JOSH BUCHANAN

January 1, 2017

The year 2016 provided us with another interesting year in the Saskatoon real estate market. It showed many continuing trends from 2015 that weakened the local market with some positive surprises, some negative surprises, and some interesting news stories.

Of all the happenings in 2016, here are some of the highlights that caught my attention:

-16 homes sold for amounts over a million dollars which is the highest number ever for one year in Saskatoon including 3 of the 4 most expensive transactions ever.

-A new mortgage rule that had some people worried and seemed to have the SRAR a little bit upset turned out to have no impact in terms of sales numbers so far. In fact, since the new rule took effect on October 17, sales numbers actually increased in the last 2.5 months of the year compared to the same time frame in 2015. This is especially unusual because the first 9.5 months of 2016 saw significant drops in sales numbers compared to 2015.

-A newcomer rental company with almost 1,000 rental units in Saskatoon and a destined-to-fail business plan filed for creditor protection due to being unable to pay off over a hundred million dollars in debts owed to lenders and contractors.

-Lackluster price drops and a huge array of incentives offered to buyers, renters and realtors in hopes of stimulating transactions, preventing price drops and rental rate drops which I covered in post #72.

-A huge drop in the rental market vacancy rate to levels the city has never seen before.

-The new River Landing condo complex selling out in just 4 days despite Saskatoon having a large oversupply of apartment-style condos.

Like post #42 which gave a review of 2015, I’ve compiled a list of a dozen factors that impact our real estate market and added a brief analysis to explain just what they mean and what impact they could have going forward.

1. Inventory:

2016 saw what appears to be the highest level of inventory ever. The number of homes on the market topped out at about 2,180 units which was still a significant jump from the peak of 2015. However, inventory levels managed to cool off a little bit and fell below the levels seen last year for the last few months of 2016.

Analysis: The amount of inventory doesn’t tell us a whole lot other than there are a lot of homes on the market. This wouldn’t necessarily mean that there is an excess number of homes available or that absorption rates are slow. Inventory levels are very important to watch and track but they don’t say much per se until we start looking at sales numbers.

Source: Team Fisher Royal Lepage Vidorra

2. Listings:

On the local MLS system, Saskatoon saw a strong number of new listings in 2016. There were 9,396 listings which is way above historical averages but actually 438 units fewer than last year.

Analysis: Like inventory, the number of listings doesn’t necessarily tell us much. It was the second largest amount we’ve seen in a single year in terms of quantity but that really only means something once we start comparing it to the number of sales.

3. Sales:

The MLS system saw 3,720 confirmed sales for the calendar year of 2016 which means it was the slowest year in sales since 2010. When comparing it to 2015, 2016 had 234 fewer units sold for a percentage drop of 6%. When looking at the previous 5-year’s average, 2016 had 462 fewer units sold for a percentage drop of 11%.

Analysis: Sales, more than listings, give us a stronger indication of what’s happening in the market. Though a drop by 234 units or 6% compared to last year may not be worth panicking about, those numbers compared to 2014 are a little bit more worrisome. Compared to 2014 which was a perfectly balanced market and Saskatoon’s strongest year, 2016 saw a fall in sales numbers of 804 units or 18%.

4. Average sales price:

The average sales price on the MLS for 2016 was $350,348 which was a fall of $3,647 from 2015 and $5,979 from 2014 when prices peaked in Saskatoon. That being said, 2016 was the second consecutive year where the average MLS sale price dropped – something we haven’t seen in decades.

Analysis: Considering everything that happened in 2016 along with how much excess inventory Saskatoon had and how listings and sales had huge gaps, we were very lucky to get away with a price drop of only 1%. However, this was largely due to price drops being concealed by incentives which I explained in post #72.

5. Sales-to-listings ratio:

Sales and listing both fell in 2016 in a proportion that allowed the sales-to-listings ratio to stay flat compared to 2015 at 0.40 which is well below a balanced ratio of 0.50.

Analysis: This is the strongest indicator of where the market is at. 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. A ratio of 0.40 is in buyer’s market range which is why we are seeing prices fall instead of rise.

6. Asking price vs. listings price:

The average sales price compared to the average listing price was actually fairly steady in 2016 compared to previous years. Buyer’s in 2016 received an average of 97% of their asking price, calculated to be about $10,000 below asking price which is just below the standard in the past 5 years according to MLS data.

Analysis: As explained in my 2015 Year In Review Post, this is not a method of analysis I care to put much focus on because it only looks at the most current listings. In order to find out what’s really going on, you need to dig a bit deeper and see how many times those current listings have actually been listed to determine their original asking price and original listing date. For example: a home is originally listed on January 1, 2014 for $500,000 but the listing expires without a sale so the sellers re-list. This process continues as the sellers are having a very difficult time selling. Eventually, after re-listing the property 4 times, they re-list one more time at $380,000 on March 10, 2016. They end up finding a buyer and close a deal on March 25, 2016 for $365,000. On the MLS system, it would appear that they received 96% of their asking price and sold in just 15 days when in reality, they received only 73% and it took them 2.25 years to make the sale.

7. Average days to sell:

According to the MLS system, it took the average seller 48 days to sell their home in 2016 which was the exact same as 2015 but noticeably worse than any other year in recent history.

Analysis: Like the asking price vs. sales price analysis, this is not a method I care to focus on for the exact same reasons as explained above. If this information took into the account the original listing, it would be much more useful. It does however seem to mirror absorption rates and at least offer some evidence that it’s taking sellers much longer to make a deal than in past years.

8. Absorption rates:

Absorption rates are a very useful tool for analyzing the condition and future of the real estate market. However, in order to calculate them, you must take note of existing inventory and sales numbers at specific time periods. It is not possible to go back into the MLS system and find inventory levels on specific dates. Based on excess inventory and slowed sales, it is quite obvious that absorption rates were much slower in 2016 than what we are used to in Saskatoon before things started to slow down in 2015. I have included some information on them in post #2, post #21, post #49 and post #55.

Analysis: December 31st closed trading with 1,561 homes for sale in Saskatoon. Though this is not a very good day to use as a measuring stick because December is such an unusual month. There were 195 sales in the final 30 days of the year and 761 sales in the final 90 days. This calculates to absorption rates of 8.17 and 6.28 respectively. Both of which are very much in buyer’s market territory and almost exactly the same as last year. These ratios should in theory lead to noticeable downward pressure on prices but it would not be fair to take these numbers and use them as an analysis for the whole of 2016.

9. Vacancy rates:

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. The CMHC is the best resource for this information and they reported that the vacancy rate in Saskatoon for October 2014 was 3.4%, October 2015 was 6.5% and October 2016 shot up to 10.3% which is the highest on record according to CMHC. This may not sound all that worrisome to some people, but if you consider that the rental universe for the primary market has 13,507 units, it means that there were approximately 1,400 rental apartment units sitting empty when the survey was done.

Analysis: This was maybe the most shocking statistic of the year for me. I think this is an important stat but it doesn’t come without its flaws. 1) It’s impossible to get completely accurate data on this. 2) CMHC is quite delayed as these numbers would have been taken from April and released in October and I imagine the current vacancy rate is actually much higher than 10.3% right now but it won’t show up on the reports until late 2017. I would be confident in predicting that the rates as of October 2016 are actually about 16% or even higher especially with several new apartment buildings coming onto the market in 2015 that were very slow to occupy.

10. Construction report:

As of the end of November, CMHC released the following stats:

a) New home starts – 1,767 down from 2,096 in 2015.

b) New home completions – 2,546 up from 2,539.

c) Total absorptions – 1,581 down from 1,936.

Source: CMHC

Analysis: These statistics have a number of important impacts on the real estate market. Just to name a few: fewer new starts should reduce the piling up of inventory in 2017 from a new-home perspective but it will also hurt a lot of people employed in that industry. Fewer new home completions means fewer new homes flowing onto the market but it also means less work for developers and all relevant employees. Fewer absorptions means that, even though there were fewer starts and finishes, the finishes were not bought up very quickly. This analysis is further discussed in post #25. The most surprising statistic in this category comes when comparing 2016 to 2014. The number of new starts for January-November was down an incredible 1,562 units from the same time in 2014 which really shows how much construction has slowed down and I imagine we will see a further slowdown in 2017.

11. Unemployment rate:

The Government of Saskatchewan has only released the stats up until November but at that time, the total unemployment rate for the province was 6.4%. In the same month last year, that rate was 5.0% and 2014 was just 3.2%. Not only did the employment rate increase, but the Saskatchewan labour force dropped from 608,300 to 606,300 people. In total, there are 10,000 fewer employed people than this time last year. For the city of Saskatoon, November unemployed came in at 7.1% which is up from 5.6% for the same time last year and 3.2% for November 2014.

Analysis: I think this is a very important and telling statistic. A 1.4% increase for the province and 1.5% increase for the city may seem small but it is actually significant when it comes to unemployment rates. When you compare it to 2014, the rates jumped by 3.2% and 3.9% respectively to bring us up to unemployment rates we’re certainly not used to seeing in the province or city in recent years.

12. Immigration stats:

As of the end of June, the Government of Saskatchewan is reporting a total net immigration of 6,286 people compared to just 1,346 people for the same time period last year.

Analysis: When looking through the monthly government reports, these numbers don’t seem to make sense but it will be interesting to see the final numbers for 2016. This increase for the period up until the end of June it came as a surprise to me especially with rental vacancy rates rising and home purchases dropping but I believe a high number of the new immigrants were Syrian refugees.

Conclusion:

The few bright spots for the 2016 year may be that we managed to curb the growth in inventory to prevent it from making absorption rates any worse than last year, as well as the huge turn around in immigration – assuming the statistics are in fact, correct. Also, we managed to prevent the sales-to-listings ratio from getting any more out of balance than it was last year. The unfortunate part of the year is that sales numbers continued their slide, unemployment rates continued to worsen and the rental market vacancy rate basically crashed in the matter of a year and a half.

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Data sources:

Royal Lepage Vidorra: http://teamfisher.com/saskatoon-real-estate-week-in-review-december-25-31-2016

CMHC Rental Report: https://www.cmhc-schl.gc.ca/odpub/esub/64443/64443_2016_A01.pdf?fr=1483157586844&sid=9XP4IETx8ojCeUvzXerGI2VlAQoaXCbwfaAbeevZy1JX8oSLFRxMWG5s2nAIC9AI

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

Government of Saskatchewan Immigration and Unemployment Report: http://www.stats.gov.sk.ca/stats/December16.pdf and http://www.stats.gov.sk.ca/stats/labour2016/lfsNovember2016.pdf

Saskatchewan Multiple Listing Service Database

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