Saskatoon real estate: Week in review (July 13-17 2009)
Saskatoon real estate agents reported ninety-two sales of single-family detached homes and condominiums to our MLS system this week, a gain of just one property compared to the previous week, and up twenty-one homes compared to the same week last year.
New listings of houses and condos increased to one hundred and fourteen properties, up from one hundred and three last week, but down fifty-two units compared to the same week last year when one hundred and sixty-six Saskatoon homes were offered up for sale.
Click the image for a larger version of the graph.
Total active residential listings fell again sliding by nine units from last week to finish at 1310, a decline of roughly twelve percent compared to this time last year when 1500 properties were available.
Sixty-three home sellers adjusted their asking price this week while another fourteen canceled and relisted their property, most at a new price.
The average selling price of a home in Saskatoon retreated and fell just over $16,000 compared to last week to settle at $284,638. The six-week average held steady on a week-over-week basis at $281,555, but was sharply lower year-over-year, down from $304,824. The four-week median edged up $2,500 compared to last week, down $11,000 compared to the same week in 2008 when it reached $290,000.
Click the image for a larger version of the graph.
The average underbid slid to $11,605, down from $14,262 last week. The average discount came in at 4% of the asking price.
See a Google map displaying the boundaries of Saskatoon real estate “areas” here
Data collection and calculation for our statistical reports
I’m always happy to answer your Saskatoon real estate questions. All of my contact info is here. Please feel free to call or email.
Follow our daily updates on Twitter @Norm_Fisher.
Norm Fisher
Royal LePage Saskatoon Real Estate
68 comments so far. We'd love to hear your thoughts.
July 18th, 2009 at 2:30 PM
And I thought the market was insane last year… Honestly, I’ve given up on trying to rationally explain this. These particular quotes best express my thoughts on the gathering storm…
……….
“At the present time, it [CHMC] guarantees about $630 billion in mortgages. This is an astonishing amount of money, equal in size to half the Canadian economy. And what assets stand behind this? Securities worth $8 billion. This means 98% of its [CHMC's] liabilities are not covered. This is a worse situation than that which faced US mortgage giants Freddie Mae and Fannie Mac, which lost 90% of their market value.
The danger? As real estate values inevitably correct, since the average home price can only be supported at artificially-low interest rates, our banks will be backstopped by a federal government now running its worst-ever deficit. Over $600 billion in mortgage risk belongs to the taxpayers – and Ottawa is already tapped out. How can this end well?”
July 19th, 2009 at 3:43 PM
The real estate market seems to be heating up, across the country:
‘Canada’s largest markets, Toronto and Vancouver, led the charge—with June sales among the highest in history for both local real estate boards. Close to 11,000 properties changed hands in Toronto, up 27 per cent over one year ago, setting a new record for sales in the month of June. The figure was just slightly off the all-time peak of 11,146 units. Residential sales in Greater Vancouver increased 75.6 per cent over one year ago, to 4,259 units, just short of the record breaking 4,333 sales, which occurred in June 2005′
http://toreal.blogs.com/toronto/2009/07/real-estate-recovery-underway.html
Jason,
Do you have the link to that article? I found a similar article on the internet but it reads slightly differently. The article I found says:
‘And what assets stand behind this? Down payments worth about $8 billion (plus the book value of the real esate).’
THe key difference being, ‘plus the book value of the real estate’. The book value is going to add substantially to the cushion. Anyone who bought in Saskatoon, 2 years or more ago, now has 50k+ book value, even if they put nothing down. At any rate, without knowing that number, your argument is garbage.
July 19th, 2009 at 3:49 PM
interesting…except… for taxpayers are NOT at risk of losing 600 billion dollars. You have an interesting spin on “risk”. I hate to be the ‘realist’ here…but…
In order for all 600 billion to be at risk, every single person who used CHMC would need to default on their mortgage AND each one of those houses would need to be worth net zero dollars.
Not going to happen. Even in the states.
July 19th, 2009 at 7:58 PM
Peter, minor clarifications first. Total mortgage insurance liability (“insurance in force”) as of the end of 2003 was $230 billion. By the end of 2006 (‘pre-bubble’) this had increased to $291 billion, or a growth of about $20 billion per year. At the end of 2007 this had increased to $345 billion (+$54 billion); by the end of 2008 this had ballooned to $408 billion (+$63 billion). It’s anyone’s guess how much CHMC has underwritten this year, but based on YTD sales numbers I’d hazard a guess that CHMC is on-track for another banner year. To put this in perspective, in the span of 3 short years CHMC has managed to double its liability.
But back to your point. Agreed, those with older mortgages and plenty of built-up equity are not the concern (unless they recently leveraged any gain in equity with HELOCs, in which case they’re firmly on the other side of the equation). However, what about the $117+ billion in mortgages underwritten in 2007-2008 (and figure at least another $33 billion in 2009)? How many of those were the creative Canadian “sub-prime” variants of 35-40 years with 0% or next-to-nothing down? Those are the ones to be concerned with. If 10% of those (and by ‘those’, I mean only new mortgages taken out from 2007 through 2009) defaulted in the next few years, CHMC would have to pay-out over $15 billion. Except it only has $8 billion. And since CHMC is backed by the Canadian Government, this falls to the Canadian taxpayer.
……….
L.oki, yes, it’s not $600 billion – it’s $408 billion from the end of 2008 (and counting). And yes, this is the total risk for what taxpayers are on the hook for; my point simply outlined the total risk/liability, and not any likelihood of any particular scenario. While I’d agree it’s extremely unlikely, in the US alone right now I believe it’s 1 in 10 of all mortgages that have defaulted or failed, and 1 in 4 that are “underwater”. So seeing 1 in 10 of all mortgages written in Canada since 2007 fail is definitely in the realm of possibility. AIG… Freddy Mac… Fanny Mae…?
July 19th, 2009 at 8:33 PM
Jason:
You can not rationally explain it because you are looking at it with a subjective opinion, which is a big failing on this forum. You would think that after 2 years of people spouting “the sky is falling” that people would actually get a clue and stop making such “rosy” predictions.
First, there is no “gathering storm”. Canadian Homes are not stupidly over valued. I just came back from being in California for 6 months, where I met a Dish Washer at Applebees who got a $450k Loan 3 years ago, and a Bus Driver who made $50k a year looking for a shoulder to cry on about the fact she couldn’t no longer pay her $800k Mortgage. If anything, the housing crash was a blessing for these people, even if they suffer for a year or so.
Did you see that in Saskatoon and Regina or anywhere else in Canada? Not really. Some bad loans have gone out, but nothing like what was done in the US.
I would argue more, but there is no point.
Here is a prediction you can bank on, though it is still only my opinion:
Barring catastrophe, Canada will NOT see a big RE based crash that removes 10-20% of value in a 12 month period.
Instead, Canada is going to remain stable, but trend LOWER. In 10 years from now, prices will be 20-30% off their highs in most areas, which while it seems like a lot, it isn’t, because it will happen slowly and people wont be jumping from the roofs because of an asset bubble popping.
This will be for two reasons:
1. Interest rates will go up, sapping purchasing power, forcing home prices to come down.
2. Canada has an aging population. Baby Boomers are going to start moving out of their bungalows over the next 5-10 years, leaving a lot of vacancy and supply. This will impact prices.
Expect prices to go down, slowly and over time, even if the economy improves. There will be ups and downs, but in the long term, it will trend down for most areas of Canada.
Now I know you will disagree and that is fine, but barring a Catastrophe, that is what will happen.
Now if a catastrophe happens, it wont matter whether you own, owe or rent. You will be screwed either way.
July 19th, 2009 at 9:24 PM
Jason,
Your second estimate of the value of mortgages insured by CMHC seems much more realistic than the first, but can I ask where that number (408B) came from?
Here’s what I see in CMHC’s audited annual report for December 31, 2008 (page 27).
“Guarantees in Force – Under Section 15 of the NHA, the aggregate outstanding amount of principal guarantees may not exceed $450 billion (2007 – $350 billion). At 31 December 2008, guarantees in force totalled $234 billion (2007 – $165 billion) which includes $92 billion of CMHC guaranteed NHA MBS (2007 – $47 billion) and $142 billion of CMHC guaranteed CMB issued by CHT (2007 – $118 billion)…”
Peter,
“Book value” would actually be the estimated amount that the property could be sold for, not the equity gained or lost.
July 19th, 2009 at 9:46 PM
Jason,
“So seeing 1 in 10 of all mortgages written in Canada since 2007 fail is definitely in the realm of possibility. AIG… Freddy Mac… Fanny Mae…?”
If the amount of insured mortgages is actually $408 billion, and one in ten of all of those insured mortgages goes bad (not just the ones insured since 2007) the total exposure would be roughly $40 billion. If those properties all lost fifty percent of their value (from the peak) they could be sold for roughly $20 billion dollars. Not pretty, but not exactly AIG or Freddy Mac.
July 19th, 2009 at 9:55 PM
Hey Norm,
Do you have a agent referral for Mesa Arizona and Penticton BC ?
July 19th, 2009 at 10:15 PM
Hey Rick,
Emailed you on this one.
July 19th, 2009 at 10:23 PM
Joe, I don’t think I alluded to any predictions (“rosy” or otherwise). Whether you believe Canadian homes are fairly priced or not is entirely your prerogative; I happen to feel they’re stupidly overvalued. I’m not sure the 18% or so odd unemployed Americans would similarly consider their predicament a “blessing”. As for the gathering storm, just wait… history has a tendency of repeating itself (especially for those in a constant state of denial).
Which real estate crash were you referring to? The one which just removed 10-20% of property values in the past 12 months or the one on the horizon that you refer to later on? (I wouldn’t say that we experienced a ‘catastrophe’ in the past year, but nonetheless, values are still down). I think you’ve spent too much time in California if you think that 20-30% over 10 years will hardly be noticeable. It IS a lot.
……….
Norm, typo in the source I referenced, so I pulled their financial statements. See “Insurance in Force”, page 26. I believe the section you’re referring to on page 27 is for financial institutions (‘CMHC guarantees the timely payment of principal and interest for investors in securities issued by Approved Issuers (primarily lending institutions)’; this would probably include the $75 billion or so in mortgages that CHMC bought up last year). If I’m not mistaken, the $234 billion would be included in the $408 billion figure (the total amount of principals and guarantees may not exceed $450 billion).
Yes, $20 billion is certainly better than Freddie or Fanny, or even AIG, but that would still have a huge impact on our economy (and the housing market). In addition, it could lead to some fairly substantial revisions in lending policy at CHMC (such as an end to 30-35 year mortgages and a return to 25-year/10% down).
July 19th, 2009 at 10:26 PM
Thanks Norm,
Greatly appreciated !
July 19th, 2009 at 10:35 PM
Jason,
Thanks for the clarification. I will have a closer look at the report when I get home tomorrow.
Yes, $20 billion is nothing to sneeze at, but it’s probably a more realistic estimate of the actual risk. If the situation becomes 5 times as serious it would still be quite a contrast to “Over $600 billion in mortgage risk belongs to the taxpayers.”
Rick,
No problem.
July 19th, 2009 at 10:48 PM
Norm, search for the 2007 report (it has years 2003 through 2007, inclusive); some very interesting numbers there. Yes, I used $15 billion. Let’s hope it never gets to $20 billion (or higher). Don’t forget, though; $20 billion in Canada is equivalent to $200 billion in the US. And $20 billion only represents about 10-13% of all new mortgages taken out between 2007-present.
July 20th, 2009 at 1:06 AM
Low interest rates with CHMC as the underwriter — is that the secret to catching a falling knife? I foresee sales going up, prices going down and some wounded hands. The fun is just getting started! I’d say things have only fallen 1/4 of what is still to come.
It is sad to see that some first time home buyers may shed some blood, but thats capitalism.
Jason,
I enjoy how you keep the fire burning. This blog would be boring without some doom and gloom possiblities.
July 20th, 2009 at 8:52 AM
Classic Jason. And you think i’m over-reacting when I say you lean to the fear factor side. Missed your ‘deflation’ post in the last thread. Basically gas prices are down year over year, which anyone who drives a car can tell you. The whole article you linked too basically said as much, and that ‘core inflation’ was actually resillient on the upside. Still not the widespread deflation you’re watching (hoping) for. Actually, gas price deflation after a superspike is good deflation, leaving a little more money in consumer’s pockets on a single key item and not drawing down prices on all goods and services. Big widespread deflation may be coming, who knows, but most economists in Canada don’t seem too worried about it happening here.
July 20th, 2009 at 10:05 AM
Jason,
I read Darth occassionally because there are many good things to read on his blog but you need to take him with a grain of salt. What he says is not the gospel and remember he is trying to sell books. 50,000 for the Dow in 2015? Yep, he said that in 99. Among other things that would have wiped out families for a lifetime. http://stockbullz.com/What-Garth-Turner-Wrote-In-1999
Mark,
in order for a consumer based economy to see inflation, the money supply in the consumer’s pockets need to inflate through wages, more expansion of credit along with more jobs. The problem; wages have stagnated, peak credit is behind us, and thousands of full time jobs are lost weekly replaced with part time jobs. The only way we would see remarkable inflation is if the government handed everybody sizable cheques. But that would collapse the banks. They won’t do that. I still say low interest rates for quite a few years, little to no inflation. Like Japan, not twenty years long though.
Deflation is actually a good thing. But most would say it isn’t. Especially government and people in debt up to their eyeballs.
July 20th, 2009 at 10:35 AM
George,
Is it that simple? I’m not an economist, but it seems many that are, and some big time business names (buffet for example) worry more about inflation 6, 9, 12 months out than they worry about deflation. Are they all out of touch with the basics? Maybe. Nobody seems to really know these days.
Sask inflation highest in country.
http://www.leaderpost.com/business/Saskatchewan+sees+highest+rate+inflation+Canada+June/1801471/story.html
On another note, bring on that domed statium!!
July 20th, 2009 at 11:08 AM
Steven, thanks – I try to bring balance to the force (even if it is with the dark side…)! I’d agree that prices haven’t finished sliding; peak to trough we’re probably looking at a drop of 30-40% (so yes, we’re probably only 1/4 to 1/3 of the way there yet). I think the fear of interest rates being raised by the BoC in the second quarter next year might result in unusually strong sales and artificially-inflated prices this Fall and through early Spring 2009.
……….
Mark, core inflation may be resilient for the time being, but eventually declining energy costs are going to have an effect on all sectors. For now, it looks like (overall) deflation is here to stay – minimal though it may be at current.
……….
George, you’re absolutely correct with your assessment on wages and credit, and I think the conversion of full-time to part-time jobs is severely understated; this will ultimately have long-term ramifications with consumer spending and affordability. My feeling on interest rates are different, however. Governments are still looking at shortfalls for years to come, and declining tax revenues will place a further burden on tax coffers. The only recourse to service reductions and tax increases comes in the form of continued and expanded borrowing, and eventually bond markets are going to drive rates higher.
‘Darth’… I hadn’t heard that one! (thanks for the link, it was thoroughly enjoyable!) I do take every opinion and commentary with a grain of salt, and one does have to always question the underlying motivation. I think ‘Darth’ is right on housing, and he is right about CHMC’s liability (even if his numbers were wrong, and even if a massive $400 billion default is highly improbable). At the end of the day the Canadian taxpayer is still on the hook for any losses through CHMC, and I’m not sure people would still be endorsing 35-year/0% down mortgages if they truly realized what their liability was.
July 20th, 2009 at 11:11 AM
George,
Couldn’t government be one of the biggest beneficiaries of deflation (if it can drive long term interest rates, couldn’t it effectively refinance the entire national debt at those rates)?
July 20th, 2009 at 11:18 AM
Mark, I’m not sure having the highest inflation rate in the country is something to necessarily be proud of. Go dome… (maybe we’ll finally get an IMAX out of the deal).
July 20th, 2009 at 2:32 PM
Jason,
The reason I don’t think low gas prices will filter through to lower overall costs is that they never really had a chance to raise prices of everything. The spike was so short term. Our oil and gas is back to prices before that short spike. It has also been noted in same articles linked too that most of this current ‘overall’ headline deflation is a short term phenom as we compare gas now to gas last summer. Come fall and winter, the comparison will be cheap gas and oil to whatever we have in six months. Unless you think oil is dropping back to 30 or 40, the major factor in the overall deflation number today will be gone.
On interest rates, remember, the government can keep their overnight rate at whatever they want, regardless of bond market. If someone on a fixed mortgage comes to term, they don’t have to relock into a fixed at 7 percent or whatever. They could just go on the variable tagged to the central bank rate too if the spread is wide, potentially dropping their payments rather than raising them.
July 20th, 2009 at 3:57 PM
That is still a lot of total listings, and we are nearing the slower time of years for sales. With persistent high sales just chipping away a bit at the big inventory, wouldn’t be surprised if we see inventory climb in the fall again, like last year, as sales start to fall. Should be an even weaker fall than last year. Plus this fall, we’re seeing weak potash prices, layoffs and a bad crop year.
July 20th, 2009 at 3:58 PM
Jason, Regina already has an Imax (in the provincial science center) so a dome just means one more feather for regina’s cap.
July 20th, 2009 at 5:41 PM
Mark, I’ve heard bearish calls for oil returning to $20. If that happens, all bets are off… The Government can meddle all it wants, but ultimately banks still need capital to leverage. Higher interest rates are an absolute certainty; it’s not a question of “if”, but rather, “when”. I think we’re 6-12 months away from where things are going to start to get interesting.
……….
Conrad, yes, that’s why I’m hoping for a similar investment in Saskatoon, which would ideally come in the form of an IMAX. I even have the perfect location picked out for it (right across from Persephone Theatres; I understand there may be some land available there…).
July 20th, 2009 at 8:08 PM
Further to the CHMC discussion, I thought this commentary/analysis would be of interest.
http://americacanada.blogspot.com/2009/07/cmhc-and-our-government.html
Norm, ‘Not pretty, but not exactly AIG or Freddy Mac.’ That’s what I thought, too, until I read this particular quote.
“On Jan 1 2009 CMHC allowed non regulated financial institutions to issue mortgage backed securities. Furthermore on January 26, 2009 CMHC allowed the securitization of line of credits, non amortizing and amortizing loans and readvanceable loans to also be securitized. At this rate, by the end of 2010 the Government of Canada will be insuring over $1 trillion in mortgages and loans or 77% of GDP. That is double what Fannie Mae and Freddie Mac insured on a per capita basis or the equivalent of the entire mortgage debt of the United States on a per capita basis.“
July 20th, 2009 at 9:06 PM
It’s a good link Jason. I’ll have to admit that. This part I found particularly infuriating.
‘The banks get to keep the difference between the interest rate charged to consumers and the rate paid to investors. The result of a government backing is cheaper subsidized funds for them to issue mortgages with. It also removes all risk.’
So you have the government backing these banks, which amongst themselves basically have a monopoly, while we the taxpayers take care of the risk. With none of the upside. The upside goes to the bankers. A mortgage broker, for instance, who is any good can make 200k+ a year. That is nothing compared to what management will make either. If this was done in a regular business which had to whether the bad times when they came it wouldn’t bother me, but I am paying for these people to drive their beamers around while adding nothing to the economy.
I still think the end result of all this is just going to be more government spending, subsidization and ultimately inflation. It’s the only way to get out of the hole the government is getting into.
July 20th, 2009 at 9:24 PM
Peter, excellent points, all. And let’s not forget the power of ‘leverage’… it would seem that $8 billion in securities has been used to secure close to $1 trillion in mortgages, loans and other lines of credit. I don’t know about you, but I was feeling a lot better about having some actual real estate “assets” as security on these mortgages (regardless of the $408 billion figure, which is still staggering). It’s anyone’s guess what (if anything?) is secured for these various lines of credit, or how much of the $1 trillion they account for.
To be honest I don’t know what’s scarier: CHMC allowing non-regulated financial institutions to issue mortgage-backed securities or allowing securitization of line of credits (which I assume would include HELOCs).
July 21st, 2009 at 8:18 AM
good point Joe
“You can not rationally explain it because you are looking at it with a subjective opinion”.
one more failing of this blog is that it appears the same view gets posted over and over in repetition by a limited number of posts. Look no further than this weeks post. It is literally flooded with one sided opinions.
July 21st, 2009 at 8:27 AM
Jason,
I’m sure you understand that it’s simply not accurate to say that “$8 billion in securities has been used to secure close to $1 trillion in mortgages, loans and other lines of credit.” What about the value of the real estate?
July 21st, 2009 at 9:14 AM
L.oki,
And beyond the slant of the posts (from people who call themselves realists or balanced), what I find particularly amusing is the cocksure attitude of bears’ convictions, on this blog and others, despite continually blowing their predictions. Many bears would probably call me a bull, even though I have never once said I thought prices were going higher here. If anything, I’ve leaned towards correction. Yet I’ve often said I really have no idea where things are headed, apart from being fairly optimistic about our province’s economic prospects. Bears are ‘sure’ prices are going to drop another 15 or 20 percent, some think 40 percent in places like Vancouver, yet they’ve been wrong so often on all their other predictions, why should anyone pay any attention? They’d serve their cause better by not being so convinced! Back in December and January, most bears here said prices had ‘nowhere to go but down’ and that inventory would skyrocket. Wrong. They had clung to the end of the 40 year mortgage as a market-wrecker. Wrong. Now it’s higher interest rates, despite the fact that much of our earlier boom took place at rates higher than they are now. Most probably sat in cash this spring and were pretty sure the S&P was headed to 300. Really wrong. Missed returns of 30 plus percent and probably talked a few others into missing them as well. And Garth – how many people is he scaring out of living their lives with his vested interest in selling books? Too much hubris in what you think you know is going to happen doesn’t serve the bear cause well. They are often wrong because they are often too sure of what is going to happen. I’m in the dark personally about the future, but I do feel that for some people waiting for the exact perfect time to buy a house (the perfect mixture of market bottom and interest rate prospects) is a never ending game. Interest rates at 10 percent after you wait a few years from now and prices down another 15 percent? Good time to buy? Or maybe wait another three or four years after that for interest rates to drop further, but prices off their lows then? Man, is there ever a good time to buy? Someone on this blog back in december said something to the effect of ‘only an idiot would buy a house now’. In retrospect, some of the best deals i’ve seen in a while were sitting on the market back then, with the right bid in a fearful market. In any case, why should anyone heed a bears opinion and predictions when they throw them out so often and so convincingly and are so often wrong. I’m not going after any particular bears (I’m talking about other blogs as well), but bears are often as sure of their position ‘prices can only go down’ as the position they so often mock – ‘prices can only go up’. A little humility in an un unpredictible world please.
July 21st, 2009 at 9:55 AM
But Mark…just you wait and see!
The anonymous nature of the internet leaves people pretty comfortable pushing the limits of believability for their cause but there have always been plenty of people prepared to believe the worst. I think if everyone had to attach their name to their comments not much would get said at all.
That said, the majority of the people I speak with in person on a day to day basis think something is amiss and they realize that today’s economic signs don’t seem to support house prices near record levels. Even the most optimistic people have pretty good reasons to feel uncertain. So, there just aren’t any real estate bulls around nowadays and that’s why things may seem a bit one-sided around here. Sure, there are some intelligent points to be made about why the world isn’t going to end, and you’ve always done a good job of pointing those out, but nobody really believes that people who haven’t made the plunge need to “buy now or be priced out forever.”
Thank you for your contribution here Mark. I do enjoy reading your arguments.
July 21st, 2009 at 11:11 AM
Norm, yes, of course there is the ‘marketable’ value of the real estate (which will be affected by market conditions), I’ve never disputed that. You can’t very well liquidate owner A’s ‘pay-on-time’ home if individual C defaults on their unsecured line of credit, though. And if owner B defaults on their home mortgage, you’re not necessarily going to generate enough from the liquidation to offset the cost of the insurance payout.
My point was that there is only $8 billion to offset any immediate losses through default. I don’t know what securities are in-place for the lines of credit that they’ve been insuring since the start of this year, nor what the insured value would be. But if these line of credits are substantially higher than $8 billion (and with less than that in security), I’d say there is a very legitimate concern there.
As for anonymity, I think if there was less (public) recrimination, you’d see more people attaching their names to their comments. The dialog would also tend to probably be more moderate in nature.
July 21st, 2009 at 11:50 AM
Jason,
Well you did say, “it would seem that $8 billion in securities has been used to secure close to $1 trillion in mortgages” and that’s simply not accurate.
I’m not suggesting that there isn’t a big problem here and I don’t know enough about the issues which have moved us to 1 trillion dollars to comment on them. I’m just saying that using the trillion/8 billion statement is alarmist regardless of what points you intended to concede within your own mind.
It’s my understanding that CMHC pays the shortfall after the property has been liquidated so the value of the foreclosed property is in play at the time of the payout.
Also like to say that while I see you as one who is willing to “push the limits of believability,” I don’t question your sincerity and I also appreciate your contributions. You are willing to argue, and you have also been willing to concede when convincing evidence has been put before you. There are others who occasionally surface to lob an insult or to criticize but rarely have much else to say.
July 21st, 2009 at 12:04 PM
Mark, I’m not suggesting that many of the bears got it completely right with their predictions, but they were no more off than any similar calls from bulls. Housing prices did not appreciate, inventories did not plunge, the economy did not recover as expected, commodity prices did not hold and interest rates did not remain historically low. We saw a tremendous and concerted marketing effort which culminated in the return of the “0%-down” mortgage and echos of the ‘now has never been a better time to buy’ catch-phrase.
Despite this, housing prices in Saskatoon are still down 10-15% year-over-year, and at the same time the cost of new construction has dropped between 15-20%. There’s a better than even chance that anyone who bought or built at the peak has zero or negative equity. Mortgage rates have also seen an increase this year after dropping to historical lows – despite assurances and claims that they would stay low indefinitely. And inventories did initially show signs of surging, and although they’ve dropped I’d still hazard a guess that they’re well above historical norms.
I think you’d be hard-pressed to find anyone that didn’t express some degree of shock and surprise at the unexpected level of activity in the market this year (bear or bull). As for humility, since many of the calls were for the market to decline into 2010 (and that some of the best deals would be found in the Fall of 2009 through the Spring of 2010), we’re not quite there yet.
July 21st, 2009 at 12:53 PM
Norm, the emphasis was on (or was meant to imply) ‘it would seem’. The degree to which CMHC has loaned (77% of our GDP and per capita, double Fannie and Freddie) is a rather frightening concept, in of itself. Were our housing market to further experience anything remotely approaching what the US has endured, I shudder to think of the consequences… I’m not knowledgeable enough, either, I just can’t help but find it more than a bit unsettling that most banks require 25%-down (and your first-born!) to ensure minimal risk while on the opposite end of the spectrum CHMC is completely unfazed with 42% of new loans being “high-risk”.
Many of us who share the same thoughts and opinions are of the belief that a short correction (albeit a harsh reality check) is preferable to a lengthy period of uncertainty where we attempt to spend our way out of a recession and then incur a really severe correction with long lasting implications. Believe me: We (bears) would rather be wrong. The upside is a few missed opportunities and continued economic prosperity. The downside is almost too scary to fathom.
July 21st, 2009 at 1:04 PM
“Many of us who share the same thoughts and opinions are of the belief that a short correction (albeit a harsh reality check) is preferable to a lengthy period of uncertainty where we attempt to spend our way out of a recession”
Frankly, I agree and would have preferred to see the market be allowed to take it’s course starting long before 40 year, zero down mortgages. Unfortunately, those who have the power to make these decisions don’t see it that way. Only time will tell what the result of that interference will be.
July 21st, 2009 at 1:19 PM
Thanks for that post, Mark. I’ve always enjoyed your posts as well. You’re right- many of us, bears and bulls alike, would do well to keep our minds more open. Many things have happened in the last 18 months I thought I’d never see.
Jason,
I get what you’re saying (I think), but the fact is that there is always going to be “a period of uncertainty”. I’m not trying to minimize anything- I get it, and it is scary. We can’t control the market, but we can choose how to conduct ourselves in it. I honestly do think there are fairly major differences between the Canadian and US banking systems, and I’d be pleased to discuss them with you if you’re interested. Not one Canadian bank went under during the Depression- seriously.
July 21st, 2009 at 2:06 PM
Bank of Canada maintains overnight rate target at 1/4 per cent and reiterates conditional commitment to hold current policy rate until the end of the second quarter of 2010
July 21st, 2009 at 4:31 PM
Good post Mark.
I can’t believe the number of people who hide behind false ‘made-up’ names posting onerous comments all the while remaining cloaked behind a veil of internet anonymity.
….I find it sickening
July 21st, 2009 at 4:53 PM
New numbers out from Stats Can show Saskatoon improved to 2nd most violent city in Canada! Just think how much easier recruiting for new residents could be if it weren’t for annual headlines like this?? Something I bet a lot more potential residents than we think put a lot of weight on. Seems reasonable, after all, who wants to move to a city that is among the highest in crime in Canada?
(yes Regina has fallen back into #1 in violent crime after Saskatoon’s brief 2 years in the lead
Violent Crime
#1 Regina #2 Saskatoon #3 Winnipeg #4 Edmonton #5 Vancouver
Total Crime
#1 Regina #2 Abbotsford #3 Saskatoon #4 Kelowna #5 Winnipeg
http://www.statcan.gc.ca/daily-quotidien/090721/t090721a3-eng.htm
(plagarized from thebench as always)
July 21st, 2009 at 5:19 PM
And Loki, you’ll see I occasionally post in the Star Phoenix, since I stand behind what I’ve said. Next letter, for sale sign bans to create illusion of desirable condo buildings…
July 21st, 2009 at 6:28 PM
L.oki,
“….I find it sickening”
It is unfortunate when we’re afraid to publicly say what’s on our minds for fear that people won’t accept our opinions. You know what’s even worse than that? When they post under multiple names. It’s like saying, “I’m so friggin’ insecure that I have to invent someone else to agree with me.”
July 21st, 2009 at 6:29 PM
…and hello Nick,
Be careful in Regina, hey?
July 21st, 2009 at 7:05 PM
Mark,
In case my previous comment is unclear – When I was talking about people pushing boundaries when speaking anonymously I was attempting to support your observation about “cocksure” attitudes. It was not directed at you.
July 21st, 2009 at 7:38 PM
Norm, well put (both comments)… ‘Blogging: Never before have so many people with so little to say said so much to so few.’
Crikey, normally I would agree, except the economic circumstances we currently face are unprecedented. While there are events in history that can be referenced, they’re not necessarily the correct course of action. Massive credit expansion and overspending by consumers is directly responsible for a lot of these problems and I’m not sure by encouraging more of the same we’re learning anything from our mistakes. I do agree that fundamentally there are stark differences between US and Canadian banks, although you’d be hard-pressed to convince me that CMHC isn’t behaving like AIG, Fannie or Freddie (I’d certainly welcome any further discussion, though!) ‘Government: If you think the problems we create are bad, just wait until you see our solutions.’
L.oki, “I can’t believe the number of people who hide behind false ‘made-up’ names…”
Nick, overall it looks like crime decreased everywhere (with several notable exceptions). Violent crime being down 21% in Saskatoon is definitely encouraging, though. Except for that rash of knife/bottle attacks and carjackings over the past few months.
July 22nd, 2009 at 1:12 AM
We are interested in ‘moving up’ into a bigger house. All this uncertainty about the market makes me feel uncertain about buying.
I used to think the right property at the right price (or at least a reasonable price, it seems hard to find an amazing deal anymore) meant it was a property I would consider purchasing. I wonder if I should abandon this notion for the time being? I think this is a rhetorical question, but thoughts are appreciated.
Also, has anyone ever had experience with purchasing a property with the thought of knocking it down and building new? Prices of larger family homes in the ‘established’ areas we are looking almost makes it seem worthwhile. Any thoughts?
July 22nd, 2009 at 9:10 AM
Hey, Jason, any losses that come as a result of default through CMHC are socialized in advance for Canadians- you can’t tell me that isn’t *way* more convenient.
I have skimmed but haven’t combed through your CMHC link. I’m certainly not trying to say that the recent and current situation with CMHC is not appalling, but I don’t think it follows that prospective losses through CMHC will necessarily have similar effects on the Canadian banking system or the economy. Of course, this depends on unemployment numbers going forward.
Some things to think about:
- I would disagree that CMHC was as aggressive as Fannie and/or Freddie in introducing new mortgage products. The CMHC started to do 5% down mortgages in 1999, Fannie and Freddie had been offering these since 1993 and had already moved up to 3% down mortgages by 1996. CMHC introduced 100% mortgage products in 2006. Fannie and Freddie had pioneered those products in 2001 and 2000 respectively.
-As far as I’m aware, CMHC bumped up insurance from 75% to 80% LTV in July 2006. I don’t think that CMHC/the government/the taxpayer is at much risk for mortgages of a vintage earlier than this.
-MBS as a percentage of outstanding mortgage debt was never higher than 20% in Canada. It hit approximately 50% in the US.
-Our banks have faced far less political pressure to give mortgages to riskier borrowers.
-Most of their mortgages are non-recourse; most of ours aren’t (this varies depending on which province/state you are in). I’d say most Canadians have less incentive to walk away from negative equity homes. Again, employment will be the main driver here.
-In the US, the effect of “subprime” defaults was to wreck the (liquidity of) banks holding those mortgages. That’s not going to happen in Canada, because banks weren’t issuing them. I know that you would classify “sub-prime” differently than I would, but I’m speaking of borrowers who could not get financing through a bank at available terms.
The lengthening of amortizations seems to have been an unmitigated disaster, I’ll agree with you there. Technically, there are borrowers who could find this type of loan useful (i.e. students or new professionals who want to buy and are expecting a large increase in income, and are motivated and able to pay off the loan early), but it looks as if the eligibility and the usage of these loans has been thoroughly abused.
July 22nd, 2009 at 10:04 AM
Crikey, just so long as someone else gets the bill.
You do bring-up a lot of valid and interesting points, though.
CMHC was in the process of heading down the same reckless path – all with the full endorsement of the Canadian Government. “In 2003 CMHC decided to remove the price ceilings limitations. That is, it would insure any mortgage regardless of the cost of the home.” The only thing that really derailed this was the US sub-prime and housing collapse. And even then it took until late 2008 to ‘reign-in’ lending requirements. I would agree that in theory there should be less risk with pre-2006 mortgages (although it’s anyones guess what level of HELOC’s have been taken out on these properties).
Canadian banks certainly faced less pressure, although this was apparently not the case for CMHC: “CMHC admits that it was ordered to approve as many high risk borrowers as possible to prop up the housing market and keep credit flowing.”
In Saskatchewan, I suspect most mortgages will be non-resources. And ultimately the old adage of ‘you can’t get blood from a stone’ applies: “Throughout 2007, the average home buyer who took out a mortgage had only 6% equity in their homes. That’s the national average downpayment for all mortgages including buyers who moved up.”
You’re correct that mass defaults in Canada won’t wreck the (liquidity) of banks, although this will completely destroy the CMHC. Being government-backed, the required and most likely necessary bailout would be on par (per capita) with AIG, Fanny and Freddie.
“The lengthening of amortizations seems to have been an unmitigated disaster.” I couldn’t have put that better! This is also an interesting point to consider: “While many banks were flogging that it was a great time to buy a home, not one of them increased their mortgage holdings. Between the beginning of 2007 and 2009 Canadian Banks increased their total mortgage credit oustanding listed on their books by only 0.01%. One has to question if real estate was such a great investment, why didn’t they want to touch it?”
July 22nd, 2009 at 10:35 AM
Padhraig, our former home was such a property. You are correct that there are a lot of benefits of having a newer home in an older, established area. Homes in prime locations do tend to hold their values better in any kind of housing correction, and being more desirable tend to be easier to sell (these are by no means foregone conclusions, though). In speaking with our builder, these were a few of the challenges they ran into: unique zoning requirements, some restrictions on frontage, opposition from neighbors opposed to change and unexpected construction issues (having to shore up the older neighboring houses’ foundation so it did’t collapse, etc.). I can say that I’ve yet to meet anyone that has been anything but pleased with the outcome of their ‘conversion’ project, although they were rarely on-time or on budget (something to consider).
July 22nd, 2009 at 11:25 AM
Canadian retail sales surge
http://www.nationalpost.com/related/topics/story.html?id=1815791
“Sales increased 1.2% during the month (May) to $34-billion, with gains in seven of eight sectors, led by a 2.4% increase in automotive products.”
July 22nd, 2009 at 7:03 PM
Norm,
I guess no one caught my sarcasm.
i.e. pot calling the kettle black.
(p.s. i would never dream of double name posting
)
July 23rd, 2009 at 8:58 AM
Central Bank says recession over, severe, but one of shortest on record if they are correct.
http://www.theglobeandmail.com/report-on-business/recession-over-central-bank-says/article1228484/
Also includes upwardly revised projections for growth. Been a lot of these upward revisions the last few weeks for US and global, including from IMF etc… let’s hope they are all right. It’s sure nice to see upward revisions everwhere (except Sask so far) instead of all the downward revisions of a few months ago.
July 23rd, 2009 at 10:11 AM
Mark,
I agree, I hope the are right, but I have many doubts.
“It also warns that Canada’s recovery is dependent on a massive government stimulus and low interest rates to support domestic activity and boost consumer spending.”
All the government has done is installed credit and confidence into the economy. Which is good, this is what we need in a credit based monetary system. But I would be more willing to accept a recovery with something along the lines of” many full time jobs will be coming back. Many of them manufacturing jobs. And the deficit will be gone.”
Wishful thinking maybe?
July 23rd, 2009 at 4:12 PM
Are those “upwardly revised” projections from the BOC are looking *very* optimistic, or is it just me?:
http://tinyurl.com/lwadk5
July 23rd, 2009 at 6:01 PM
Excessively optimistic. Going into this, everyone was calling for a “V” (short, immediate recovery) recession – but in reality it’s turned out to be a “U” (long, slow recovery) recession. Or without a sustained recovery, an “L”. Many of the same economists that forecast a “U” recession are cautioning on the potential for only a brief recovery in Q3 followed by another steep recession to generate two “W” back-to-back recessions.
July 23rd, 2009 at 10:11 PM
“but in reality it’s turned out to be a “U” (long, slow recovery) recession.”
ummm…. it may turn out to be that, but it hasn’t ‘turned out’ that way so far, so far it’s been a short recession. if the bank of canada is right, and growth returns, it will be one of the shortest recessions on record. excessively optimistic. perhaps. we’ll see. but most economists six months ago were excessively pessimistic. i hope they are wrong like usual and this latest prediction proves excessively pessimistic too.
July 23rd, 2009 at 10:46 PM
Thanks for the thoughts Jason. It does not seem easy. We may have to buy a property and rent it out to pay down the mortgage first. It seems most banks are reluctant to let you do this unless the mortgage is paid off. Seems odd, as the land is worth close to the same amount as what we would be paying for the house.
July 23rd, 2009 at 11:36 PM
Hey Padhraig,
Sorry I missed you there. I don’t think it’s a bad time to make a bit of an upgrade but I’m not sure I’d be crazy about the idea of owning two “homes” for any period of time. If the market does soften again and slip even 5-10% you might regret it. Would be different if there was some real upward momentum but I think the upside is probably weak right now.
I also like the idea of a new home in an established area but you sure can end up paying a heap of cash for a lot in Nutana or Varsity View. There aren’t many opportunities under $160K, and then you have to pay to have the house removed.
July 24th, 2009 at 12:58 AM
Mark, I wouldn’t say short. The two most recent recessions were in 1982 (18 months) and 1990 (12 months). The current recession has been running from mid-2008 to present (~12-13 months). And it may not be over… The US recession officially started in Dec 2007 (20 months and counting!) Let’s hope the BoC is right; they’ll lose whatever remaining credibility they have left if they blow this one.
Padhraig, we knew of a few people that went that route, although bear in-mind that they all got into the ‘rental until demolition’ game quite a few years ago already (when land and housing prices were considerably less). Norm has some good advice about giving careful consideration to owing two properties. I’d also add that some of the homes are not ‘sellable’ as single family homes in their current condition, being geared towards multiple tenants.
July 24th, 2009 at 8:45 AM
Potash price hurts budget: Gov’t admits revenue projections no longer accurate
http://tinyurl.com/nv9xfn
Potash Corp. of Saskatchewan Inc. announced Thursday that Canpotex, the marketing agency for Saskatchewan potash, will sell India 850,000 tonnes of potash for $460 US per tonne delivered, a price $165 US lower than contract potash sales to the country in 2008. The deal with India is expected to affect contract negotiations with China, which may be settled sometime in the third quarter. Thursday, PotashCorp announced second-quarter earnings nearly 80 per cent lower than that of the second-quarter of 2008.
“(Potash) certainly has become the most significant line item for revenues,” Gantefoer said. “The number that was budgeted was $1.9 billion, which is a little over 20 per cent of the entire revenue of the province of Saskatchewan, so it’s very significant and any significant change to that is going to have some impact on our budget.”
July 24th, 2009 at 9:13 AM
“The two most recent recessions were in 1982 (18 months) and 1990 (12 months). The current recession has been running from mid-2008 to present (~12-13 months).”
Don’t know how you measure recessions Jason, but I believe we’ve had three quarters – or 9 months, of economic contraction. What do you base your 12-13 months on? If you are using your own interpretation of a recession, have you used that for the 1982 and 1990 ones. All articles yesterday said if B of C is correct, it will be ‘one of the shortest recessions on record’ – Where do you get your 12-13 months data from?
July 24th, 2009 at 11:35 AM
Mark, we’re ‘officially’ 9 months in as of the end of April 2009. GDP peaked at $1.235T in July of 2008. Aug’08 – $1.228T, Sep’08 – $1.228T, Oct’08 – $1.226T, Nov’08 – $1.218T, Dec’08 – $1.206T, Jan’08 – $1.199T, Feb’08 – $1.98T, Mar’08 – $1.194T, Apr’08 – $1.193T. We’ll see where May and June stand, but I suspect that GDP will be down for Q2 2009 as well, which takes us to 11 months. We’ll see if the BoC is right with their prediction…
Also note the period from Nov’07 through Jun’08 where GDP dropped from $1.234T to $1.228T (actually falling as low as $1.224T in Mar’08). “…a recession is now often defined simply as a period when GDP falls (negative real economic growth) for at least two quarters.”, so it would appear we had a brief recession in late 2007-early 2008 as well. If you want to get technical, it seems that we’ve experienced two recessions in 5 out of 7 quarters in our economy since late 2007 (albeit not consecutive).
GDP, Q3 2007: $1.230T
GDP, Q4 2007: $1.225T ….. recession?
GDP, Q1 2008: $1.224T ….. recession?
GDP, Q2 2008: $1.228T
GDP, Q3 2008: $1.228T ….. recession start (Aug’08)
GDP, Q4 2008: $1.206T ….. recession
GDP, Q1 2009: $1.194T ….. recession
GDP, Q2 2009 (start): $1.193T ….. recession (Apr’09)
http://network.nationalpost.com/np/blogs/fpposted/archive/2009/06/30/canadian-gdp-falls-again-economist-reaction.aspx
http://dsp-psd.tpsgc.gc.ca/Collection-R/Statcan/15-001-XIE/15-001-XIE.html
July 24th, 2009 at 2:52 PM
Jason, I don’t know how you measure your ‘recessions’. But BoC just stated that this looks to be the “shortest recession on record”. Am I to believe you over them?
You also talk about the US recession? Are we not talking about Canada?
“I wouldn’t say short. The two most recent recessions were in 1982 (18 months) and 1990 (12 months). The current recession has been running from mid-2008 to present (~12-13 months). And it may not be over… The US recession officially started”
…very confusing argument, but the current recession has definitely not been “12-13 months long”…not sure how you came up with that.
July 24th, 2009 at 4:58 PM
L.oki, the US recession began in December 2007.
If you don’t believe Jason (or me), then believe the United States Department of Labor.
“Since the recession began in December 2007 (emphasis mine) payroll employment has fallen by 6.5 million. (http://www.bls.gov/news.release/pdf/empsit.pdf)
(This was just the first, quickest, easiest official reference I could find. I could bury you in more citations if you refuse to accept this one, so just nod and smile, and move along to your next talking point.)
July 24th, 2009 at 7:22 PM
Okay, based on the technical definition of a recession it began in the 4th quarter of 2008. BOC uses quarterly numbers not monthly to smooth the values. Going month to month you get too much variability. You can have monthly declines even in good times so I don’t think those values are relevant
“Statistics Canada confirmed yesterday the economy contracted at an annualized rate of 5.4 per cent in the first quarter. That follows a 3.7 per cent drop in the fourth quarter of 2008 – meeting the definition of a recession with two successive quarters of declining real gross domestic product. ”
http://www.thestar.com/business/article/643825
July 24th, 2009 at 7:53 PM
“Thursday, PotashCorp announced second-quarter earnings nearly 80 per cent lower than that of the second-quarter of 2008″
80% off of 20% of the budget means 16% less revenue for the provincial government
a billion dollar plus budget swing could mean deficit for saskatchewan
less spending on infrastructure to avert a deficit means less jobs and more layoffs
continuing spending with less than expected revenue means deficit or more taxes
probably harder on saskatoon since potash corp is based here, more layoffs + more layoffs?
probably actually bad news that the bank of canada is projecting the rest of canada is turning the corner recession wise, since saskatchewan still seems on the way down after getting to the recession a bit late.
does this mean the return of laid off potash workers to ontario?
move to manitoba for cheaper housing?
will be interesting to see if the high cost of living in saskatoon makes it unaffordable for laid off workers who are going to be tempted to move elsewhere for jobs or at least cheaper housing if they get laid off in saskatoon
July 24th, 2009 at 9:03 PM
L.oki, if you want to get really technical, GDP was $1.234T as of Nov’07. And where is it right now? $1.193T as of Apr’09. During those 17 months, there was only one (1) month where GDP rose back above $1.234T and that was July’08 when it reached $1.235T. 12 of those 17 months saw GDP drop from the previous month; 4 of those 17 saw GDP increases from the previous month (but only one rose higher than $1.228T). So have we experienced (not consecutively, obviously) a recession for 9, 12 or 17 months? As for who to believe, I think you should put your trust in our Government. They’ve never been wrong on any of their numbers or forecasts for the past year, so why second guess them now!
Thanks Bookrat! Samson, I believe the surplus ‘was’ projected at around $425 million next year, so I think the drop in the price of potash will shave a few hundred million off of that. I have no idea what they’ve used for oil or income tax revenue, but I suspect both will be slightly lower than they projected as well. With any luck they’ll still be able to deliver a balanced budget.
July 25th, 2009 at 8:25 AM
samson,
You are probably one of those guys who missed out on the bull run of the last few months, am I not correct? To take the worst quarter in years and then project that out in the future as the new normal is just foolish. That is why there has been such a run in other sectors, people just took the bad news and extrapolated out forever. If you want to go to the ‘opportunities’ of Ontario go for it and good luck to you. The manufacturing sector is not looking very good right now.