Saskatchewan shows considerable housing affordability improvement: RBC
RBC Economics just released their fall Housing Trends and Affordability study that shows house prices having returned to “pre-boom” levels nationally with Saskatchewan showing considerable affordability improvements, but remaining above long-term historical averages. At the same time, the graph on page eight of the report suggests that affordability improvements may level off as Saskatoon seems to be trending back towards “seller’s market” territory.
Housing affordability improved in Canada for the fifth consecutive quarter during the second quarter…At the national level, affordability has now been restored to pre-housing boom levels (that is, those prevailing in late 2005-early 2006)… However, this restorative phase of the affordability cycle is likely running out of steam. The two major contributors to the significant improvement during the past year or so — the decline in mortgage rates and the drift down in prices — appear to have reached turning points.
Homeownership continued to become more accessible in Saskatchewan in the second quarter with RBC’s affordability measures falling between 0.4 and 1.4 percentage points. The measures have retreated considerably since their peaks early last year. However, they are still some distance above long-term averages, although these averages might have been depressed by previously unfavourable migration flows that have since been reversed. Certainly, the current levels of affordability do not appear to have been an obstacle to buyers taking the plunge in recent months. Sales of existing homes in the province have rebounded smartly, up by more than 50% since their low in March. If sustained, this will eventually heat up property prices, which are still trending modestly, lower.
This graph shows the recent affordability trend for the four Saskatoon housing types that RBC tracks and reports on, in comparison to the historical norm for the area. The figures shown on the graph represent the “proportion of median pre-tax household income required to service the cost of mortgage payments (principal and interest), property taxes and utilities” on the various housing types. So, of course, the lower the figure, the more affordable the homes are.
Saskatoon housing affordability trend compared to long-term historical norm.
Read the full RBC report here.
Thanks for the heads up to my friend Larry Yatkowsky who runs Yatter Matters where he blogs about the Vancouver real estate market.
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There's 24 Comments So Far
September 9th, 2009 at 2:48 pm
Not surprised that affordability is better with low rates and price drops. I am not too sure I like that they are pretty much pumping the market up and that we will see affordability erode again. That does no overall economy any good. Were we not just down that road?
It is almost like wolves ( banks) in sheeps clothing telling the sheep ( buyers who are scared of being priced out) to come into the playpen ( housing market). The problem is that the sheep trust the farmer ( government) in that the farmer is looking after the sheeps best interest. What the sheep do not know is that the wolves and farmer are back door best buddies. Poor sheep.
September 9th, 2009 at 4:26 pm
George,
“Not surprised that affordability is better with low rates and price drops.”
Yes, that seems to be the way it works.
I think you’re being unfair.
Given RBC’s history of research and reporting, it seems to me that they call it as they see it. Flip back through past posts and you’ll be hard to make an arguments that they’re “pumpers.”
Our more bearish readers thought RBC was walking on water when they proclaimed that Saskatoon was “overvalued” and later when they said Saskatoon would follow Calgary and Edmonton into price declines.
September 9th, 2009 at 4:32 pm
Norm, you’re right… Scotiabank are the real pumpers… With 0%* down on a CMHC-backed mortgage, “You’re richer than you think.” Poor sheep, indeed.
September 9th, 2009 at 4:44 pm
Jason,
The examples you’ve cited are of marketing. Last time I checked encouraging business and profit was still allowed.
These reports are written by people, not banks. By the way, Scotiabank’s Adrienne Warren said this back in September 2007, “Saskatoon and Edmonton are the most overvalued real estate markets in Canada.” As far as I know, Scotiabank was still issuing mortgages here though. Shame on them!
September 10th, 2009 at 12:22 am
Norm, marketing/spin, it’s all the same. I’m with George on this one; the Government and CMHC have given financial institutions a license to print money – one at the taxpayer’s expense, I might add. If we have a market correction and see interest rates rise, the banks are going to be the only party not on the hook for these distressed mortgages. I’m all for encouraging business and profit, just not when it comes in the form of a tax hike or bailout for underwater homeowners.
September 10th, 2009 at 1:59 pm
Even Canada’s real estate industry questions housing turnaround
http://www.financialpost.com/news-sectors/story.html?id=1980223
“A new survey from Royal LePage Real Estate Services Ltd. found more than a quarter of its agents do not believe the housing market’s current strength is sustainable. Overall, 66% of those surveyed said low interest rates were the number one reason behind the recent strength of the housing market. No other category even got a double digit response.”
September 10th, 2009 at 2:11 pm
Ottawa paints a dark picture in fiscal outlook
http://www.financialpost.com/news-sectors/story.html?id=1979728
“The federal Conservative government said Thursday it won’t be able to balance its books for at least another five years and can’t pinpoint a year as to when a surplus would emerge.
Furthermore, deficits for this fiscal year and next will collectively top $100-billion — or a third more than the original budget expectations …which will reach a cumulative total of $164-billion over a six-year period. The government said the $164-billion in deficits projected until 2014-15 is the result of ’significantly weaker’ prospects for the global economy over the medium term.
The shortfall last fiscal year hit $5.8-billion, and is now expected to reach $55.9-billion this fiscal year — up from the $50.2-billion shortfall anticipated in June and the $33.7-billion in last year’s budget. The deficit is to swell to $45.3-billion next fiscal year, up from a previously expected $29.8-billion.”
So, we’re only $22.2-billion over budget this year and an anticipated (hold breath) $15.5-billion next year. Just to put this in ‘real’ terms, $164-billion is almost $55,000 for every person living in this country. I like this quote the best – it sums everything up (translation: taxes!):
“Most of the restraint will be in program spending, it said, even though recent history indicates this has not proved successful.”
……….
In other news, the Bank of Canada sees a quicker recovery…
Bank of Canada holds rates, sees quicker recovery
http://www.financialpost.com/news-sectors/story.html?id=1979270
September 10th, 2009 at 4:36 pm
Norm,
maybe in past posts, they were not pumpers, but I just get a feeling from this report ” if you buy now you won’t pay as much if you buy later”. And maybe they are right that prices will climb higher. All I will say is that few reap the benefits of high house prices and the banks are definitely in the few.
Jason,
just think, last year Harper said they would never go back into deficit. Fast forward, one year and we may have 6 years of deficits. And when 2015 rolls around we may have another recession. (It is possible it seems like banks and governments creat recessions quicker than in the past) Sorry Norm, I just had to get a shot in at the banks
September 10th, 2009 at 5:10 pm
George, yes, when we had a surplus it was good times… I think returning to a balanced budget by 2015 is entirely unrealistic; they’re already off by a third on their estimates, so even if the deficit stays around $164-billion it will probably be more like 2018. Another recession in 2015? What’s convinced you we’ll even be out of this one by then…
$300k is the desirable price point right now, so it’s entirely possible houses in that range will see a slight increase due to lack of inventory (several months at best) and demand (most first-time homebuyers fall into this range). Over $400k and especially over $500k, not so much – in fact we could see further price reductions there as more properties come on the market and people look to downgrade.
Question: how accurate is it that most new homebuyers are opting for variable-rate mortgages (ie: prime + x%) rather than fixed rates?
September 10th, 2009 at 9:26 pm
George,
“And maybe they are right that prices will climb higher.”
He didn’t say that George! He said prices are “still trending lower, modestly” which would suggest that there may be better prices ahead for those who wait. His comment about prices heating up was clearly qualified with an “if this level of activity is sustained.”
Frankly, and with all due respect, I find the attack on this economist to be a rather rude display of arrogance. As one of the more outspoken and opinionated contributors to this blog you seem completely tuned out to the fact that markets go up and down, and that some people get hurt regardless of the direction it moves. You seem oblivious to the fact that spin is spin, regardless of what direction the market is being spun in.
If Robet Hogue (the author of this report) believed that prices may trend higher, should he not say so? Wouldn’t failing to say so be a misrepresentation? Wouldn’t that be an attempt to manipulate? Wouldn’t that be spin? Would there be some righteousness to that because he would be trying to manipulate down instead of up? Does that feel nice to you? Warm, fuzzy, for the little guy? If motives must be questioned for believing the market will go up, shouldn’t the motives of those who predict a decrease be questioned? Shouldn’t they be accountable when they’re wrong?
Let me remind you of a certain discussion that occurred here some time back in December or January. Someone suggested that perhaps the North American stock markets were close to bottoming out and that it might be a good time to consider getting back in. Many people stepped forward to let that person know how reckless he was being in making such a suggestion. Markets were going to go far lower before they improved. Oh, yes! If my memory serves me correctly, someone actually implied that he was a fool. Today, the TSX is about 40% higher than it was on that day. A bearish forecast that misses the mark can be every bit as costly as a bullish forecast that misses the mark. Oh, on little guys, did you ever get the impression that perhaps one or two of them were swaying by the pessimism about the stock markets. Remember how Armoth was working overtime and pouring his money into the markets certain that he’d benefit from a turnaround? Remember how, before the markets took off again, he wondered if maybe you guys were right? He was second guessing if he should just sell everything and pay off some debt? I wonder if he actually did that. Did he sell those cheap stocks to pay off debt that was costing him nothing? Hmmm.
Let’s assume for a moment that Armoth did sell everything he had, paid off some cheap debt, and lost tens of thousands of dollars at the end of this game based entirely on your advice. Should you be accountable for that? Is it your fault? Of course not! Armoth is a big boy, a full grown adult. Armoth is responsible for Armoth.
There is nothing inherently righteous about a bearish view of the future, and there is nothing evil about a bullish view. That said, a little humility might be in order, especially since RBC has been pretty much right up to this point.
September 10th, 2009 at 11:33 pm
Norm, this forum can range from incredibly helpful and at times very insightful to downright frustrating and occasionally counterproductive and misleading (depending on your viewpoint). I would hope that viewers take most of the banter with a grain of salt, because, after all, these are merely expressed opinions. RBC may have been pretty much right up to this point, but that doesn’t preclude the possibility that may get it completely wrong down the road, either.
And while the TSX may be up 40%, do keep in mind that some stocks have never truly recovered – and in fact some have dropped even further in value or have been delisted altogether (GM anyone?)
September 11th, 2009 at 2:14 am
Nice post norm.
I was just thinking the other day that it is amazing that some of our most bearish commentators, whose predictions for this year have turned out so, so wrong, still manage to be self-righteous about their ‘better informed’ beliefs about what is really going on.
“And while the TSX may be up 40%, do keep in mind that some stocks have never truly recovered – and in fact some have dropped even further in value or have been delisted altogether (GM anyone?)”
Yah, you must be thanking your lucky stars you stayed in cash through all that.
September 11th, 2009 at 6:37 am
Guys,
George is a very decent man. I’m bothered that the mere suggestion that prices may rise at some future point brings character attacks. It’s probably completely unintentional but i think that it discourages open discussion.
September 11th, 2009 at 8:19 am
Mark, “Yah, you must be thanking your lucky stars you stayed in cash through all that.” As if you have the first clue what most of us did (appreciate your uncanny insight)… Thanks for dropping in to ’stir the pot’ without really adding anything to the discussion. And as for predictions this year turning out so wrong, I don’t recall any lofty bull projections that anticipated the surprising surge in activity this Summer.
Suffice it to say, it didn’t get as bad as some of us thought it might, but we didn’t see the market return to zealous overbidding like it did in 2007 and early 2007, either. Then again, less than a year ago we were looking at a $15-billion surplus and now we’re staring into the abyss of a cumulative $164-billion+ deficit. We still went into recession despite the stimulus, and now we’re set to inherit a new range of problems in the form of massive government program and spending cutbacks, increased taxes and repeals and potentially higher interest rates with inflation.
The only thing sustaining the current housing bubble is low interest rates and long amortization periods. Change one and/or the other and it’s an entirely different market.
September 11th, 2009 at 8:58 am
Further to Norm’s Twitter update, the national increase was 0.3% from June 2009 to July 2009; in Saskatoon there was no change (0.0%) during the same timeframe.
……….
New Housing Price Index: July 2009
http://www.statcan.gc.ca/daily-quotidien/090911/dq090911b-eng.htm
“Contractors selling prices increased 0.3% in July following a 0.2% decline in June. This was the first increase at the Canada level since September 2008.”
Continued declines in the New Housing Price Index in Western Canada
“Year over year, the New Housing Price Index was down 3.2%. The largest declines remained in Western Canada, where prices continued to fall from previous highs. In the Prairie region, 12-month declines were recorded… Saskatoon (-10.6%).”
September 11th, 2009 at 9:35 am
Rather than taking any of this personally, I’d wager a large degree of what has motivated people to stick rabidly to either a bullish or a bearish outlook (as opposed to changing your outlook as circumstances dictate) is fear. There was a time last year when it was not appropriate to be throwing good money after bad into the markets. The losses were massive. That being said, the time for anticipating the economic crisis and using that knowledge for financial gain is probably over, and some people are having a tough time moving on. Circumstances have moved on, and they will continue to.
If I’ve learned anything from this most recent economic turmoil it’s that flexibility and open-mindedness are your friends. I do apologise about any perceived dogmatism on my part in the past. If it occurred, it certainly wasn’t motivated by a desire to hurt anyone or take advantage of them. Norm, you’re absolutely right- one should always be aware of the motivation of the person behind any particular view, be it positive or negative.
September 11th, 2009 at 10:14 am
Crikey, “I’d wager a large degree of what has motivated people to stick rabidly to either a bullish or a bearish outlook (as opposed to changing your outlook as circumstances dictate) is fear.” Possibly. It’s also conceivable that some people’s bearish outlook is for a much longer term than may be apparent (years instead of seasons, for example).
I’d hazard a guess that, for many, whether they were able to buy (and the circumstances) or priced out of the market largely determine their perspective. That being said, there are still many opportunities that present themselves in any market. Timing is everything.
September 11th, 2009 at 10:34 am
I have no problem with people sticking to their position. That’s not my issue. In fact, George has demonstrated a high degree of open mindedness and flexibility as market conditions have changed. My issue is with the constant characterization of those we disagree with as “pumpers and spinners,” and the implication that they are reckless, selfish, dangerous or uncaring.
September 11th, 2009 at 11:33 am
Norm,
it was never my intention for a character attack on the writer of the report. The wolve in sheeps clothing was more to be funny than anything. That did not work. I will admit that I do have a bit of a history of posting something and it comes out the wrong way I want and I look like an ass. So I will say sorry for that.
As for 10 months ago when the financial world was crashing, I thought when oil hit 30 it would be good buy, if it hit 20 a great buy. I thought TSX would hit 5000. I was wrong both times and along with the amount of government intervention. Honestly I am still not in the market today for a few reasons. And most would say I have lost out on making a bunch of money. But paying down debt is never a bad thing because in the long term debt is NEVER cheap. Hindsight is twenty twenty and a person can only gather all info, make the best decision they can and then be able to live with it.
Maybe I wrong about this but if someone asks for advice on a blog from unknown posters about stock picks and goes ahead with what these people say without talking with a financial advisor, should this person be in the market in the first place? We can all recommend some stock or position and there is nothing wrong about that but at the end of the day what are our credentials about the stock market? None of us do this for a living. I come here not because I am smart but to surround myself with smart people so I can learn. I am a homeowner ( actually still a mortgage owner), others are renters, landlords, bulls and bears. There is a wide range of good people who post here and an even wider range who just read the comments.
“There is nothing inherently righteous about a bearish view of the future, and there is nothing evil about a bullish view. That said, a little humility might be in order”
100% agree and thanks for the wake up. Sometimes I need a good kick.
September 11th, 2009 at 12:02 pm
Norm, on the same token, the constant characterization of those expressing a “bearish” view as negative, fear mongers, doomsayers, etc. is equally inappropriate.
……….
George, “But paying down debt is never a bad thing…” I couldn’t agree more. Some might consider this way of thinking ‘old school’, but it served the last few generations well. “And most would say I have lost out on making a bunch of money.” (‘the glass is half empty’). A few of us might say you didn’t lose any money in the market, either (‘the glass is half full’).
September 11th, 2009 at 2:39 pm
George,
Thank you.
By default, I thought that a “pumper” was someone who is misrepresenting the facts for selfish intentions, and that to be called a “pumper” would be an assault on one’s character.
I agree with your thoughts on “advice” and all of that. My point, is that I took a pretty good shit kicking for suggesting to you, and you only, that buying stock might not be a bad idea back then. I got it from several directions and was called reckless, foolhardy, etc. “If you want to piss your money away Norm, you just go ahead, but please don’t try to convince others to go down with you.” It turns out that my thinking was actually correct.
Over time, I have actually become quite reluctant to share my opinions about the future. I’m sure it’s easier for those who don’t have a name attached to their comments but I’m really no longer prepared to publicly express my gut feeling about where the market is headed, up or down. If there are others who feel the way I do, I just think that’s too bad.
September 11th, 2009 at 6:55 pm
I saw some posts before in regards to cuts in government spending. Some are also speculating that there will also be increase in EI premiums over the coming years to help balance the books. I suspect this is nothing compared to what will happen to my CPP premiums over the next 10-15 years as the baby boomers retire.
http://ca.news.finance.yahoo.com/s/11092009/2/biz-finance-canadians-jump-ei-premiums-gov-t-works-balance.html
“Currently, earnings up to $42,300 are taxed at a rate of 1.73 per cent for employment insurance, and the government is allowed to increase that rate by 0.15 percentage points each year.
This means that by 2014, anyone earning $42,300 or more will likely be paying $1,049.04 per year at a taxation rate of 2.48 per cent – $317.25 more or a 43 per cent increase from the current maximum premium of $731.79. “
September 11th, 2009 at 7:03 pm
Mortgage rates continue to decrease. TMG has 5 yr down to 3.89 and 1 yr closed at 2.55. Not that I mean to be a TMG pumper, I could care less who I get my mortgage from, they just seem to have the lowest advertised rates.
http://www.mortgagegrp.com/site/SK/rates.asp
I suspect these low rates combined with continued economic stabilization will cause us to continue to set sales records well into fall. However, much as I like to stay positive I do think that the weakness in the high-end market is telling and would seem to signal that we’re overpriced.
September 11th, 2009 at 9:43 pm
Peter, let’s not forget that businesses have to match any employee CPP contributions (and subsequent increases). In fact, with EI, the ratio is 1:1.4, and there’s the potential to see the CPP ratio for businesses brought in-line with the EI rate. So in addition to the yearly CPP increase for individuals, there’s the potential to compel even more than that from businesses.