JOSH BUCHANAN

July 12, 2017

In January of this year, I wrote a post with some statistics updates. Being that we are now into the second half of the year, I thought it would be a good idea to review some of the updated statistics for the first half of the year and comment on their role and impact on our local housing market.

Unemployment rates:

Here’s the good news from the June reports: Saskatchewan’s unemployment rate is 5.8% which is slightly below the national average of 6.0% and is also down from last month which shows some extra seasonal employment. Here’s the bad news:

Saskatchewan’s current unemployment rate of 5.8% is up from 5.5% compared to last June

Saskatchewan’s labour force has dropped to 579,800 people from 582,200 last June and 594,400 in June of 2014 which means there are 2,400 and 14,600 fewer people who are working or seeking work compared to each respective year despite population growth since those years

Saskatoon is tied for second highest unemployment rate for Canadian cities on the report at 8.1% which is tied with Edmonton but behind Calgary’s 8.8%

Saskatoon’s unemployment rate jumped from 6.4% last June to 8.1% this June

The Saskatoon-Biggar region currently has 198,300 persons employed which is actually up slightly from the same time last year but still down over 1,500 compared to June of 2014 despite significant population growth since then which explains the higher unemployment rate

Once again, this means that Saskatoon is a weak spot not only within the province but within the country. While Saskatchewan’s unemployment level is slightly below the national average, Saskatoon’s is significantly above it as well as significantly above Regina’s rate of 5.2%. Regina, unlike Saskatoon, has actually improved since last June. This means that Saskatoon is hurting both the provincial and federal unemployment rates.

Analysis: Regina has not only managed to maintain a balanced real estate market which I covered briefly in post #77, but it appears as though they have also avoided running into high unemployment rates and actually lowered them compared to last year. All while Saskatoon’s unemployment rate continues to rise and the real estate market continues to fall away from balanced conditions.

The fact that Saskatoon is currently struggling with employment numbers means a few things for the real estate market with the simplest being: 1) fewer people working and fewer jobs available will result in fewer home purchases which is undoubtedly part of the reason why we have seen home sales numbers fall by over 500 units compared to the same time in 2014 when unemployment rates were healthy even though our city’s population was lower. 2) It may also mean that many current homeowners have been laid off and cannot find new work which will eventually put pressure on them to liquidate their homes if and when they can no longer keep up with the expenses of homeownership.

I’ve discussed this in previous posts, but to put it simply, the poor employment situation Saskatoon is seeing is going to lead to fewer purchases and potentially more listings which is going to further add to our imbalanced real estate market and put stronger downward pressure on home prices unless the supply from new construction is low enough to counter this potential addition of supply.

Immigration numbers:

It appears as though 2016 had a bounce-back year after sluggish numbers were posted in 2015. However, according to the latest reports, 2017 is off to a slow start compared to 2016 as total net immigration is down by roughly 1,200 people compared to the same time last year. There doesn’t seem to be any report on how these new provincial immigrants are dispersed throughout the province but it would be nice to know what amount are actually ending up in Saskatoon.

Analysis: In some ways, more immigration could be a good thing because it may put more people in vacant rentals which we currently have a huge excess of as well as potentially increase home purchases. However, with a poor and declining labour market, immigrants may just create more competition for limited jobs and not find lucrative enough employment to increase home purchases.

Construction numbers:

CMHC released its June numbers today and it looks like new home starts were actually up a bit this June compared to last although the YTD numbers for 2017 are still down by 167 units compared to the same time last year. It’s hard to determine what impact this will have on the market because CMHC does not state the exact type of units that were started in June. If they are all custom-built homes that have already been bought and paid for, it won’t hurt the market. If they are all speculation homes, then that’s a very bad move on the part of developers and will further increase our inventory levels.

There was a large number of multi-unit residential units that came to completion last June that explains the high number of completions in June 2016 compared to this year that has also allowed YTD completion numbers to fall well below last year. A reduction both in starts and completions is a good sign for the supply side of the market but of course, this has its downsides too.

Absorption rates actually appear to be strong so far this year. With 847 absorptions and 1,184 completions, that means 71.5% of completions have been absorbed compared to 774 out of 1,485 units or 52.1% last year which is a very big improvement. This could probably be explained by the fact that a higher percentage of homes being built now are custom builds rather than speculation builds.

When looking at units under construction as of this June, the city of Saskatoon has a total of 820 units currently under construction if you deduct the 463 units under construction in surrounding areas. At the same time in 2016, there were 1,892 units under construction in the city which is a reduction of over 1,000 units year-over-year. If you look at the charts below, you can see that this reduction in units under construction comes from the apartment category which went from 1,272 units within the city limits last year to just 239 units this year.

Analysis: Being that we have such an oversupply of apartment condos, this reduction of 1,000 units under construction is a good sign. However, the downside is: how many people does it take to build 1,000 apartment units from start to finish, what are they doing for work now and what kind of negative impact will this decrease in output have on our local economy in terms of employment and spending. The reduction in completions and improvement in absorption percentages are both positive signs for inventory levels but the small jump in new starts for June of this year may work against those other improvements.

Inventory level:

Current MLS inventory for the city is hovering around 2,200 units which is roughly what it averaged for the month of June. The current level is roughly 100 units above what it was last year and about 650 units more than it was at this time in 2014, Saskatoon’s strongest year. Having a higher level of inventory isn’t necessarily a bad thing and it doesn’t tell us a lot until we compare it to sales numbers. Being that the month of June only posted 394 sales, it means we have approximately 5.6 months worth of inventory compared to 2014 when there was 539 units sold for the month of June and an average inventory level of roughly 1,550 units which means just 2.8 months of inventory or half of what we have right now. Staying below 4 months of inventory will keep the market healthy but we still have an extra 2-3 months worth.

Analysis: Considering there were only 394 sales in the Month of June but over 2,200 units on the market on average, if we wanted to get our months-of-inventory level back down to around 3-4 months, we’d have to somehow eliminate roughly 850 units. This could perhaps be solved if only we had a large group of individuals who have managed to stay unrealistically optimistic in the local real estate market who believe that now is a good time to buy and would be willing to buy up the surplus of properties and get the inventory levels back into balance.

Conclusion:

Considering we already have a very imbalanced real estate market and unemployment rates are continuing to fall, immigration is off to a slow start and changes in construction numbers still have not allowed our inventory level to fall, don’t expect much for positive future projections from me. Until these numbers and the supply and demand numbers start to significantly turn around, our real estate market is going to continue to suffer and prices will continue to fall.

At this point, I don’t think it’s realistic to say things like “this is just a blip” or “the market is going to turn around soon” because almost every single statistic that influences the real estate market has been trending in a negative direction ever since 2014 with no sign of upward trends yet. I know people want negative times to be short and have quick turnaround times, but usually, that’s now how it goes, especially when we’ve essentially cornered ourselves and don’t have any easy band-aid solutions like cutting interest rates again.

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Data sources:

Government of Saskatchewan Unemployment and Immigration Reports: http://www.stats.gov.sk.ca/stats/labour2017/lfsJune2017.pdf, http://www.stats.gov.sk.ca/stats/July17.pdf

CMHC Construction Report: https://www03.cmhc-schl.gc.ca/hmiportal/en/#Profile/1700/3/Saskatoon

Team Fisher Royal LePage Vidorra: http://normfisher.com/

The views represented are solely those of Josh Buchanan and are independent from any professional organization.