Kari's Corner February 9, 2012

5 Reasons The Real Estate Market Is NOT Going To Crash-an editorial

Finally, some good news about the real estate market in Canada. While some media sources predict that the housing market in Canada will crash, others don’t agree. This editorial by Larry MacDonald, former economist, is one that does not agree.  I say this time and time again but it is not safe to generalize  a country as large and diverse as Canada.

Here are some reasons why:

The Bank of Canada won’t likely allow their rates to climb as such an alarming pace if the economy cannot keep up with it. We won’t wake up in 5 years with an extra 10-15% interest rate on our hands. With historically low rates right now we are seeing people getting more house for their dollar but most of those people will also be earning more money in their futures, not less. While I have Saskatoon home buyers who often can spend x they often choose to stay well below their budget to ensure they don’t get caught offguard if interest rates were to go up.

Real estate is very  market dependant and huge differences exist between each province but also between each town or city in that province. Vancouver has an average house price of $800,000 and their wages aren’t that much better than other places with lower average house prices such as New Brunswick and PEI where average house prices are $200,000. If you look at the size of house that a person gets in the Maritimes and how many people live in those houses I am sure you will see a larger home with less people than you typically see in Vancouver. People in Vancouver make it work. If Saskatoon real estate was priced like Vancouver real estate I think we would all be living in 800 sq ft condos but in Saskatoon most of us can afford a bit of land to call our own.

This is not the USA. There are many differences between what our lenders are able to do than what the US was allowed to do. We had less subprime mortgages than the US and a totally different recourse if someone did walk away from their mortgage. Banks in Canada have more ability to go after people who try to walk away from their mortgages. While I have seen a few more houses for sale in Saskatoon that are owned by the bank it is not nearly as intense as the US market.

Just because the US and some other countries experienced housing busts in the past few years doesn’t mean that every country is experiencing this. Portugal and Germany have been quite resilient just to name a few. This is also unfair to generalize all of the US as having a burst of the bubble as many states did not experience the same corrections. While the Saskatoon real estate market did see a huge gain it is also commonly thought that we were undervalued for so long that now we finally caught up to the norm.

Price to rent and price to income ratios show that our houses are over-valued but so is the US stock market and it has kept going for the past decade or so. Just a thought.

This does not mean that we can go on without considering a potential change in the Saskatoon real estate market or valuation but as long as there is a shortage of supply there will always be demand. In the Saskatoon real estate market and with the growing number of immigrants moving to Saskatoon and Canada in general this helps drive the local real estate market and the economy in general.

Kari Calder
Saskatoon Real Estate Agent
Century 21 Fusion