JOSH BUCHANAN

January 12, 2019

Every year once December has passed and all the important statistics have been posted, I compile them, analyze them, and present them as a year-in-review post. You can see the posts from 2015, 2016, and 2017 by clicking on the respective links.

The year 2018 provided another interesting year for Saskatoon’s residential real estate market. Like in previous years, I’ve come up with a list of a dozen different factors that impact the real estate market, provided their most recent statistics and given a brief analysis on what they mean now and going forward.

Before getting into all of the numbers, here are a few highlights that caught my attention:

Average MLS sales price fell by a much larger amount than previous years

Overall market activity continued to slow significantly

Supply-and-demand ratios managed to improve slightly from last year

Vacancy rates and unemployment rates showed improvement

–

1. Inventory:

After reaching new all-time highs in 2017, the level of inventory cooled off in 2018 and managed to remain below 2017 numbers for the duration of the calendar year. As per usual, the number of active listings peaked in the middle of the year which is also the time that sales numbers tend to peak.

Analysis: The amount of inventory in itself doesn’t really matter much until we start looking at it in relation to the sales numbers. However, being that Saskatoon has been highly over-supplied for a few years now, it is a positive sign in many regards that the inventory level has cooled off recently which is largely due to the reduction in new construction.

2. Listings:

The year 2018 saw a total of 7,956 listings in Saskatoon which is 1,043 fewer than we saw in 2017. Not only did we see a significant decline from 2017, but this is now the third year in a row where the total annual number of listings has fallen. This was also the slowest year for listings since 2013.

Analysis: Like inventory, the number of listings doesn’t necessarily tell us much in terms of the condition of the market. It was the least amount of listings we’ve seen since 2013 but that really only means something once we start comparing it to the number of sales. Again, however, knowing that Saskatoon’s biggest issue in recent years has been excess supply, this is a positive sign for correcting that particular issue.

3. Sales:

With only 3,329 sales in Saskatoon in 2018 and 175 fewer than last year, this was the fourth consecutive year of triple-digit declines in sales numbers. A decline of 175 units compared to last year equates to a 5% decline whereas compared to 4,524 sales in 2014, it is a 26% decline. This was also the slowest year in sales since 2005.

Analysis: The category of sales is probably the most important aspect of the market to look at when making an analysis. Sales show how active the market is and allow us to start making comparisons to previous years and make calculations relative to inventory levels and the number of listings in order to determine the ratios that show us how the market is performing in terms of supply and demand.

The fact that 2018 was the slowest year in sales since 2005 is pretty bad news in itself and not a positive sign for the local economy. However, once you consider that inventory levels and the number of new listings have also declined drastically, the supply and demand ratios become a better indicator for determining how the market performed in terms of how balanced it is and what to expect in the future for behaviour of pricing.

4. Average sales price:

The average sales price on the MLS for 2018 was $332,832 which was a fall of $12,086 from 2017 and $23,495 from 2014 when prices peaked in Saskatoon or 3.5% and 6.6% respectively. This brings the average MLS sales price back down to where it was in 2012.

Analysis: The average MLS sales price is a useful indicator of general price activity in the market and historically it responds quite well to the corresponding supply-and-demand ratios. However, it’s far from perfect and doesn’t always give great insight as to what is truly happening with market values. Even though the average sales price is now down nearly $24,000 since 2014, there are specific properties that have depreciated much more than this amount and other properties that have not depreciated this much. The Home Price Index does a better job of tracking the behaviour of home values which I last reviewed in post #153.

That being said, it still is interesting to observe that it was the largest year-over-year decline we’ve seen in a long time and perhaps shows that we have now built up the “downward momentum” that I’ve spoken of in previous posts. Despite a small improvement in the supply-and-demand ratios, prices saw a greater decline.

5. Sales-to-listings ratio:

Sales and listing both fell in 2018 compared to 2017 and several previous years. While the slowed market activity is mostly bad news, the proportion at which these two categories declined actually favoured the sales-to-listings ratio in 2018. We saw the ratio decline for several years but it appears as though it may have bottomed out in 2018. The ratio for the year ended up being 0.42 which was a 3-point improvement from last year when it was 0.39 and hit its lowest annual level.

Analysis: This is the strongest indicator of where the market is trending. This ratio allows us to see how far the market is from balanced and make predictions as to what will happen in the future based on historical price changes in relation to the ratios as seen in post #14, post #32, post #60 and post #65. While we did see a notable improvement in the ratio compared to last year, the issue is that the ratio is still quite low, well-below balanced and not enough of an improvement to expect prices to stop declining in 2019.

6. Asking price vs. listings price:

To reiterate what I stated last year, the way in which this statistic is calculated and often portrayed is basically manipulative nonsense. This could be a very useful statistic but because it is calculated improperly based on a flawed system, it doesn’t provide much value in terms of analysis. To be fair, however, it is very hard to calculate the true number but I believe that based on the way that it is calculated, this statistic should not be taken into consideration when analyzing the market.

7. Average days to sell:

This is another statistic that could be very useful for reporting and analyzing trends of the market, however, the way in which it is calculated and reported is also highly flawed and therefore not worth analyzing in my opinion. Again, if you see these statistics being promoted by someone, be aware that this is not the true number of days it takes a home to sell, it’s simply how many days it takes a listing to sell but a specific home could have been listed multiple times.

I know that I probably sound quite negative and critical of categories 7 & 8 without giving much explanation. However, I have discussed these further in post #117 and post #123 already.

8. Absorption rates:

The absorption rate looks at the number of sales in a given period in relation to the inventory level at that particular time which is unlike the sales-to-listings ratio which simply compares the number of sales to the number of listings in a given time period. In 2018, the annual absorption rate actually improved slightly from 2017 as it fell to 6.55 months from 6.61 months and when I calculated the rates for July, it had fallen from 7.1 to 5.3.

Analysis: The absorption rate is a strong indicator of current market activity and what prices should be doing whereas the sales-to-listings ratio is more of an indicator of what will happen to future inventory levels and therefore prices. The fact that 2018 saw a slight decline in the absorption rate is a positive sign that the market may slowly be moving back to a balanced state. Like the sales-to-listings ratio, this was a slight improvement from 2017, however, it’s not enough of an improvement to make the market balanced and expect prices to rise or even stop falling in 2019.

9. Vacancy rates:

The vacancy rate in Saskatoon for October 2014 was 3.4%, October 2015 was 6.5%, in October 2016 it shot up to 10.3%, October 2017 it fell slightly to 9.6% and in October 2018 it continued a small decline by falling to 8.3%.

Analysis: Though not directly related to the residential sales market, rental vacancy rates can be an important indicator as to where the sales market is at and where it is headed as there is a very high correlation in the behaviour of the two. While this vacancy rate is still very high and the method of measuring it is imperfect, a small reduction is a good sign for the real estate market and another positive takeaway for 2018. This statistic basically has the same conclusion as categories #5 & #8: not great but at least a small improvement on last year.

10. Construction:

a) New home starts – 1,626 units. Down by 15% from 1,915 in 2017.

b) Completions – 1,568 units. Down by 24% from 2,053 in 2017.

c) Total absorptions – 1,374 units. Down by 20% from 1,725 in 2017.

Analysis: There were big year-over-year drops across the board in 2018 which doesn’t come as any surprise. The good news is that the slowed construction has curbed the number of listings and level of inventory. The bad news is that the drastic slowdown in construction in recent years in Saskatoon has really hurt the job market and economic output. Typically, these numbers continue to decline until a couple years after demand rises again.

11. Unemployment rate:

According to the most recent report, as of December 2018, the unemployment rate for Saskatoon was 5.5%, a 2% improvement from 7.5% seen in December 2017. Saskatoon continued to see small decreases in the unemployment rate throughout 2018 and improved from having the second highest rate in December 2017 to have the seventh highest in December 2018.

Analysis: This is more good news for the city of Saskatoon. In many aspects, it seems as though we may have bottomed out in 2018. The stats and ratios still aren’t great but they aren’t as bad as last year almost across the board, unemployment rates included.

12. Immigration stats:

As of the end of September, the Government of Saskatchewan is reporting a total net immigration of 4,073 people compared to 6,624 people for the same time period last year which is a 39% decrease in growth. From 2016 to 2017, there was also a 27% decline in growth for this period which should not be mistaken for a decrease in population – simply a decrease in the level of growth of net immigration from the previous year.

Analysis: After a very slow year for immigration in 2015, the numbers really picked up in 2016 but have now tapered off for 2017 & 2018. It’s hard to maintain a high level of growth in a sluggish economy with high unemployment rates, though. This is not a great sign when it comes to increasing demand for housing but is only one of many factors that impact demand.

Conclusion:

The most obvious bright spots for 2018 were that: the rental vacancy rate improved for the second consecutive year, the total number of listings continued to fall, construction numbers continued to respond appropriately to the oversupplied market, the inventory level saw year-over-year declines, unemployment rates improved moderately, and the supply-and-demand ratios saw small improvements compared to 2017.

The bad news is that sales numbers and immigration numbers fell significantly, the average MLS sales price saw a significant fall, construction numbers continued to decline which hurts the job market and economy, and there was an overall slowdown in market activity.

My general takeaway from the year is that things may not be good yet, but they are certainly starting to improve.

—

Please support the blog by subscribing, sharing, commenting, sending an email, donating via Paypal or email transfer to jcb8485@gmail.com, or by saving $25 on your next hotel booking through booking.com.

Data sources:

Norm Fisher – Royal LePage: http://normfisher.com/

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

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

Government of Saskatchewan Unemployment Report: http://publications.gov.sk.ca/documents/15/109800-LFS%20December%202018.pdf

Government of Saskatchewan Immigration Report: http://publications.gov.sk.ca/documents/15/109802-January%202019%20Report.pdf