I read an article today written by commercial real estate/property management specialist, Don Sylvester of Saskatoon Real Estate Services which appeared in “The View,” the monthly newsletter of the Saskatoon and Region Association of REALTORS®. Don discusses the frenzy of buying activity in Saskatoon apartment buildings this year.
“The apartment sale for condo conversion frenzy is being fueled by out of province investors and first-time homebuyers wanting to enter the market place. The frenzy is heightened now by offers of up to $116,000 per unit, representing a near tripling of prices this year alone. Multiple offers above the listing price are the norm and the demand has spread to small-town Saskatchewan as well.”
He goes on to explain that when “resale prices of $180,000 to $220,000 for a renovated and converted two-bedroom unit are commonplace” it’s not difficult for investors to justify this kind of huge upfront investment and notes that developers can still “turn profits well in excess of 50% of their total investment.”
Last week, a number of converted units were sold between $215,000 and $222,000. I’ll suggest that we’re going to see a few more pushing the mid 230K mark within a week or two. Will buyers bite? Maybe, but these units are making less sense as an option with every price increase.
Don then goes to the fundamentals which are required to sustain any healthy real estate market like “affordability, new family creation, job, and income growth.” He makes the point that resale prices have moved much closer to units available in Calgary.
He’s right! I see a selection of two-bedroom condos in Calgary between $250,000 and $300,000, some of them built in the last ten years.
Don reminds us that Saskatchewan lost 200 jobs in April while seeing an increase of 200 in its labour force effectively pushing our unemployment rate to 4.1%. He points out that income growth in Calgary still outpaced Saskatoon by a full percentage point last year, never mind the fact that incomes were already 20% higher in Calgary before that.
“From a pure wages perspective, a working couple can afford to spend $60,000 to $80,000 more on housing in Calgary than they can in Saskatoon. The question is how close are we to Calgary prices and how much will our wages increase? The answer to that question suggests that apartment prices should stabilize here soon.”
It looks to me like Saskatoon condo prices are already encroaching on that $60,000-$80,000 price gap. Consider also that the average selling price of a Saskatoon condo was up 75% in May when compared with May of 2006. Consider that hundreds of rental apartments have been removed for the rental market over the last couple of quarters and that many of them will be starting to come on the market as resale condos. Consider that the average selling price of a single-family home increased just 39% for the same period outlined above and you see that the dollar difference to own a house as opposed to a condo has narrowed significantly over the last several months.
All of these factors suggest that the Bull Run which condos have enjoyed may soon come to a close. It’s doubtful that the current low inventory situation will allow prices to decline in the short term but I think we can expect to see prices begin to stabilize.
I’m always happy to answer your Saskatoon real estate questions.
Royal LePage Vidorra