JOSH BUCHANAN

March 5, 2016

As always, I want potential buyers to look at the market from a different angle and understand the current situation we are in.

In terms of inventory, supply and demand ratios and absorption rates, Saskatoon is currently in a buyer’s market. Basically all this means is that there is a ton of homes to choose from for potential buyers and they aren’t selling very quickly. The problem is that prices haven’t really changed from the previous years when we had seller’s market or balanced market conditions so buyers aren’t really controlling the market. You’re in a “buyer’s market” paying seller’s market prices.

Don’t be fooled into thinking it’s a good time to buy right now because it’s not – at least in terms of price it isn’t. We’re basically just on the doorstep of the breaking point that will cause a significant price drop.

Think of it this way. Let’s pretend a used car salesman holds 50 vehicles on his lot on average and that number has allowed him to have a good selection for customers while still managing to keep his costs down and cash flow balanced. Recently, however, his inventory has started to pile up and it is now at 75 vehicles and sales are not increasing compared to the past when he had 50 vehicles for sale. This gives his potential clients even more selection which is great for them but he realizes that having that much inventory is too much for him as he has too much money tied up in them, the costs of holding and maintaining them are too high, and the turnover speed is too slow which is hurting his cash flow.

Rather than drop his prices to make some quick sales to get his inventory back down around 50, he holds prices flat and starts an advertising campaign stating that it’s a good time to buy because selection is so big in hopes to increase sales without dropping prices.

The problem is, he cannot afford to hold 75 vehicles much longer and will be forced to drop prices in order to cut his operating costs and free up money to pay for his bills. He hopes that customers will recognize the great selection he has and purchase more vehicles soon before he runs out of cash and is forced to drop prices. If his customers only knew what kind of position he was in, they could simply wait and get a much better price.

This is where we are at. Sellers and their Realtors firmly holding on to prices from 2013-2015 and people claiming it’s a buyer’s market yet prices and price behaviour don’t really reflect it because of the 1-year price correction delay. Many sellers are in a position where they can’t hold on much longer at current asking prices because there is far more inventory than buyers and the ratio is worsening. There’s too much inventory available for how many sales there are and many owners can’t afford to be patient much longer for various reasons such as they already bought a new home and need to sell the previous home or they are in a hurry to relocate to another city.

If you purchase a home right now, you may have missed the peak of the market but you would be buying right before a price decline. Yes, you have more choice than ever before in Saskatoon but you’re only reaping the rewards of the first half of the impact of hyper-supply.

Conclusion:

If you’re a first time home buyer in early 2016 you’re getting buyer’s market selection and paying balanced/seller’s market condition prices which were established in previous years before inventory got out of hand. It’s best to wait until prices have corrected to adjust for excess supply on the market. Don’t worry though, statistics and history tell us that this price correction will happen in 2016 as explained in post #32.

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