In hindsight, this is a trend that has been present through most of 2010. Now that the year is behind us I thought it might be interesting to have a good look at the numbers.
First, total residential unit sales in the Saskatoon real estate market declined seven percent in 2010 to 3558 from 3820 the year before. On the surface, this appears to be not such a big deal. The numbers put us in line with the five-year average for this area and make for a pretty typical year. More interesting though is the fact that sales of home at prices that are below the average ($300,000 or less) have fallen quite significantly, by eighteen percent, in fact. At the same time, sales of homes priced above the average have increased by thirteen percent masking what could be the most significant Saskatoon real estate story for 2010. Let’s look at some numbers.
One’s first inclination may be to assume that Saskatoon home buyers who are active are buying higher priced homes and this is probably true in some cases. For instance, it’s not that difficult to imagine that a buyer shopping in the $250,000 to $300,000 range stretches to the $300,000 to $350,000 range but the $250,000 to $300,000 range softened by just seven percent. It’s not at all likely that buyers who would typically have budgeted up to $250,000 would even be able to consider the $300,000 plus range. The market at $250,000 or less dropped by a stunning twenty-three percent. As I said to Cassandra Kyle in a Star Phoenix story last week, I believe these buyers exited the market for affordability reasons.
2010 brought a number of small changes that impacted on affordability. First, you’ll recall that there were some changes to mortgage lending requirements that made it more difficult to qualify for mortgage money. For the most part, these changes were welcomed as prudent by almost everyone but they did change the game and eliminate “marginal buyers” from the market. No sensible person could argue against that. Secondly, rates increased. The changes were small, but they certainly impacted on some. Finally, by spring of 2010, prices for some types of housing, particularly those with the greatest appeal to entry-level buyers had found their way back towards the previous highsof 2008. Inventory, while higher than the previous year, remained stubbornly low in the lowest price ranges throughout the year, insulating prices to some extent. The combination of these factors meant that many people who might have opted to buy simply couldn’t afford to be in the market and that’s probably a good thing given what lies ahead.
It’s all but certain that interest rates will soon be on the rise with many economists predicting a one-percent increase in the prime lending rate by the close of 2011. There is increasing talk of further changes to mortgage lending requirements that may limit the market more. With a number of major banks calling for tighter rules, some action is almost a given, in spite of CREA’s rally cry against it. While consumer confidence in our province remains high debt levels are at record levels, income growth is largely expected to soften in the year ahead, and taxes are expected to increase. All of these potential affordability influences will have their largest impact on first time buyers. The only other variable that comes to my mind is price. Will they soften as the other variables take a further whack at affordability or will they continue to defy common sense, as some would argue they have for years? The answer seems obvious, but it has seemed obvious for some time now, hasn’t it? It might be hard to find more failed predictions than have accumulated across the Internet for Canadian housing in the last few years.
This we know for sure; first time buyers are the foundation of a healthy real estate market. Without new entrants, people who are already in a home of their own can hardly consider a move up, so when eighteen to twenty-three percent of that market disappears we should be concerned.
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