As the real estate market in the United States deteriorates as a result of the sub-prime saga, we in Western Canada are experiencing rising prices for homes as demand grows faster than supply. Homes in the Saskatoon and Regina are now averaging selling prices of 150K and 200K respectively.
A combination of tight supply, low interest rates, and baby boomers children leaving the nest has helped push home prices higher in both regions and all over Saskatchewan for that matter. Incomes have increased in the last three years or so, especially in industries like uranium, oil, potash, and other goods.
I don't have the raw data, but frequent visits to MLS and Skhomes would suggest that prices began to rise rapidly early in the new year.
As the number of people who discuss real estate price increases grows, so to do the number of those talking about the bust. It is my belief that people in Saskatchewan tend to be more cautious and therefore mentally prepare themselves for downturns. However, judging by the coffee talk, this trend will continue to move in the same direction.
When things turn, and they will, it will likely coincide with baby-boomers making the transition to senior complexes or a rise in interest rates.
One scary stat I found was the amount of mortgage credit, more specifically the rise in residential credit outstanding. Mortgage credit grew by 215 billion from 1991 to 2001. But, from 2001 to 2006, credit expanded by a further $178 billion. By 2006, there was $624 billion in mortgage credit.
Not only do you get rich in housing booms, so do the banks.
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The conference Board of Canada thinks that Regina has been oversupplying its market for years now. The number of new houses has outpaced the number of new residents by 3 times, this can not keep up forever. Unless development starts to slow.
One concern I have is the price paid for the apartment-style condos without garages. Normally those would be lower priced and least desirable...sure signs of boom.
Liquidity, Liquidity and more Liquidity.
The bank of Canada along with almost every Central bank has been forcing liquidity down the throats of their respective citizens for far to long. The United states alone has stopped publishing the Data for M3 which is considered to be the calculation of total money supply. However I have come across an interesting website: http://www.shadowstats.com/cgi-bin/sgs? They have been tracking the money supply growth of the US, since they stopped reporting. Current money supply is expanding at a rate of 18% year over year. This is simply not sustainable. Generally the growth in money supply is directly correlated to inflation. So you might be thinking if Money supply is growing at a rate of 18% why is inflation only 2%. The answer is simply lies. The United states government allows what they call substitution. Every month both Canada and the US, statistics agencies go out and buy a basket of goods the same goods every month. However if for the last five years they have been buying Steak and suddenly the price of steak goes up they will switch to hamburger. This is true for many things. Toothpaste if Colgate goes up they switch to no name brands. I don’t know about you but when it comes to barbequing a hamburger is not a steak. Make no mistake they are lying about inflation. Which brings me to housing and the stock market. They are not increasing at a stellar rate they are simply keeping pace with inflation. More money chasing fewer and fewer goods. At some point the money supply will retract at a pace that will shock the most seasoned investor. Housing markets will be obliterated, stock markets will crash and Fiat money will be worthless. Gold will be king and I for one look forward to prices across the board for housing and markets retreating to what they were in prior to 1974. For some of you keeping track that would mean that in the future you could pick up a house in Vancouver for around 60 thousand dollars. Something to think about and remember you are being lied to, your wealth is deteriorating and inflation is high and things will eventually break the will and capacity of Central bankers to hide the truth.
Great insight. You lay out the case very well. I don't buy the 2% inflation rate. When David Dodge announced he was stepping down, my first thought was ok, he's been there awhile, then I thought he's getting out before the storm. No head of a bank will wear this.
In terms of gold, I am long and bullish. I am expecting a major pullback in the Asian markets and a correction in the North American markets. That said, I still believe we will reach great highs on the Dow and Nasdaq before the next great crash. In the last year or so, I've devoted some time studying the the years 1921 to 1931. It feels like were in 1924-25 all over again. Scary thought.
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