bubble in the late 80′s wasn’t anywhere near as spectacular as the other two). However, from the peak (crash) around 1980 it took 26 years for real estate prices to return to their former levels…
Edmonton and Calgary (respectively)
http://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/housing-pri-edmonton.pdf
http://cuer.sauder.ubc.ca/cma/data/ResidentialRealEstate/HousingPrices/housing-pri-calgary.pdf
April 20th, 2009 at 1:28 PM
Matt,
The big declines you see on those graphs are in “real” dollars- adjusted for inflation. Nominal house prices seem to most people as if they’ve been rising as long as they can remember, but setting the cost of inflation aside, it’s a different matter. Even so, multi-year periods of nominal house-price depreciation are by no means unprecedented- look at the periods between 1981-1988 and 1995-1998 on Jason’s graphs. The peak-to-trough period between 1981 and 1985 was particularly nasty in AB, as you can see. If you had bought at the peak in 1981 and had to sell in ’85, your home would’ve lost 30%+ of it’s average nominal value. That would truly have sucked if you were financed to the hilt with that purchase.
April 20th, 2009 at 1:30 PM
Matt: what Jason said.
Besides, there’s a difference between a boom and a bubble. One is driven by expansion and the other by speculation: if a city is growing and developing a new industry (both of which were true for Calgary in the 70′s) then it makes sense for prices to rise. And they did. But then people start buying based on the expectation of putative future gain (“I’ll pay 85% of my take-home on this condo for a year, and then sell it for a profit and use that for a down payment on my real place”) and that’s where the bubble comes in.
House prices do rise steadily, because salaries rise steadily and house prices are tied to what people can pay. When house prices double or triple while incomes stay flat, that’s a bubble. They always correct because the prices are too high: you can’t base your business plan on an expectation that your customer will be able to make payments of 85% of his monthy take-home pay over a period of years.
That said, the fact that prices were flat for most of the 80′s and 90′s suggests that they did reset: they just took a very long time to do so. But Jason’s right: if you bought a house in Calgary in 1978, you had to wait until 2005 for it to be worth the same amount, adjusted for inflation.
April 20th, 2009 at 1:30 PM
And Crikey’s right, too, of course: she posted while I was still composing that skreed.
April 20th, 2009 at 1:31 PM
“screed” indeed: I’m tired.
April 20th, 2009 at 1:32 PM
I’m not surprised by these stats. Many people have been waiting to buy in and bulls are getting into their heads saying prices will increase come spring. The tricky thing is: people who’ve pulled RE listings last fall aren’t going to list again until March or so. That means inventory over the next couple months may decline mildly. I can see where interest rates would also be fueling buyers, but there is only so much pent-up demand in an overpriced market to begin with. People who display the most patience will be rewarded greatly.
April 20th, 2009 at 1:33 PM
I think I found a new mortgage today.
Merix: 3.75% for a three-year fixed. Pay out as much as 20% of your principal annually without penalty. Only available through a mortgage broker. If you’re about to renew, you may want to discuss this product with a broker.
April 20th, 2009 at 1:33 PM
U.S. existing home sale rise 6.5%
http://tinyurl.com/c95pgl
Home prices, sales decline: Canada
http://tinyurl.com/aadqsy
April 20th, 2009 at 1:33 PM
Jrochest,
To be clear, I don’t doubt for a second that prices will fall. They may very well fall back to the levels you are predicting. I just get annoyed when people start making these absolute statements, ‘every time’, to try to prove their point. The fact of the matter is we really don’t know what will happen. If there is hyperinflation then housing prices may very well not fall in real prices.
Looking at Jason’s stats I think we were both incorrect on our statements on Alberta in the 70/80′s. It DID decline in value, in both nominal and real terms, I have to admit that. However, it certainly did not fall back to the pre-boom levels in nominal terms, EVER.
You can go on and on about real prices but they don’t mean a thing because your mortgage is denominated in nominal terms. If you take out 400K for a house and it goes up to 800K while general prices also double, by your argument you are no better off. That is garbage because your mortgage is only half of the value of the property.
April 20th, 2009 at 1:34 PM
Heather D. the down turn in prices will stop sometime near the end of this year. Real Estate may drop another 10%. Those with a property will not be affected much by waiting. Their property will go down along with everyone else’s. If you have a lower end property and want to buy higher end this is actually the time to sell and buy. The difference between lower end and high end homes will be greater when the market drops again; low end homes still have dropped much. On the other hand if you are a first time buyer I’d wait until summer.
Also for those expecting 2500-3000 homes on the market you need to realize that is a whole neighbourhood. It isn’t going to happen… I certainly believe there are 500 homes/condos waiting for April, but 500 homes isn’t 2000!
We might hit 2000 homes/condos, but I doubt it. I’d predict 1800-1900 in May. Then 1000 or less by December. New home builds are way down. Most builders are booked into spring with possessions to June. Without insane numbers of new home builds the inventory will dry up to near normal by the end of the year.
April 20th, 2009 at 1:34 PM
Ryan,
I’m interested in this quote:
“the down turn in prices will stop sometime near the end of this year. Real Estate may drop another 10%”
Can you please tell us what leads you to predict this?
Thanks.
April 20th, 2009 at 1:35 PM
“Also for those expecting 2500-3000 homes on the market you need to realize that is a whole neighbourhood. It isn’t going to happen…”
Drive through willowgrove or stonebridge… those look like whole neighbourhoods for sale.
April 20th, 2009 at 1:35 PM
Crikey, I’m basing it on the last 12 months and my predicted inventory. We’ve seen about a 10% drop in the city even though inventory was silly and international economic news has been terrible for 6+ months. The situation this year will be very similar, but with more normal housing starts. The 2008 year ended near the pessimistic side of my predictions (5-10%). We are still above Dec 2007 levels, down from the early 2008 peak. I expect a similar trend until this year if the news stays the same.
Some people on this board have been predicting 25-50% drops and it won’t happen unless interest rates start going up, inventory spikes to the mythical 2500+ range, and people start losing jobs enmass here like Windsor Ontario. I do expect interests to start rising near the end of next year to combat inflation as the economy starts surging, but the other ‘requirements’ aren’t likely, and our inventory problems should be partially corrected by then.
–
John, Willow Grove has 98 homes for sale on MLS & 31 on Saskhouses. Stonebridge has 24 & 5 respectively. You’ll need 10 times those amounts to pop up or a whole from scratch (18,000 person) neighborhood in 1 year to see anywhere near 3000 homes. We won’t.
April 20th, 2009 at 1:35 PM
Norm, that’s a really good rate. The first thought I had though was, what happens if rates have increased in 3 years time, the employment status has changed or there is no financial institution willing to refinance? When looking at financing I think it’s important to factor in a higher rate (1-2%) and a drop in income (10%) to ensure some buffer against contingencies.
Inflate your cost of living and mortgage, lower your household earnings and if you still have enough disposable income you’re in a much better position financially to weather any storm.
April 20th, 2009 at 1:35 PM
Ryan, when doing your predictions, just remember:
- Anyone predicting 80k YOY increases in Jan ’07 would have been called insane.
- Anyone saying in Jan ’08 that prices could fall $44k in the last 6 months yet *still* be higher than they were at year start would have been laughed at.
- Anyone predicting 1800+ inventory in January ’08 would have been mocked mercilessly.
I’m not saying that an inventory of 2500+ or drops of 25-50% will happen, just saying that ‘near-mythical’ results have happened in the *very* recent past, catching (nearly) everyone by surprise.
April 20th, 2009 at 1:36 PM
Matt, referring to your last point… If you borrow $400k for a house, over 35-40 years you could easily pay an additionall $400k+ in interest and carrying costs. So yeah, even if the house was worth $800k you still wouldn’t be any further ahead. And if the value of that house drops to $300k and you’re unable to sell? (either due to market conditions of the inability to come up with the $100k to cover the difference at the time of sale) You’re an owner. There won’t be any “jingle mail” in Canada.
April 20th, 2009 at 1:36 PM
NEWS FLASH: ROYAL LEPAGE – STAR PHOENIX JOIN FORCES TO STAMPEDE SOME MORE LEMMINGS OFF OF THE FINANCIAL CLIFFS O’DOOM
http://www.thestarphoenix.com/Homes/City+housing+market+remains+steady/1219670/story.html
It looks like Hell is going to be getting a bit more crowded…..
April 20th, 2009 at 1:37 PM
Ryan, we exceeded 2,250 listings (MLS and private) so 2,500 and 3,000 is not that much of a stretch. And one reason is a factor you’ve excluded: boomers.
They are and will continue to retire in droves, and most likely to warmer climates.
And with the pummeling many retiree’s portfolios took in the market recently, and housing being 80% of average equity, where do you think they’re going to raise the kind of money they’re going to need to retire on, in addition to things like increased cost of living and healthcare? Not only will they want to convert their equity into cash, but more importantly, they’ll *have* to.
Who is going to buy all of these houses? Further, how will the average homeowner with less than 25% equity compete with someone who has greater than 75% equity? Quite simply, they can’t. Not only that, but retirees will be unable to wait for the next recovery because they’re going to need cash now – and not in a decade.
April 20th, 2009 at 1:37 PM
John,
This story was posted before Joanne and I had an opportunity to talk. I expect you’ll see an update to the story soon. I made it perfectly clear in our discussion that prices are down well from the peak. I also noted that demand has been remarkable strong through December and January but that supply continues to be a significant challenge for Saskatoon sellers.
April 20th, 2009 at 1:37 PM
Jason,
Thanks. I have considered all of those issues in arriving at a decision. I am planning on going on the “be as aggressive as I can” pay down plan during he term of the next mortgage.
John,
These are my comments from that media release in their entirety.
“Once Saskatoon residents recovered from the initial shock of the economic changes, demand showed signs of picking up toward the end of the year, and average house prices managed to hold on to small year-over-year gains,” said Norm Fisher, sales manager, Royal LePage Saskatoon Real Estate. “Fourth quarter market conditions were in the buyers’ favour as Saskatoon saw inventory levels triple compared to fourth quarter of last year. There are opportunities in the current market for buyers that haven’t existed for a long time.”
Added Fisher: “Currently, buyers have a better selection of properties and are now dealing with a far more flexible seller. Following a bit of a dry spell, the condominium market has been showing promising signs of renewed interest, as renters facing regular rent increases realize that lower prices and interest rates have made owning a property more affordable.”
The release is accompanied by a chart which clearly shows prices at Q4/07, Q3/08 and Q4/08.
April 20th, 2009 at 1:37 PM
Norm (first comment), if this press release didn’t meet with your ‘seal of approval’, I’d be more than a little exasperated right now. The best part of the article was the inset with “Related stories from sister publications” where the headline reads “Housing Decline Not Over Yet: Royal LePage”. I guess that’s where the “balanced” part of the reporting was presented.
Norm (second comment), if you’re refinancing from a higher interest rate to a much lower one, you’re essentially converting interest and carrying costs into equity by maintaining the same (or an accelerated) payment. Not a bad trade.
Unrelated… The Eighth Circle of H*ll is called “Fraud”. Up until recently I believe it was reserved exclusively for lawyers, but I think we’ve expanded this to include CEO’s of investment banks and real estate press agents.
April 20th, 2009 at 1:38 PM
Ryan,
“We’ve seen about a 10% drop in the city even though inventory was silly and international economic news has been terrible for 6+ months.”
I think average prices are down about 15% from the peak, actually. You’re right about the fact that YOY prices are still up. January data isn’t in, but the average residential selling price for December 2008 was indeed 4% higher than December 2007. Inventory for the same period was still far higher (226%), though. Sales certainly seem to have picked up recently, but December’s sales were down 22% YOY. Now one could always argue that 2007 was an insane outlier of a year and shouldn’t be included, but I have to say, the media certainly to have no hesitation including 2007 data if the information is “positive”.
Yes, the inventory was silly, but I don’t see anything leading me to believe it will be any less silly this year than last. I agree that starts will level out but I fear for the number of specu-vestment properties hitting the market, as well as the re-listing of the stuff that didn’t sell last fall. Am I expecting 2,500 to 3,000 listings? No, I’m not. It all depends on economic and unemployment data going forward, though. I’d like to be wrong, but I fear that we’re still in the beginning phase of reported layoffs from the economic mess.
Thanks for sharing your point of view, anyway.
Jason,
“35-40 years you could easily pay an additional $400k+ in interest and carrying costs”
Good point. Too many people just don’t think about this. I’m not sure what interest rate you’re calculating that with, but at 5%, carrying a $400K mortgage over 35 years will cost you $842,000 over the term of the loan. Over 40 years, it principal plus interest will cost you about $919,000. Thank goodness those 40 year puppies are gone.
April 20th, 2009 at 1:39 PM
Jason,
I have some control over the media release (you should have seen the first draft) and no control over the media.
I know that some on this blog would like me to come out and say that nobody should even consider buying a home right now. In all fairness, I don’t think that would be right, or fair. I’m not a pawn for the bears or the bulls.
The comments that I contributed to this release were carefully considered to present a truthful and balanced assessment of current market conditions and I’m comfortable with them.
April 20th, 2009 at 1:39 PM
“If you borrow $400k for a house, over 35-40 years you could easily pay an additionall $400k+ in interest and carrying costs. So yeah, even if the house was worth $800k you still wouldn’t be any further ahead”
Um, except you’ll own an 800,000 dollar house free and clear. Small detail.
April 20th, 2009 at 1:39 PM
This is pretty interesting:
http://what-customers-say.com/index.php
It’s a site that has customer reviews of real estate agents. Only has Alberta so far, but they’re asking for more customer input. Me thinks Norm would be the top one in Saskatoon!
April 20th, 2009 at 1:40 PM
Norm, I believe you eluded to ‘rewrites’ a while back, so I’ll take you at face value that this media release was not as warm and fuzzy as the first. I respect that you’ve adopted a neutral position, and I can only imagine the fine line of having to balance personal views of the market with the very real career demands of having to close. Just bear in-mind that the sparrow that flies with the crow still occasionally gets shot alongside the crow…
Honestly, no one really should consider buying a home right now. Unless you’re paying cash, downsizing or bought low/sold at the peak. Which more or less rules out the first-time home buyer. And as a first time home buyer, if you’re uncertain about your economic future, now would be the time to pay down any debts, reign-in spending and save up for that down payment to await the right market conditions.
Although having owned several properties in my lifetime, these investments were made over a period of two decades, and not all realized their profit potential (or to the same degree) in the timeframe we’ve seen here recently in Saskatoon. We’ve instead opted to rent, even though it means downsizing and adapting to a more minimalist lifestyle. In truth, we found that in divesting ourselves of various possessions, we felt less burdened (financially or otherwise). You make yourself rich by making your wants few.
And while mine is merely one opinion (and example), I am not suggesting in the slightest that anyone should follow the path I’ve chosen. I (and many others here) are simply trying to offer up alternative viewpoints in what has become a sea of propaganda. The old adage of “buyer beware” applies, and I recommend that anyone contemplating entering this market be thorough in their research and both realistic and conservative with their financial planning.
April 20th, 2009 at 1:40 PM
Jason,
I don’t imagine that I have nearly as much of a challenge “balancing” as writers for the Star Phoenix do. Imagine the calls from all of the “advertisers” when a negative story appears, and the calls from the bear camp when something too positive appears.
Invite me to your kitchen table, or call me up for my advice about purchasing a home and you’ll hear the same thing that many before you have. “If you can wait, wait. Prices are most likely to continue to coming down.” That said, I also have a responsibility (and a fiduciary duty) to a number of home sellers who have contracted with me and my brokerage to help them sell their home.
Still, had I had the opportunity to write this story myself, it would have presented far differently but that is completely out my control.
April 20th, 2009 at 1:40 PM
Mark, sure, unless you have to sell it for less than $400,000 before you’ve paid it off. And then you’re looking at a sudden potential loss (another small detail there, too). My point still stands: if it takes 40 years to pay off $400k, the house would probably need to be worth closer to $1M to offset all the costs of ownership. So yes, you’d have an $800k house that you actually paid $1M for.
Crikey (first point), I agree we’re closer to 15% than 10%. 68,000 jobs in the US in a single day tells me we’re know where near recovery. (second point) I had used 4.5% with a weekly payment over 40 years with $0 down. The interest came to $456,796 for a total of $856,796 plus mortgage insurance and other carrying costs (± interest rates over 40 years!). I would also imagine that you’d have some minor and even a few major repairs over the lifetime of this property (roof replacement, driveway repair, remodeling to stay current with trends, etc.) That’s over and above the $856,796. Yes, incredibly scary.
April 20th, 2009 at 1:41 PM
Bookrat, I took all those things into consideration. Two comments on those points though. I did expect a large increase (although not quite to the level we saw) in home prices in 07. I bought (upgraded) in August 06 as I saw the storm coming instead of the spring of 07 as I had planned. I also expected the large inventory in 08. I did have the advantage of seeing home’s popup at an unprecedented level. I bought in Stonebridge and wondered who was going to live in all the houses being built behind me. Relative trends aren’t that tough to see, it is the exact results. This board has a tendency to only see the doom and gloom and many of the predictions given are well past worst case. My post was meant to temper them a little.
–
Crikey, depending on the house and the date you could get 15%. High end home Feb & March 08 vs high end in January 09 for example. Most of that extra 5% was bidding wars vs underbids. Lists are down about 10%.
–
Jason don’t make assumption on what I’ve excluded. You’ve overstated Boomer positions. They will certainly have an affect on housing, but for the most part it will be a move to Condo’s or two bedroom (‘exectuive’) Bungaloos. It’ll also happen over 20 years not the year after the first boomers start retiring. We are just starting into the wave of boomer retirements. In 30 years we might have issues with empty houses, but we are decades away not months.
The other boomer issue you didn’t mention is their echo. The Echo generation is now finally starting families. They are buying homes and having kids in numbers. They will have a big affect on city infrastructure and I wouldn’t be surprised to finally see school enrollments increase in 5+ years.
Inventory will be an issue this year, but we’ll see a repeat of 08. Not 200% of 08. As before I wouldn’t be shocked by near 2000 homes for sale come June, but IMO 2500-3000 is not in the cards unless those three things I outlined above occur simultaneously.
In any case I’ve made my comments; take’em or leave’em. I’ve got to back to working (and lurking).
April 20th, 2009 at 1:41 PM
Ryan:
“Also for those expecting 2500-3000 homes on the market you need to realize that is a whole neighbourhood. It isn’t going to happen… I certainly believe there are 500 homes/condos waiting for April, but 500 homes isn’t 2000!”
Last September, we had a total of 1800 homes listed on on MLS: I’m saying we’ll have a total of 2000-2500 listed on MLS at the peak this year, which is only 500 more.
I figure it’s a lead pipe cinch, to be blunt.
April 20th, 2009 at 1:41 PM
“So yes, you’d have an $800k house that you actually paid $1M for”
And as a 35 year renter of that same 400K house, I would have…
April 20th, 2009 at 1:42 PM
Matt — saying that bubbles always burst is a bit like saying that falling objects do not stop in mid-air. By definition, the price gains of a bubble are based on expectation of future gain: once the future gains evaporate, so does the market.
There is no such thing as a self-sustaining Ponzi scheme.
This is not the same as a rising market built on demand, although that’s what bubbles are always argued to be, and what they disguise themselves as.
April 20th, 2009 at 1:43 PM
A goodly amount of money invested that you didn’t have to pay into a mortgage.
April 20th, 2009 at 1:43 PM
Sorry — the last comment was addressed to Mark.
April 20th, 2009 at 1:43 PM
“A goodly amount of money invested that you didn’t have to pay into a mortgage.”
But how much? Feel free to do the math. I’d like to see it. You’ll find it pretty hard to convince most people it doesn’t make sense to own over a thirty year time period.
April 20th, 2009 at 1:46 PM
Check out this Buy/Rent calculator on the NY Times website with these fairly realistic numbers.
http://www.nytimes.com/2007/04/10/business/2007_BUYRENT_GRAPHIC.html
$270,000 home with 5% down financed at 6% over 30 years. Property taxes are $2,700, or 1% of value. Assume that it costs you 4% of the purchase price to acquire the home and 5% to eventually dispose of it. While you own it, you’ll invest 1% of its value on maintenance and renovation annually. Assume the value of the home will rise by just 2% a year over the life (is that reasonable?) or…
rent the same home for a measly $1300 a month (probably not realistic based on what I’ve heard here). Invest all of the monthly savings at 5%, taxed at a low, low 20% (most of you will pay higher taxes than this). Assume that your rent will increase at 2% a year (most of you will see rent increases which are at least equal to inflation).
According to the calculator, you’re better off buying at the 19 year point.
Nothing particularly compelling there, but add to that the benefits of never having to deal with an eviction order, being able to use the property as you see fit (within the boundaries of the law), have whoever you want in your home whenever you want (refer to last week’s post where one renter received a notice of increase because her parent came to help her with her new baby), enjoy some improvements where you live, not have to beg someone else to fix busted stuff, etc.
Everybody pays for their home. Question is, who owns it after it’s paid for. If the numbers didn’t work most of the time nobody would be stupid enough to rent you a house.
Of course, timing is everything.
Some of you who are arguing against ownership (Crikey, jrochest) have made your interest in owning a home known. May I ask why you want to own a home if you see it as such a financially stupid move?
April 20th, 2009 at 1:46 PM
Swordfish,
Thank you…I think.
April 20th, 2009 at 1:48 PM
Ryan, what I was trying to get across is that one can’t easily dismiss the trillions of (boomer) dollars in RRSP, retirement funds, etc. that have now been effectively wiped out, and that for many, the only remaining source of cash is the equity in their home. So for that sole reason, I think we’ll feel the impact within a decade. As for the Echo/Gen-Y/Millennials, I think it’s way too early to try and gauge their impact on the economy, particularly the housing market.
Mark, others have (and probably can) made a much better rent vs. ownership argument, but to use a quick example: a 40-year mortgage on a $200k condo will run you around $1,000/month (5%/40 years, monthly, including CMHC insurance) plus your property taxes, condo fees, maintenance and upkeep (easily $500). Out of that, your principal repayment is about $150, so you’re paying about $1,350 in interest/related-expenses… just to be an “owner”. I suspect you could rent something comparable for around the same cost with no long-term liability. And rental rates are unusually and artificially high currently; in practice they should be closer to 1/2 the cost of ownership.
jrochest — nice analogies.
April 20th, 2009 at 1:48 PM
Jrochest,
So getting back to your original point, please have a look at the graph provided by Jason and show me at what point the bubble got back to it’s original starting point of $40k?
If you had bought in at the peak at $130K at Calgary, you would today have a house worth $450k. With ‘carrying costs’ and such maybe your total costs would have been 300 or 350k. If you had been renting this whole time you would have been paying rent this whole time and still being paying rent.
Also, don’t forget that with inflation, rent incrases over time. Mortgage prices do not (unless of course interest rates spike, but that can go both ways). If you had been renting, you would still be renting and your rent would be what 3 or 3.5 times what it was in ’81.
Not to mention all the benefits and comfort of actually owning and being able to do what you want with your own home.
April 20th, 2009 at 1:49 PM
“May I ask why you want to own a home if you see it as such a financially stupid move?”
Please do not put words in my mouth. I have never said that. Buying a house is certainly not only a purely financial decision, and I have never claimed it was. I think buying during the run-up to an obvious bust is not smart, particularly when your employment situation may be at risk. Most buyers do not have access to realistic financial or economic information, which is part of the reason I attempt to share it when I can.
April 20th, 2009 at 1:51 PM
Jason,
The same inflation argument applies to your rent scenario. That $1500 rent payment may go down or may go up in the short-term but long-term the trend is up.
April 20th, 2009 at 1:53 PM
Crikey,
I apologize.
jrochest,
I realize that you didn’t actually say this either so I sincerely apologize in advance.
April 20th, 2009 at 1:54 PM
Norm, that’s a nifty calculator (thanks!) I think we’re going to see a surplus of rental inventory later on in the year; perhaps a bit tight over the next few months but I suspect that many listings that don’t sell will find their way onto the rental market.
Yes, owning your own home can be fun… if you consider homeowner insurance, public liability insurance, maintenance, repairs and general upkeep, plus the never-ending spiral of property tax increases one of those “benefits”. Of course I’m being sarcastic, if only to point out that there are pros and cons with both. And yes, I did read that renter’s post, and was quite taken back by the attitude of the landlord. Legally justifiable, perhaps, but morally one of the worst (rental) examples of empathy and compassion.
Speaking for myself, I am not against home ownership provided the right market conditions are met. We’re in an economic recession (depression?), and the housing market has been artificially inflated to record levels. I think these are incredible risky times to be making a lifetime commitment at this point, and I would personally feel much more comfortable knowing that I had the option of getting out of my real estate investment with minimal or no loss. I believe that better opportunities will present themselves in the form of depressed prices, making this a reality for those willing to patiently wait on the sidelines.
April 20th, 2009 at 1:59 PM
Jason,
I agree with your comments. I started trying to convince my wife to sell a few months ago but she will not hear of it. As I said earlier, “timing is everything” and I’m not arguing that buying is smarter than renting right now.
I thought we were having a more general discussion about buying vs renting based on the arguments which were being used.
“Yes, owning your own home can be fun… if you consider homeowner insurance, public liability insurance, maintenance, repairs and general upkeep, plus the never-ending spiral of property tax increases one of those “benefits”.”
Do you honesty think that a renter does not incur these costs? Landlords don’t buy property so they can rent them for half of what it costs to own them. Most of the people I know who have been long term real estate investors have gotten wealthy doing it. How have they done that subsidizing the living expense of renters?
Also, it occurred to me after I posted that calculator that it’s American. I believe payments are calculated differently there. Mortgage interest is also deductible. It’s not clear if that’s taken into account.
April 20th, 2009 at 2:00 PM
Matt, I’m definitely not advocating long-term rental. I do think that timing is essential. Using your example (Calgary), by buying during the troughs and selling at the peaks (and renting in the interim), you’d have fared much better financially than owning the same house outright or renting for the same timeframe.
Norm, PS. I think we crashed your blog a few times. Oops…
April 20th, 2009 at 2:01 PM
Norm, it was an uphill battle with mine, as well, so I can definitely relate! Yes, I honestly think that a renter does not directly incur those costs. Indirectly (worked into the rent), yes, of course. My point was that the responsibility falls on someone else (as a homeowner, the buck stops with you). For every successful landlord there are probably an equal number of failed or less profitable ventures, to be sure. I think the biggest pros of renting is don’t like your neighbors? The area? Move. Weigh that against the prospect of a hostile/unreasonable/disagreeable neighbor for a decade, who has zero accommodation. No joy there.
April 20th, 2009 at 2:04 PM
“I think the biggest pros of renting is don’t like your neighbors? The area? Move. Weigh that against the prospect of a hostile/unreasonable/disagreeable neighbor for a decade, who has zero accommodation. No joy there.”
Check out the dialog on this post.
http://www.yattermatters.com/real-estate/is-an-anus-a-patent-defect/
“Norm, PS. I think we crashed your blog a few times. Oops…”
It’s not running very well at all tonight.
April 20th, 2009 at 2:09 PM
Everyone on this Blog keeps arguing whether or not it is better to buy or rent.
The Renters are arguing what they see in the future and Homeowners are arguing for what they saw in the past.
After reading the comments above I believe that the homeowners lose.
A study from Europe was released a few years ago and they priced out the average price return for property over a four hundred year period at 2% per year. This is the historical average. Houses are not supposed to increase in value by 50% in a year. Houses throughout history have largely not been thought of as an investment. When friends come to your house they you don’t say “welcome to my investment.” Owning a home is a lifestyle decision.
I currently rent and I like the lifestyle right now, my costs are fixed and I have no responsibilities. Shoveling, repairs ect. In a house you never know what your costs are going to be my parents heating bill last month was 393.00 dollars. I don’t directly pay for heat so it doesn’t matter. I don’t have to worry about needing shingles, water heater, foundation problems, furnace, and all the tools that go along with a yard and house in general.
One thing that people have not mentioned is how many people cashed in their RSP’s for a down payment and how much potential lost interest was lost on those investments.
When my wife and I eventually buy a house it will be a place that we can afford and want to live. If the price goes up or down it will not matter.
A house is a lifestyle not an investment.
Nix
April 20th, 2009 at 2:09 PM
Just as Crikey is, I’m not arguing against home ownership: I’m arguing against buying at the top of a bubble.
Once the prices drop significantly — and I have put together about 50K for a down payment, which will take me two years — I’ll buy. After the correction. Assuming I take tenure and stay.
And as to the “40K” starting point of the UBC School of Business graph — which doesn’t exist on either chart! — you need to look at the real, not the nominal prices. Back in 1978, the chart starts at 80K in Edmonton and 70K in Calgary, but 35K was a decent salary and a paperback book cost 1.95.
Look at the real prices, not the nominal ones.
April 20th, 2009 at 2:12 PM
Norm/jrochest/Crikey, there’s a really good blog put out by a group of very smart and talented people, focusing on economics (particularly banking, financial and real estate). They churn out the equivalent of a small newspaper on a daily basis and it makes for some *very* interesting reading. Disclaimer: While it’s been a complete eye-opener for me and is now indispensable, they don’t pull any punches when it comes to “telling it like it is”, so I wouldn’t recommend it for anyone who scares or frightens easily.
http://theautomaticearth.blogspot.com/
April 20th, 2009 at 2:13 PM
Jason,
Thanks. It’s in my feedreader.
jrochest,
When you said, “A goodly amount of money invested that you didn’t have to pay into a mortgage” I assumed you were responding to Marks’ statement, “And as a 35 year renter of that same 400K house, I would have…”
Perhaps I’ve misunderstood but this sounds like more of a general argument for renting vs. ownership and not something that is bubble specific.
I suppose if I had the opportunity to restate my question I’d say something like, “given the obvious disadvantages of owning vs. renting would you mind sharing why you see home ownership as a worthy goal?”
April 20th, 2009 at 2:14 PM
NEWS FLASH: HERE IS THE FOLLOW UP STORY ON THE ROYAL LEPAGE HOUSE PRICE SURVEY FOLLOWING MY DISCUSSION WITH JOANNE PAULSON.
Hopefully this will keep both Joanne and myself from the fires of hell.
http://www.thestarphoenix.com/Homes/Housing+demand+still+strong/1221280/story.html
April 20th, 2009 at 2:14 PM
‘Ryan, what I was trying to get across is that one can’t easily dismiss the trillions of (boomer) dollars in RRSP, retirement funds, etc. that have now been effectively wiped out, and that for many, the only remaining source of cash is the equity in their home. So for that sole reason, I think we’ll feel the impact within a decade. As for the Echo/Gen-Y/Millennials, I think it’s way too early to try and gauge their impact on the economy, particularly the housing market.’
You are missing the mark on both of these. If anything the stock market losses will mean boomers will work longer. They won’t leave the housing market and go down south as per your original assertion. Nor will they use their home equity to live. It won’t suffice.
The new neighbourhoods, Warman, and Martensville are all filled with the echo. Of my nearest 12 neighbours 8 are echo and 4 are boomers. I find it ironic that one would ignore the echo affect which is hitting its peak affect while playing up the boomer retirements as they are just starting to occur.
This difference in opinion certainly explains the large difference in real estate predictions. A large and immediate exodus of a population subset would have a major affect. Particularly if the younger population wasn’t replacing them.
April 20th, 2009 at 2:14 PM
Norm, much better! You’ve been redeemed!
On a related note, the Calgary Herald also reported sharp declines in SFH’s and condos for the fourth quarter which mirrored results across Canada (except Saskatoon and Regina, I’m guessing).
Ryan, I’m not sure the areas of Warman and Martensville you’re referencing are necessarily representative of the same areas in Saskatoon in terms of demographic, etc. After all, a lot of young people (and retirees) have been settling in smaller communities mainly due to more affordable housing (among other reasons).
Again, I don’t think I’m missing the mark. I would not necessarily assume boomers will be able to find any more gainful or steady employment than the other generations with the new economic realities we’re facing. In addition, I was reading yesterday that the unemployment trend in the US is significantly higher for the Echo generation than boomers (due to experience, age discrimination laws for boomers, etc.) If this holds true here, it means that while boomers may not be retiring en-masse as quickly, Echo’s will not have the career opportunities to substantially contribute to the economy.
April 20th, 2009 at 2:15 PM
Jason,
“Further, how will the average homeowner with less than 25% equity compete with someone who has greater than 75% equity?”
Just for clarification, are you suggesting that the average homeowner has less than 25% equity, and if so, where are you getting this stat?
April 20th, 2009 at 2:15 PM
Norm, sorry, I should have clarified: I mean to suggest that first-time homeowners (those specifically who bought in the last several years) will have substantially less equity than boomers (with exceptions in each group, of course).
My main point was that the first-time homeowner (who may or may not be ‘underwater’, but with certainly less equity than your average boomer) is not in the same financial position (nor as motivated) when it comes to selling their home, and may not be in a position to sell at a huge discount or even a loss.
April 20th, 2009 at 2:16 PM
Jason,
Thank you. I read TAE on close to a daily basis. I find Ilargi overly dramatic, but he is brilliant, no question. Stoneleigh’s incredible. Her advice has saved me literally tens of thousands of dollars in the last year. You need to strip the bits out that are useful to your circumstances amid all the doom, for sure.
Norm,
I’m certainly not in any way against home-ownership. You’ve already outlined many of the ways homeownership is great, and I’m not quibbling with any of those points. It made financial sense before the incredible run-up, and I’m sure it will at some point make financial sense again. It also makes sense in ways that are not financial, and I’m not quibbling with those either. It just doesn’t make financial sense to me now. Interestingly, though, I was just doing a rent-vs.-buy comparison on the house I’m renting just this morning. With its probable selling price being about 40-50K less than at the peak (and that 50K would have been my downpayment) and interest rates being as low as they are, the numbers certainly make much more sense than they did six months ago.
I don’t really see what I have to lose by continuing to wait, though, particularly with so much economic uncertainty. I’d much rather lose 5% near the eventual upswing than lose x% (it’s already been 15?) on the way down. Call me crazy, but this strategy worked for me pretty well this summer with my investments in the markets.
April 20th, 2009 at 2:16 PM
I don’t think your strategy is crazy at all. I think that’s likely what I’d be doing if I were in your shoes.
April 20th, 2009 at 2:17 PM
Im also doing the exact same thing as Crikey. No use losing my down payment, might as well rent with buddies for now till Saskatchewan and North America figure out how all this economic uncertainty is going to pan out.
April 20th, 2009 at 2:17 PM
Jason you have selective reading. I didn’t reference just Martensvill and Warman, but all new development including Martensville and Warman. My neighbour example was from a new development in Saskatoon. I’d suggest go house shopping and see who is looking & buying. It is the young family 25-40.
Jason the ECHO generation is already in the work force. They are the ones starting to have kids now.
Regardless you can’t have it both ways with the Boomers depending on what you are arguing. They either mass retire or they don’t. They don’t mass retire and flee south reducing housing demand and continue to displace younger generations out of jobs so they can’t afford homes.
April 20th, 2009 at 2:17 PM
Ryan, I know a lot of Echo’s, I’ve worked with a lot of Echo’s and this is an entirely different generation altogether. They’re more interested in life experiences, traveling and social networking. I wouldn’t necessarily brand this generation as one that wants to settle down, get married and immediately starting a family.
From your tone I suspect you’re a homeowner. Perhaps that’s why you seem to be easily agitated with any suggestions of a worsening market. I think every homeowner would like to be optimistic and hope that the real estate market stabilizes, but I think it’s unrealistic given the fact that housing affordability has simply outstripped earnings (by several multiples, in fact) and that this market has been artificially inflated with cheap debt. Others in this forum (jrochest, Crikey, George to name a few) have done a much better job illustrating the various economic realities.
You’re going to see a market correction; it’s already started. Boomers have the potential to accelerate it, which quite frankly, would not necessarily be such a bad thing, seeing as how it will make housing much more affordable in general. And if the Echo generation wants to repeat the “bubble” of the past few years by stampeding to the market, hey, best of luck. They’re the only generation who has yet to live through any kind of recession and I don’t think they have the first concepts of what equity and ‘underwater’ truly mean.
And as much as I appreciate your suggestion to go “house shopping”, I’d be reluctant to waste a realtors’ time (such as Norm’s) simply on a whim to prove a point (yours or mine).
So, Norm, I’ll potentially put the question to you as to what the demographic is for buyers and sellers, just based on your own observations. I suspect that a lot of sellers are Gen-X and boomers, and the majority of buyers are probably also Gen-X and boomers. Not which demographic the 25-34 age group fits in, though. And I think there’s a big difference between looking and buying. So just because a lot of Echo’s may be looking, that doesn’t necessarily translate into a bunch of new homeowners.
April 20th, 2009 at 2:18 PM
Norm — I think Crikey’s mostly answered your question for me: I don’t think home ownership is a bad thing in a normal market.
My response to Mark’s post was flip, I admit. But it is far more sensible to rent right now, when owning costs two or three times as much for a comparable property. This is often the case with condos, especially converted rentals.
One little thing: people keep mentioning the horrors of rent increases. Condo fees also increase yearly, often substantially, as do taxes. Owners are not immune from rising housing costs.
Also, if the furnace in my rental breaks, my landlords pay to replace it. If the condo needs a refinished parking lot, the management company presents you with a large bill.
April 20th, 2009 at 2:18 PM
By the way — the new Star-Phoenix article is much, much more balanced!
April 20th, 2009 at 2:18 PM
Crikey,
Your strategy is brilliant! If only every potential first time buyer in Saskatoon knew about this blog. It’s as a first time home buyer where people stand to lose the most money. My brother is in the same position you are and he realizes he’ll probably be waiting until the spring to see where the market REALLY stands. There will be no 2007 repeat, the worst that can happen is like you said, a mild increase at best. That’s worth gambling over versus a further drop of 15% or more!
Captcha: served serenity
April 20th, 2009 at 2:19 PM
Heather,
Before ya go! Did you catch my mortgage note? 3.75% for three years. Merix. They paid registration costs and appraisal.
April 20th, 2009 at 2:30 PM
Heather D.,
Thanks. I’m not sure the strategy is brilliant, but it has served me some measure of serenity.
Honestly, early last year people would laugh in my face when I told them about my reasoning behind my strategy. I’m always way too early with everything, it seems.
In US news- it’s official- the TARP is now extending directly into foreclosure-relief provisions:
Fed Adopts Policy to Modify Mortgages, Stem Home Foreclosures
http://tinyurl.com/bxqcwj
“The Federal Reserve will ease terms on residential mortgages acquired in the rescues of Bear Stearns Cos. and American International Group Inc., seeking to stem foreclosures. The Fed policy is targeting borrowers who are 60 days or more overdue on loan payments and covers modifications of interest rates and payment plans.”
“Modifications will include cutting the interest rates, extending the loan terms, and deferring or reducing the outstanding principal balance, the Fed said.”
There’s been some discussion that this will encourage those with distressed mortgages to get 60 days late to receive federal (read taxpayer) assistance. I’m not sure this is true- the legislation to allows court-ordered modifications only for existing mortgages and requires that borrowers contact their lender at least 15 days before filing bankruptcy. The legislation will also require recipients of loan/payment modifications who resell their home within five years to share the proceeds with their lender.
This bit of news comes not a bit too soon, given the number of foreclosures in the US lately- the NAR estimated in its last release that 45% of December sales were foreclosed properties. It’s worse in the state of my birth, sadly:
California’s median home price falls 38 percent
http://tinyurl.com/c2t6dq
“The California median home price is at the lowest point since February 2002, when it was $245,000. It marks a 49-percent decline from the peak of $484,000 in the spring of 2007.
“The housing market is being driven by bargain hunters snapping up bank-owned foreclosure properties, which accounted for 58 percent of existing homes sold last month, up from 24 percent a year earlier.”
Sobering.
April 20th, 2009 at 2:31 PM
Norm,
That’s a scrumptious rate! Oooh paid appraisal too?! I’m wondering though if it’s applicable to first time home buyers? Some of these offers also require “x” amount of a mortgage to qualify. I’m aiming for a 5 year fixed rate as I’m skeptical about the economy’s recovery 3 years down the road. This of course is coming from a person who won’t even CONSIDER any type of variable mortgage. I’m really not very ballsy when it comes to investing. :’|
Crikey,
I know what you mean. Some friends even laughed when I told them (in late 2007) my husband and I wanted to wait for the RE market to normalize. Well karma is a witch – one couple who bought their house at peak has now lost around $50K in value, another person who gloated about the amount of money he was making working construction during the boom is now jobless.
As far as the foreclosures in the States, I doubt Canada will start to see much improvement until that whole debacle has resolved. It’s kind of like how SK looks to AB to forecast what will happen next.
April 20th, 2009 at 2:31 PM
Heather,
I expect to see the mortgage guy today. I’ll ask him about that. One thing I do recall him saying, Merix is looking to fund these loans within 45 days.
I am completely with you on the five year comfort thing. .75% seemed to good to pass on. Hopefully that doesn’t sting me on the way out.
Budget goodies for homes and housing.
http://www.budget.gc.ca/2009/plan/bpa5a-eng.html#1
April 20th, 2009 at 2:32 PM
Regarding this link:
http://www.yattermatters.com/real-estate/is-an-anus-a-patent-defect/
I’m not sure that sign is going to help the seller move his house.
; ) (Might want to keep the fact that his neighbour(s) suck on the down-low.
April 20th, 2009 at 2:32 PM
My mortgage is a prime minus .4 % mortgage. I have the option of locking in at any time. It seems that people are doing this right now. Do you feel that interest rates are going to rise considerably? On my mortgage I’m paying 3.1% but if I locked in it would be 4.89% (Firstline Mortgages). Any advice?
April 20th, 2009 at 2:32 PM
Padhraig,
That is a great rate that is probably saving you over $3000 a year!! new variable rates are coming out at prime + 1% since the cost of borrowing has increased compared to the BofC prime. How long is your term on your variable rate?
I would consider locking in only when things start to get better in the economy, that is when you’ll see prime rates increase. But you can bank you’re savings in the mean time. I’m sure the banks would love to see you lock it in, so they won’t be losing as much money.
Just my thoughts. A financial adviser would probably be a better choice for advise than this comment board.
April 20th, 2009 at 2:33 PM
The HRTC… wow, does that ever seem to be open for abuse. I’m renovating right now, and will easily spend well over $10,000, which I guess is the limit since anything that costs more than that won’t be impulse ‘stimulated’ spending. I could pay cash and then give my receipts to family and friends… maybe in exchange for a share of their tax return. I’m sure there are lots of other opportunities, too… anyone? Not that I’m looking for ideas
I can see that most construction materials are made in Canada, and of course the labour component would employ Canadians, so that’s why this was proposed, but I’m finding that all these deductions are getting way too complicated, and frankly, rather unfair. Why should tax payers who don’t want to, can’t afford to, or aren’t in a position to renovate help me to pay for my new deck? Because it might stimulate the economy and thereby benefit them indirectly? I’m not saying I won’t claim the credit (if this budget passes), but tax time is getting to be quite a headache. I guess we’ll never get back to the days when there was no income tax, but I’d sure prefer some simplification instead of heaping on more and more levels of complexity in an attempt to manage my behavior. Medical expenses aren’t voluntary, but borrowing to invest, saving for retirement, having children, enrolling them in sports programs, moving, going to university/college, and now, renovating, all are. Now I’m getting kind of miffed that my wedding wasn’t tax-deductible… weddings employ people and stimulate the economy! I wish we could cut out some of the nonsense, and instead of getting tax deductions back, just pay a little less in the first place and use the difference to pay for all these lifestyle choices directly. I’m convinced that our tax system is too complicated, because my taxes have twice been called out for an error, and in both cases, it was the government taxation reviewer who made the mistake, not me! If they can’t get it right, how are the rest of us expected to?
April 20th, 2009 at 2:34 PM
Padhraig,
I’m certainly not in a position to offer any advise on that. I am choosing to lock in based on a great low rate offer. Probably not a great deal of risk that rates will rise in the short term, but I do worry about how all of this “stimulus spending” might effect rates over the long term.
April 20th, 2009 at 2:34 PM
So, my question is – have any of the new “housing” based inititiaves encouraged people to change their minds on what their long term (or short term plans are).
My husband and I had been considering “moving up” or extensively renovating our home to meet our current needs. But, in the last 6 months we had come to the conclusion that given the economy and the uncertainty in the real estate market – we are going to hold tight, pay down our mortage aggressively and in 2 years revist our options.
In reviewing the budget information that Norm shared – neither the HRTC nor any other options have encouraged us to change our plans. (We had been planning on doing some interior painting – but I’m not sure if that will qualify). One of our earlier renovation plans included possible new kitchen and possible new double car garage. Both would have invovled taking on more debt – and nothing in the budget has encouraged us to see that as a good option.
So, has anyone changed their mind because of this budget?
Captcha “for voters”
April 20th, 2009 at 2:35 PM
Pam – We’ve decided to move up the purchase of a new furnace / hot water heater. It was planned for summer 2010, but the new tax incentive (if it passes of course) is significant enough to convince us to borrow the small amount we had left to save and do the work later this year. It’s only a few months earlier, and being that the HRTC is in addition to the eco rebates, we’re pretty much convinced. We also had planned to replace some flooring this year – so it’s a nice bonus that we’ll also get some cash back for that. The interior painting you spoke of should qualify, but only if it’s more than $1000 worth. I’ve always done our painting on my own, so I don’t know what you’d be likely to pay someone to do that. working on your own, it’s kind of tough to get to the $1000 mark in my experience. That’d be fancy paint lol.
April 20th, 2009 at 2:35 PM
Pam,
I could certainly find some renos to do to take advantage of that particular credit, but I have to agree that a $1,300 credit doesn’t have me feeling particularly pumped about spending 10K right now. I do have some things that really need attention in the next couple of years. Probably will make an effort to get those done in the next 12 months.
April 20th, 2009 at 2:40 PM
Sorry Norm. Wasn’t trying to put anyone on the spot re: mortgage advice. Just wondering if people feel that interest rates might go through the roof. I get to enjoy this variable rate while it’s low, but worry about all this money being pumped in via stimulus packages. I still have 2.5 years left on my mortgage but I’m keeping a watchful eye on the market.
April 20th, 2009 at 2:40 PM
Padhraig,
No need to be sorry. Every question is fair here. I just don’t feel very much certainty about very much lately.
Found this story kind of interesting: “Fed to keep interest rates near zero for some time”
http://tinyurl.com/bpdwjx
April 20th, 2009 at 2:40 PM
A 15% credit is not bad, but to see the full $1300 rebate, you need to spend nearly $9,000 in renovations. As well, not all details are known, does it apply to the “do-it-yourselfer”? If not, you can save WAY more than 15% by hitting up Home Depot. And the sizeable deductable means many smaller projects (ie new front door OR water heater OR weather stripping OR CFL’s etc) will not make the cut, combined yes, but then this no longer appeals to nearly as many people as it did at first glance!
And agreed Crikey, now seems a better time to rent what you can find than to risk a further drop.
Especially considering the previous 15% price drop in Saskatoon was in a mere HALF year. Prices may not drop (much) more, but still having a generous supply, and more new condos everytime I’m back in Saskatoon, suggest the at worst, prices will stay the same. Seems renting for a year to see if hundreds (thousand +?) MORE units are put up for sale this spring.
April 20th, 2009 at 2:40 PM
I take it back, news says work can be done by a home owner, still $1,000 deductible/minimum, and exclusion of fridges and stoves means still only for bigger projects, and at this time, that money might best be spent on paying down debt, mortgage, credit card or other. Especially since jobs @ Cameco, Potash Corp, Shore Gold, Agrium, Evraz, AND Mosaic aren’t necessarily safe.
This kind of reminds me of buying something you don’t need on sale for 15% off. It still cost you the 85%!
April 20th, 2009 at 2:41 PM
Hi everyone,
It may be slowing down but material pricing is not really comng down. We have seen increases forecast from almost all suppliers.
April 20th, 2009 at 2:41 PM
Norm,
The last couple of weeks there has been an increase in sales. I also notice the traffic is way up in regards to posting. Its only mid week and we are near 100. Any correlation?
PS. 50 sales last year! Those renos shouldn’t have to wait too long;-)
April 20th, 2009 at 2:42 PM
Woo hoo!
I didn’t realize some of those federal budget measures would benefit me at all. A couple things I’ve read:
With the home-renovation credit, it can include laying sod for my yard.
The First-Time Home Buyers’ Tax Credit would help to defray such costs as my legal fees and land-transfer taxes
A change to the Home Buyers’ Plan increases the amount I can pull out of my RRSPs from $20K to $25K!
I sure hope it all gets approved!
April 20th, 2009 at 2:42 PM
ON a quick glance, didn’t see this story mentioned here, almost worthy of a separate blog heading Norm?
“Saskatoon is classified as seriously unaffordable, with a survey rating or “median multiple” of 4.6. It is ranked 182nd on a list of 265 international cities, and 27th in Canada. Two years ago, Saskatoon’s affordability number was 2.6.”
LESS affordable than Edmonton.
Barely more affordable than Calgary, and bet LESS affordable than Calgary, when LOWER cost of living in Calgary (Lower Income Tax, Cheaper Gas, AND Lower Car Insurance for many Adult Drivers) is considered (not in study).
http://www.thestarphoenix.com/Homes/Saskatoon+affordability+slipping+away+study/1227163/story.html
Interesting that @ $60,800 Regina’s Median Household Income is Still Substantially Greater than Saskatoon’s $55,800 – and with Over $40,000 in savings on a house.
More of a reason prices in Saskatoon should go down further? This study is based on a median price of $256,800 (a bit above this week’s median, but below the 4 week) so actually pretty current price. Just think of how unaffordable we were back @ peak in March/June??
April 20th, 2009 at 2:43 PM
It takes
4.6 years of median income to buy a house in Saskatoon
4.2 years in Edmonton (not including lower taxes)
3.5 years in Regina
3.0 years in Winnipeg
Again just Median House Price/Median Income
Advantage widens with Alberta’s significantly Lower Income tax (and cheaper gas) but Regina still affordable (well at least by comparison). Bet with lower income taxes and cheaper auto insurance for adult drivers, Calgary becomes as affordable as Saskatoon too… sure it already is rent wise, which is even more out of control than prices in Saskatoon
And remember the study with data from a year ago that had Saskatoon as the 12 th or 13 th best city in North America to do business? (largely because of then outdated average house price) Well Indianapolis was rated at the BEST in North America in that same study which got so much hype here. Indianapolis? 2.2 years of income there to buy a house.
Maybe the mayor and Chamber should run a disclaimer that the study they hyped so much really says we should all move to Indy?
(obviously tongue in cheek Norm, but still, one of those things we hype the heck out of, but the place that finished way ahead of us … a lot more affordable to live, now)
April 20th, 2009 at 2:43 PM
Would have been 5.4 Years to buy an average house in Saskatoon if study was done last spring with median of $300,000.
April 20th, 2009 at 2:44 PM
Wholesaler,
What kind of products do you work with?
Jedi,
Certainly we would expect to see an uptick in activity compared to the last six-weeks of 2008. That should continue to accelerate. As I said in my post, I think demand will be well off of last spring but not too bad if you look at what’s normal for these coming months. December and January both look like very decent months if you get further back than last year’s data. Of course, you can have reasonably good demand and still see a declining market if supply is at levels that cause sellers to lower asking prices. I’m betting that’s what we’ll be seeing.
Nick,
Thanks. I just came across the study myself last night and I’ll definitely so something on it. I have copies of the same study from last early 2008 and early 2007. We went from 2.6 to 3.5, to 4.6. Our rating moved from affordable to moderately unaffordable to seriously unaffordable over that two year period. Math Whiz is correct that we had ventured into “severely unaffordable.” This is based on data from Q3/08 so some things have certainly changed since then, but yes, we probably have a ways to go yet.
The question I have is about these “median incomes.” Last week, you posted a comment stating that the median “family income” in Saskatoon is $76,600 with a link to StatsCan to support it. I was not able to make heads nor tails out of the link but assumed you had interpreted in correctly. This Demographia report has us at $55,900. Last year they had us at $60,900. What do you think gives with that? Honestly, I thought the median house price that they quoted for Q3/08 was also a little low, though not as much. I’ll have to look a little deeper. Perhaps all prices and incomes are converted to U.S. currency to give the report some continuity?
April 20th, 2009 at 2:44 PM
Interesting stuff.
Here’s a link to the most recent Demographia survey:
http://www.demographia.com/dhi.pdf
Norm, this may help explain what you’re seeing with median incomes-there’s a blurb on page 8 of the report that states:
“Caution is urged in comparing data between annual reports. Changes in data sources, base year income information, housing data sources, and geographical definitions make precise year to year comparisons less reliable. Comparisons should be generally limited to ratings categories.”
April 20th, 2009 at 2:44 PM
Norm, I’m almost certain you’re right in your assumption that everything is converted to USD so as to be able to compare apples to apples … yet there is no mention of that in their ‘Methods’ section. (Otherwise UK prices would be in GBP, not $ as shown.) This seems to be a large omission, I would think, and it would provide one explanation of how family income fell from 2007-2008. (Sep 2007: 1 CAD = $1.05 USD … Sep 2008: 1 CAD = $.82 USD)
And to bolster Crikey’s comment above, there’s another comment at the bottom of page 14 explicitly states: “Household income data has been recalibrated in Canada, based upon 2006 data, which was not available last year. Year to year income data is thus not comparable.”
April 20th, 2009 at 2:45 PM
Norm, having read through more of the report now, the section “Why the housing bubble occurred” (page 15) is very interesting. It indicates that one of the major factors is Responsive Land Use regulation vs. Prescriptive Land Use regulation.
Once you have had a chance to read it, I would very much like to know which of these categories Saskatoon falls into; I would have thought that it was Responsive, but thinking back to on things like Stonebridge and Willowgrove development, I’m not so sure.
April 20th, 2009 at 2:48 PM
Since housing is unaffordable, perhaps wages should increase?
If the job market is strong and there is low unemployement, employers should/will have to increase wages to attract people to move to Saskatoon. That’s what has happened in Calgary and Edmonton. Look at all the incentives that were thrown to people moving to Fort McMurray!
Captcha: Action Highways – Hwy 63 to fort mac had 5 fatalities yesterday
April 20th, 2009 at 2:49 PM
“The dollar conversion makes sense for the purpose of comparing one market to the next but would have some pretty obvious drawbacks in terms of accuracy from one year to the next.”
The report will not be any more or less accurate at all… not if you look at what it is trying to measure, which is the ratio of local earnings to local house prices. Keeping that in mind, you can see that the USD-conversion multiplier doesn’t come into play at all.
Here’s some made up numbers to illustrate. (All numbers rounded for ease of display.)
2006: wages 60k, house price 156k. Ratio: 2.6
2007: wages 65k, house price 228k. Ratio: 3.5
2008: wages 70k, house price 322k. Ratio: 4.6
So, what if the CAD -> USD conversion rate was .9 in 2006, 1.05 in 2007, and .82 in 2008?
2006 in USD: wages 54k, houses 140k
2007 in USD: wages 68k, houses 239k
2008 in USD: wages 57k, houses 272k
RESULT: despite looking like wages remained flat over a two-year period, or even went down over a one-year period… the ratio of house-to-wage remains the same beacuse we are affecting both sides by the same amount.
So yeah, the report sucks if you want to compare ACTUAL costs of things (like labour or property) from year to year… but that’s not what it’s there for. You want that info, you’re going to have to dig up the raw data yourself. This report is all about the ratio, and that number is nicely preserved despite the conversion to USD.
Hope that made sense to everyone.
April 20th, 2009 at 2:49 PM
Heather D,
“The First-Time Home Buyers’ Tax Credit would help to defray such costs as my legal fees and land-transfer taxes
A change to the Home Buyers’ Plan increases the amount I can pull out of my RRSPs from $20K to $25K!”
Thanks for the info, Woo hoo from me as well!!….when the prices drop 10-15% I will consider buying.
April 20th, 2009 at 2:49 PM
Thanks Bookrat. I see where you’re coming from.
April 20th, 2009 at 2:50 PM
Neal, sure, in theory it sounds good. The only downside is that most businesses aren’t in a financial position to offset a lot of raises – let alone what would be required to bring houses back in-line to a 2.6 ratio. These costs (raise requests) typically get handled in one of three ways: 1. No. 2. Layoffs (hire cheaper employees instead). 3. Prices of goods and services increase (in a recession and much more competitive economy it’s unlikely that the latter option will be employed).
The reason Calgary, Edmonton and Fort McMoney saw incredible hikes in salaries was directly proportional to $147 oil. However, extremely high wages in one sector places a lot of strain on the regular service industries (such as McDonald’s and Tim Horton’s).
April 20th, 2009 at 2:50 PM
I think the important thing is that the same source be used for mean/median income within the SAME study. Some studies include only working incomes, some everyone, some hours per week must meet some minimum etc. This study’s median income level would be the same method for all markets. Note, that while total value of median income is lower here, the gap, being about $5,000 LESS than Regina and most Canadian markets is comparable to other studies on income.
Using apples to apples median incomes consistent within the same study, the number of years to buy a Saskatoon house, 4.6, at median Saskatoon income is FAR more than the number of years at Regina/Winnipeg/Ottawa income to buy houses in those respective cities.
The Canadian dollar v. US dollar does not matter, since in Canada, both wages and houses are in CDN dollars (and US in US). Really even if they convert both, and then show ratio, or just do the ratio up front, Saskatoon takes 4.6 years of income to buy a house. Not sure where confusion comes from.
April 20th, 2009 at 2:51 PM
To compare us to some other markets (plagarized from the bench) #years median income to buy median priced house
“4.6 years of Income in Saskatoon
4.6 years of Income in Montreal
4.2 years of Income in Edmonton (not including lower income taxes)
3.6 years of Income in Halifax
3.5 years = Canadian National Median
3.5 years of Income in Regina
3.5 years of Income in Kingston
3.4 years of Income Ottawa (ultimate job security!)
3.4 years of Income in Quebec City
3.4 years of Income in Phoenix
3.3 years of Income in Brantford
3.2 years of Income in London, Ontario
3.0 years of Income in Winnipeg
2.9 years of Income in Houston! Texas
2.8 years St. John’s
2.4 years Moncton
2.2 years Thunder Bay
2.2 years in Indianapolis (the city rated the BEST in North America for business, from the much hyped study that had Saskatoon at #12 or #13 (back in affordable housing days))
2.1 years Cape Breton”
Just a few random markets
Again, does simple fraction, does not consider Edmonton’s significantly lower income tax
Does not include smaller and cheaper markets (eg. Red Deer)
http://www.fcpp.org/pdf/dhi-frontier-20080127.pdf
April 20th, 2009 at 2:51 PM
Nick, you like to bring up the lower income taxes in Edmonton. Can you provide me with an actual study comparing cost of living between Alberta and Saskatchewan cities that includes a proper collection of goods. I know gas is cheaper in Calgary, but I assure you if you are living in a 300,000 dollar house, you are commuting 20 km to downtown. Daycare also is far more expensive, as are restaurants. You may be right about the cheaper cost of living there, but all I’ve read over the past few years out of Alberta is the skyrocketing cost of things.
April 20th, 2009 at 2:51 PM
Nick,
I have to agree with Mark, Although Cowtown wages are higher in conjunction with their across the board lower taxes:
-parking downtown in Calgary is very expensive
-commuting/road rage is a negative
-In Saskatchewan you start a job with 3 weeks of paid holidays vs 2 in Alberta
I would like to see an actual study with Calgary or Edmonton vs Saskatoon as well.
ps- I don’t think too many people are going to be getting on your Regina bandwagon anytime soon but good luck.
April 20th, 2009 at 2:52 PM
Nick,
I can agree, to some extent at least that the income measure doesn’t matter in comparing one market to the next, provided that the measure is applied consistently. I have no trouble believing that Edmonton, Calgary, and Saskatoon are all more or less equally unaffordable. Here’s what I’m getting at. If you buy the idea that 3 times median income to buy a median priced home = affordable (and I do) then you really do need to know with a degree of certainty what the median income is, and what the median price is. If you don’t know either you can’t do the math. If you do know, then it would be fairly simple to understand how it is changing from one month to the next. You wouldn’t even need a Demographia “study” to tell you. It’s really very simple math. We have discussed this affordability measure many times, usually using the $76,600 number from 2006 and taking a wild ass guess at how that may have changed since 2006. An $80,000 median hasn’t really been contested. That would make $240ish “affordable” Clearly, if the median income is actually $55,900 we have a bigger problem then I realized for sure. We would need to be at $168,000 to be affordable. That appears to be a fairly big difference to me.
That said, I’m still “confused” how the survey pegged our median income $5,000 higher in 2007 than in 2008.
April 20th, 2009 at 2:52 PM
Jason,
I agree with your points, about the oil price and how production weighed so much higher than costs. This boom kind of got cut off short due to the global recession.
But really every electrician and pipefitter that was employed in Alberta was getting double digit raises year after year since 2002 plus the OT hours were on top of that.
That really should be the same around here with the potash plants expansions, but the fact that oil plummetted means no one has to pay anyone 50+ hour weeks to get trades to work on their sites and I doubt the unions will be pushing for big raises anymore.
April 20th, 2009 at 2:53 PM
“That said, I’m still “confused” how the survey pegged our median income $5,000 higher in 2007 than in 2008.”
Goes back to the fact that it is adjusted to USD, and the exchange rate from Q3 2007 to Q3 2008 was wildly different.
Look at my numbers above: the average income was fictional and rounded for ease of calculation, but the USD/CAD exchange rate was not that far off reality for those sampling periods. So even though my fictional average wage increased by $5k IN CANADIAN DOLLARS from 2007Q3 to 2008Q3, it showed a $7k decline WHEN CONVERTED TO USD. Does that help make it clearer?
Also check the METHODS section (page 41) for a bunch of general information on where they get the median income data.
And remember the quote I pointed out: “Year to year
income data is … not comparable.” They re-jigged the income numbers for Canada between the 2008 and 2009, so they are saying specifically that you can’t compare one with the other.
Having said all that… *I* dispute the $80k median household income for 2008, because I also dispute the $76.6k number for 2006. I have never really gone looking for the numbers before tonight, but now I have, and they aren’t nearly as good as everyone is claiming.
http://www.canadaimmigrants.com/saskatoonliving.asp – shows 2005 median family income as ~$67k
http://tinyurl.com/b97wfq – the Saskatoon Community Profile page on the StatsCan website, showing the 2006 numbers they collected for 2005. Here are four median income figures that could be germane to the discussion:
1) all private households: $49,313
2) ALL census families: $65,268
3) married-couple families: $76,295
4) couple households with children: $84,611
Seems to me that #3 is the one that has been bandied about here, but how reasonable is it to pick such a limited subset? I think one should either go with all families (#2) and drop the ‘married’ requirement, or all private households (#1). Wouldn’t surprise me if Demographia picked #1, which might explain the discrepancy.
A moderately generous 10% adjustment over 3 years puts these numbers at approximately 54k, 72k, 84k and 93k respectively. So which of these numbers do you want to pick?
April 20th, 2009 at 2:54 PM
Neal, you’re absolutely right about the construction boom in Alberta (both commercial and residential). Potash is doing OK for the time being; I think the biggest challenge lies with buyers being able to secure the necessary credit. What’s interesting is that across Eurasia a lot of countries are working out an exchange (essentially barter) for key goods and services. One recent example is how Libya is swapping access to oil in exchange for the right to grow their own crops in the Ukraine.
April 20th, 2009 at 2:54 PM
One last thought on the topic. Demographia reported a median house price for Q3 (July/Aug/Sep) of $256,800. Since you can see all the actual stats, if you determine what the actual CAD median house price was for those three months, you’ll know what they used for a conversion factor, and can then apply that same factor to their median household income figure of $55,900 to see what it equates to. Be curious to see if it even roughly matches any of the four numbers above.
The only ‘gotcha’ I see in that approach is that you don’t know what they counted as a ‘house’. They talking about SFH, or all residential dwellings including condos? (I’d guess the latter…)
April 20th, 2009 at 2:54 PM
Again, not sure why it matters what they used as a median property (house, house and condo, detached etc.) as it would have been standard across the hundreds of cities world wide.
Point is 4.6 years of income in Saskatoon v. 4.2 in Edmonton and 3.5 in Regina, with Saskatoon “seriously unaffordable” when compared with consistent methods to OTHER Canadian cities (and other world wide cities)
For the 1.1 years of median income left over in Regina, you could all buy a water cooler and not worry about the gross tasting tap water – and then cities are pretty similar. Or @ only 3.0 years income, move to Winnipeg and send kids to cheaper and bigger university with more programs.
April 20th, 2009 at 2:55 PM
I’d go with Bookrat’s All private households median of $49,000 for Saskatoon.
The larger numbers (married couples only DO show a clear Alberta advantage) but looking ONLY at OUR market, the median of ALL house holds is $49,000 (bookrat’s number) so suddenly …
$250,000 (ish) property/$50,000 = 5 years
Yikes
I stand behind using ANY median income to compare cities, as ALL show Saskatoon trailing Regina, Edmonton, Calgary by a lot in income.
But Bookrat’s $50,000 household median is probably a better measure to include ALL Saskatoon residents.
April 20th, 2009 at 2:55 PM
Mark, I don’t consider restaurant costs as “cost of living”
Any Home Depot, Superstore, Canadian Tire, Future Shop etc flyer has all the locations on the back – Alberta, Sask, Toban that it covers
Gas is cheaper in Alberta
Income taxes are less
No PST (so 5% savings on everything at Home Depot, Superstore…)
Will cite a new study for cost of living the minute it becomes available – back when I graduated (about 5 years ago) Edmonton was recruiting at the U of R with a study showing it was cheaper to live there than Regina or Saskatoon (based on some basket of goods) Save for housing, which 5 years ago was MUCH more in Edmonton than Saskatoon – given that Saskatoon’s housing is now LESS affordable than Edmonton’s, I would imagine the cost of living difference has widened
I will post a link to any new cost of living study the minute it is out (like I did with this housing affordability study) but until then check the Sunday Sun flyers – sure they all have an Edmonton location on the back
April 20th, 2009 at 2:55 PM
“Mark, I don’t consider restaurant costs as “cost of living”
Sigh. Then you aren’t really living are you?
I guess it all depends what we like to spend on. I like to eat out and go for drinks at least once a week. Also, like I mentioned a month ago, I have two kids in daycare. I spend 1000 a month for two spots. In Calgary, that would be closer to 1800 a month, or so I’ve heard. 800 a month extra. That’s a lot of cash. Can I save 800 a month in pst, gas, and provincial income tax. Doubt it. But then again, I’d like to see a good comparison.
April 20th, 2009 at 2:56 PM
Also, still not sure what these affordability studies really say. There is this common refrain that 3 times income is affordable, sure, but how do some cities like Toronto, or Vancouver for that matter, have multipliers of 4 to 8 over the long term. I’m guessing neither of those cities has been anywhere near a multiplier of 3 in a decade. So what does that mean? Surely not that the median household in Vancouver has been spending that much on housing. More likely says something about who owns the houses. How can some cities stay unaffordable in the long term. Social structure of property ownership must play a role. Also, think about Saskatoon as being 4.6. For eighty percent of the people in houses in Saskatoon, they owe far less than that. That is for new first time buyers. But if you have a strong economy and a healthy amount of new professionals entering the city and workforce, those earning above the median income, then buying may not be an issue. Also remember that Regina and Saskatoon, I know this about Regina anyway, has a very large neighbourhood, with an extremely low median household income, like around 25,000, for quite a few blocks in all directions. These inner city neighbourhoods are quite poor by Canadian standards, Regina’s was labelled the worst neigbhourhood in Canada, and I wouldn’t be surprised if both of our city’s median household income was influenced on the low side by these areas. These neighbourhoods are mostly rental properties. Perhaps the median income among working households, those who might potentially buy a home, is actually higher than the numbers we’ve been working with. What I’m saying I guess is I’m not sure what these median numbers mean given the various demographics etc of some cities.
I mean who owns all that property in Vancouver? How can it maintain such an unaffordable status long term if something else isn’t at play beyond the notion of median households buying median homes?
April 20th, 2009 at 2:56 PM
Bookrat,
Sorry, I just haven’t had time to take a good look at this report yet. Probably shouldn’t be commenting. I have another wild day today but I’ll get through the report over the weekend.
Q3 median for SFH is $296,250 CDN. Median for all residential is $276,950.
I don’t wish to tell the folks at Demographia how they should do their survey, or what measure of the median income they should use. I only want to understand the how and why of it.
Nick,
I’m not thinking so much about being able to compare Calgary to Saskatoon as I am about being able to compare Saskatoon at Q3/08 to Saskatoon at Q1/09. If we knew how this was calculated it would be easy to see exactly where we’re at today. If the appropriate median is $50,000 as you’ve suggested above, we’ve lost half that much value since Q3 which would mean that it now takes around 4.1 years income. One could see that Saskatoon would likely be back into “moderately unaffordable” territory quite soon. If the median is actually $70,000 converted to US dollars, the impact is not nearly as great. Nick, my question is not at all about taking issue with the survey. I trust it. I just want to understand it.
Mark,
You’re probably right that these surveys can not be used as a predictor of what might happen in a market. They’re only good for letting people know how median income compares to median house prices. It’s more a question of how does average Joe fit into this community as far as housing goes. We know he can’t afford a house in Vancouver. Can he afford one in Saskatoon? If affordability continues to erode, where does Joe eventually end up?
April 20th, 2009 at 2:59 PM
Mark said:
“Perhaps the median income among working households, those who might potentially buy a home, is actually higher than the numbers we’ve been working with”.
I think Mark brings up a lot of good points, and I find it ironic that “Demographia” essentially ignores demographics (although they have buried a footnote somewhere in past reports about correction factors for certain markets that could be used, though they don’t apply it). The index is certainly an indication of affordability, I don’t doubt that Vancouver is less affordable than Saskatoon. However, by virture of the number of cities this report examines, a simplistic approach was taken. I’d like to see a ‘basket of jobs’ compared with the ‘basket of goods’, which would include comparable styles of houses… that might actually say something truly meaningful that could be used to compare between cities. All I’m getting out of this report is that Saskatoon is less affordable than it was last time the report came out, but we already knew that. It can’t tell us (conclusively, at least) that Saskatoon is more or less affordable than other cities with a fairly similar rating, since it is too much of a generalization of both the population and housing styles (i.e., a city like Oakville, for example, is a sea of 2000 sqft+ luxury houses), and it ignores all the the other affordability determinants people here have mentioned, like taxes and daycare costs.
April 20th, 2009 at 2:59 PM
I think the beauty of this study is its simplicity.
By a simple and general method Saskatoon is unaffordable. Not really much of a surprise, but gives us an objective number to say Saskatoon, given median income, is more expensive to buy property than most other Canadian and North American cities.
Granted, would be nice if provided some more information in the study. Might be nested some where in the substantial 50 + pages.
Median total household income is a good measure of what the average person makes, $55,000 seems like a reasonable number across all of Saskatoon. Regina, as usual is higher, Edmonton/Calgary higher still.
Median House Price/Median Income is a nice quick comparison of markets that applies to everyone
After that we can decide if Saskatoon (or Phoenix or wherever) has specific factors to benefit us personally, although @ 4.6 years income to buy a house, Saskatoon needs a lot of other things to offset its steep housing costs.
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Mark, if you also enjoy wine, Alberta’s private liquor stores have much better selection and are much cheaper. Many wine snob friends will go there to buy cases @ a time.
April 20th, 2009 at 3:00 PM
http://www.fcpp.org/pdf/dhi-frontier-20080127.pdf
Looks like median household income, with some adjustment upward, seems reasonable
page 41
“Median household income data is generally estimated using national statistics bureau
generated base adjusted to a current estimate by the best available indicator of median income
growth. In some cases statistical agencies recalibrate year to year data, while in other cases more reliable conversion factors are identified. Some median income data is estimated based upon
historical conversion factors. Because of data variations and alternative estimation methods, caution
should be employed in making definitive time-series income. The most relevant comparisons are
between overall categories of housing affordability”
April 20th, 2009 at 3:00 PM
There’s been some criticism of the study’s terms and data from a couple of generally skeptical blogs: Housing Analysis has a good post which explains a couple of biases behind the data set:
http://housing-analysis.blogspot.com/2009/01/demographia-again.html
April 20th, 2009 at 3:01 PM
Does anyone have a cost breakdown for a new 1200sf single family home? The city is asking $90,000+ for new lots. I am just wondering how much prices can drop before the builders hit their breakeven point.
April 20th, 2009 at 3:03 PM
Just a point on vacation. The two weeks vacation is simliar to the minimum wage. Very few people actually have that. If you are working in an office in downtown Calgary you’ll have 3 to 4 weeks vacation (not factoring in people years of experience) as well as flex days on top of that. If you are working a job where you get paid hourly, then it will equate to 2 weeks vacation. Of course if you are working an hourly wage, chances are you won’t be able to afford a house here either.
April 20th, 2009 at 3:03 PM
The application deadline for the latest willogrove lot lottery has closed. Has anyone heard how many applicants they have versus lots available.
April 20th, 2009 at 3:04 PM
“Of course if you are working an hourly wage, chances are you won’t be able to afford a house here either” unless of course you move to Manitoba, it’s like Saskatchewan, except you can afford to live there
April 20th, 2009 at 3:04 PM
Charles,
I don’t know what it would cost right now but 3 years ago you could have got a house of that size done for $150k or less and the builder would still make a profit. It depends of course on the extras you want. You could easily drive the price up 30, 40, 50k if you want all the nice touches.
Wages have certainly gone up since then but materials haven’t changed much at all.
I have also heard rumours that the builders make over $100k for a typical house in the new developments.
April 20th, 2009 at 3:07 PM
Vinny, that’s not necessarily true. I work for a large company with employees all over North America and the world. All new employees get 2 weeks vacation, which goes to 3 weeks after 2 years and 4 weeks after 10. One of the only exceptions is Saskatchewan… where they are required by law to give 3 weeks immediately upon hiring.
Having left a job where I was up to 4 weeks vacation to move to this company, I *really* wanted to keep that if I could, but I was told that it’s non-negotiable, and doesn’t matter if you come in as a manager or a line worker… 2 weeks vacation for the first two years. I don’t expect it would be any different in Alberta, and I can’t believe that this company would be the only one like that.
April 20th, 2009 at 3:07 PM
Bookrat,
“and I can’t believe that this company would be the only one like that.”
Face it pal! You’ve been screwed.
April 20th, 2009 at 3:08 PM
jrochest,
Thanks for the link. Some interesting thoughts on the study. I don’t know if the author’s motivation is really that important, and to some extent I agree that the study really is a statement of the obvious but it doesn’t hurt to bring some focus to the whole issue of affordability. At the end of the day, Nick’s use of the survey to compare the cost of home ownership in one city to another may be where its greatest value is. As far as how this applies at home, it really isn’t rocket science but simple math. Median price divided by median incomes. We don’t have to wait for the next Demographia study to know if we’re improving or deteriorating.
April 20th, 2009 at 3:09 PM
Charles,
The house my husband and I are building is costing us $350K total including lot ($96,500). It’s 1289 sq ft bilevel. This is a “reasonable” price in todays market, but things will come down. Most builders might already be feeling the pinch, many by fall will be hungry for new jobs. That’d be a great time to start asking around for quotes. Although materials haven’t come down much there is WIDE profit margin for builders to start cutting into. My builder has even admitted to making a pretty penny.
There were MANY lots returned from the last lot draw – the demand will be even less now. There may even be lots available for first come first serve once the draw has ended.
April 20th, 2009 at 3:10 PM
Mark said:
“Sigh. Then you aren’t really living are you?”
While I don’t mean to offend anyone it sure seems to me that the only people who think that the present cost of houses in Saskatoon is justifiable are those people who have lived the majority of their lives here. Is that true? Is there anyone who is relatively new to Saskatoon who thinks that it makes sense that a home in Saskatoon should be as expensive as a home in Calgary? As for the cost of living in Calgary compared to Saskatoon, from the perspective of someone with children…..it isn’t even close. Property taxes, and pst make an enormous difference. All other costs you mentioned Mark are relatively the same although if you look for them you will find restaurants much cheaper in Cowtown. PS: by the way even if it was equal or Calgary was a bit more expensive….you get to live in Calgary…by the rockies!