JOSH BUCHANAN

January 10, 2016

My knowledge, research and interest is very much limited to the city of Saskatoon but I thought it would be interesting to do a quick analysis on Regina to see how things are going there in hopes of offering a new perspective to Saskatoon’s current market conditions.

Sales numbers appear to be fairly consistent throughout the last four years with a soft downward trend. 2015 only saw a 6.5% drop from 2014 which is about half of what Saskatoon saw (12.6%).

Listings have also been reasonably consistent and actually came in lower in 2015 unlike Saskatoon which had huge gains in listings in 2015 (+771).

Average price actually took a noteworthy dip in 2015 of 2.5% which is more than triple the percentage of what Saskatoon saw (<1%) even though Regina’s sales-to-listings ratio was much higher.

Rental vacancies, like Saskatoon, appear to be increasing and took a 2.4% jump in 2015 but still not as bad as Saskatoon which saw a 3.1% increase from the previous year.

Unemployment rates in Regina rose less than half of one percent in 2015 which is insignificant compared to Saskatoon’s 2.7% jump.

Starts, completions and absorptions all saw a reduction in 2015 as well but not quite to the level that Saskatoon saw.

Regina Analysis:

In making an assessment based purely on these statistics (I know this is looking through a narrow lens but it is purely for comparison and curiosity’s sake), it appears that Regina is feeling a slowdown but everything seems to be adjusting accordingly and the changes do not seem to be too drastic in any of the above categories.

The one statistic that stands out to me is that the average sales price in Regina dropped by $8,000 in 2015 even though their sales-to-listings ratios were healthier than Saskatoon but Saskatoon only saw a $2,500 price drop. I believe that the main reason for this is because new detached houses in Regina had an extreme price gap compared to resale detached houses. Supply likely caught up with demand which reduced the premium paid for new houses and there was probably also less new house sales in 2015. Saskatoon had a healthier gap between new and resale all along.

Regina seems to have a quick reaction time to market changes and has managed to prevent hyper-supply and allow sales-to-listings ratios to remain within a healthy range. Even though things are slowing down, they have reduced their risk of collapse moving forward.

Saskatoon Comparison:

In 2015, Saskatoon had a bigger fall in sales numbers, a much worse sales-to-listings ratio, a higher vacancy rate, higher unemployment rate and a slower reaction in construction than Regina did, yet Saskatoon’s average sales price is much higher and did not see a notable drop in 2015 like Regina did.

Not only did Saskatoon see worse changes in 2015 than Regina did, but these trends seem to be continuing whereas Regina seems to adjusting appropriately. Unfortunately for Saskatoon, it appears as though most relevant parties in the residential real estate market got carried away, failed to see the trends and did not have the foresight to start making adjustments when they should have.

Conclusion:

When taking Regina’s information and comparing it to Saskatoon, it becomes even more apparent that Saskatoon is in a troubled state. Based on these numbers alone, I would expect Regina to have a much smoother 2016 than Saskatoon.

It appears as though people in Saskatoon were basing their buying decisions mostly on short-term historical sales prices and a normalcy-bias form of speculation but did not look at other economic indicators. Saskatoon’s residential market has gone through a period of unsustainable irrational exuberance where the housing prices have become inflated because they do not properly reflect economic indicators such as household income and supply & demand ratios. This is also known as a housing bubble.

Data sources:

CMHC Rental Market Report: https://www03.cmhc-schl.gc.ca/catalog/productDetail.cfm?lang=en&cat=109&itm=5&sid=uHs3xVdOWIvIOUnMQrWbONaZEn1XLLlomyg2I0ivvUetgea51vCuUYzdtpubGwRg&fr=1452367564193

Goverment of Saskatchewan Unemployment Report: http://www.stats.gov.sk.ca/lfs/

CMHC Construction Report: https://www03.cmhc-schl.gc.ca/hmiportal/en/#Profile/1490/3/Regina

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