JOSH BUCHANAN

July 7, 2019

Back in August of 2018, I wrote post #162 which was an analysis to see if the local real estate market had bottomed out yet. At that point, it was becoming pretty clear that we had already seen the worst and that things were slowly starting to improve.

So far in 2019, we are seeing obvious signs of improvement in Saskatoon’s local real estate market with the following being the most apparent:

Annual rise in sales numbers

Annual rise in the sales-to-listings ratio

Annual rise in the months-of-inventory ratio

Annual decline in unemployment

Here are the market’s basic stats up until the end of June:

This is the first year since 2014 that we have seen sales numbers increase year-over-year and the first year since 2014 that we saw a sales-to-listings ratio of above 0.40.

The sales-to-listings ratio measures what’s happening in the market and where the market is headed, not so much its current state. It can be seen as more of a statement of cash flow rather than a balance sheet. The improvement in the sales-to-listings ratio this year is clear and consistent. The current numbers are still not at a balanced level and still fairly far from ratios that would warrant price increases, however, they are certainly improving.

The percentage-of-sale ratio shows the actual number of homes sold each month as a percentage of homes that were available on the market that month. It’s hard to get 100% accurate numbers for a ratio like this since the number of homes available can literally change every hour. However, these numbers have improved every month this year compared to last year.

This next ratio looks at how many homes have sold in the past month relative to homes available for sale and determines how many months it would take to sell existing inventory using the number of homes sold in the past month. Once again, this number has improved every single month this year compared to last.

The monthly rate-of-sale ratio looks at how many homes were sold in the past month and determines how many days the average home would take to sell assuming the average number of monthly sales and average inventory level would both stay constant. Like all of the other ratios above, this one has also shown notable improvement for every month this year.

The unemployment rates in Saskatoon have also shown improvements for every month this year compared to last year. Just like the supply and demand ratios, these numbers still aren’t great but they are a clear improvement on last year’s.

Analysis:

At this point, I can very confidently say that the local residential real estate market has not only bottomed out but has very clear signs of recovery. When it comes to the ratios that determine the balance of the market, every single one of them shows consistent improvement compared to last year. While all of them are improving, it’s very important to note that these ratios still are not good. The numbers indicate that we are still not in a balanced market even though we are trending in that direction.

When looking at Saskatoon’s historical data, we have never seen a year where the average MLS sales price has increased following a year with a sales-to-listings ratio of 0.50 or below. With the current year-to-date ratio sitting at 0.44, it’s still unrealistic to expect housing prices to turn around just yet. In fact, the average MLS sales price and all three of the Home Price Index prices have fallen from last year. This is because the market is still oversupplied.

Don’t expect prices to start rising again until one year after we have established a sales-to-listings ratio of above 0.50. If trends continue, 2019 could very well be the last year we see an over-supplied market and 2020 could produce high enough ratios for prices to start turning around in 2021.

Conclusion:

When we look back at the years 2015-2017 when:

sales numbers were falling

listings were rising

supply and demand ratios were imbalanced and worsening

Developers were still excessively building

Unemployment was rising

Interest rates were starting to rise

Government policies were tightening up

Immigration numbers were falling

It was very clear that our real estate market was in for a correction. Looking back, it’s amusing to me that some people challenged and criticized me for taking the position that we were going to see a significant price correction despite basically every variable working against our market.

If you were one of these people, you suffer from what is called “irrational optimism” and I hope you learned a lesson from what we’ve been witnessing in the past 4 years. If you haven’t, I’d suggest taking that irrational optimism and spending all of your money on lottery tickets and slot machines.

Smart-ass commentary aside, it’s only realistic now to say that market has turned around and is moving in a positive direction. Perhaps the one obvious thing that could derail it is a spike in interest rates but pretty much across the board, things are improving.

—

Please support the blog by subscribing, sharing, commenting, sending an email, or donating via Paypal or email transfer to jcb8485@gmail.com.

__

Data sources:

Government of Saskatchewan Unemployment Reports: https://publications.saskatchewan.ca/#/products/86645

Norm Fisher: https://teamfisher.com/blog.html