It's Getting Silly in Saskatchewan

Having grown up in Saskatchewan, I can tell you it is a lovely place, with great people, fabulous lakes, the best football team in the country and space, lots and lots of space.  The old joke is that in Saskatchewan, you can watch your dog run away, all day. 

Much of Saskatchewan is flat as a pancake.  Northern Saskatchewan is boreal forest, the Canadian Shield and so many lakes, many are still unnamed, but most of the people live in the prairies in the southern part of the province.

Saskatchewan is sparsely populated.  In a province the size of Texas, there are barely one million inhabitants.  Or at least there are today.  There may not be tomorrow.  The population of Saskatchewan has fluctuated around a million for several decades now. 

That may be changing. 

As regular readers ("reader" - ed.) of The Running of the Bulls know, I have been bullish on Saskatchewan for some time, though I started sounding alarm bells last year.  Saskatchewan may not have many people, but it has a lot of stuff the world wants, which is why this has happened.

The average price of a home in Saskatoon was more than $306,000 in April, an increase an RBC economist says is not a sustainable trend in the province.

In March, the average home price reached $289,440 and jumped to $306,268 in April, 39 per cent higher than April 2007, the Saskatoon Region Association of Realtors (SRAR) reported Tuesday. ...

This is the first time the average selling price of a home in the city has topped $300,000, a price nearly double that of the April 2006 average of $155,000.

A decade ago, small towns in Saskatchewan were dying.  Municipalities offered to sell parcels of land for $1 if the buyer promised to build on it.  There were few takers. 

That is certainly not a problem now.  The boom is also effecting the province's abundance of small towns in ways people could not have imagined even a few years ago.

I'm most familiar with communities on the western side of the province, but colleague Lorne McClinton says the same thing is happening in his region in south eastern Saskatchewan. He says two years ago, his community of Yellow Grass was slowly dying.

One by one, small houses were abandoned by owners, eventually condemned and finally demolished by the town. One year ago, McClinton says you could buy a 50-foot lot for $50 and a 100-foot lot for $100. No one wanted them. Now the town has bumped the price to $5,000 for a 50-foot lot and $10,000 for a 100-foot lot. Most have sold and the town office gets several calls a day.

Two or three years ago, for a two-bedroom home with single-car garage built in the mid-70s, you would be lucky to get $40,000, says McClinton. Now, he estimates it's worth at least $125,000.

Canada's most rectangular province may be its hottest, but it is not its richest.  One economist noted that what is happening to Saskatchewan real estate is what has happened throughout much of the world.

Amy Goldbloom, an economist with RBC Economics, believes such increases can't be sustained because provincial wage growth lags behind the pace of home price increases.

Anecdotally, I heard a story last year from a Saskatoon real estate lawyer of a Calgary couple speculating in Saskatoon real estate.  The two were unfamiliar with the city, but such trivial details did not stop the couple from buying a river-front property sight unseen over the Internet for a seeming bargain of $150,000.  What the would-be real estate moguls did not know was their new idyllic river-front property was on the west side, south of 20th Street, in a crime-ridden, gang-infested neighborhood.  

But this is what happens in manic markets.

My wife, who returned from Saskatoon yesterday, told me that empty lots in Saskatoon are going for $300,000.  It is now cheaper to by a home in Atlanta, Chicago, Dallas, Denver, Houston, Las Vegas,  Miami, Minneapolis, Orlando, Phoenix, Philadelphia and Tampa than it is to buy a house in Saskatoon.

Remember, this is a place with few people, no natural barriers and empty land as far as the eye can see.

Oh, and it falls to -40 in the winter, sometimes colder with the wind chill.

For a place that had struggled for so long, I am very happy that the people of Saskatchewan are finally getting theirs.  But I would not be a buyer now.

Comments

[The Observer]

From what they are saying about the future of potash prices, Saskatchewan real estate may have some room to run. Beyond your wistful incredulity, are you not happy that your hometown is booming? Rising real estate prices are good... good for property owners, good for municipalities even good for speculators... except the ones who get stuck holding the bag. Buying a home with 10% down was the best investment I have ever made having realized a tax-free gain of $500K in about 4 years (Los Angeles). I hope Potash can deliver some comparable returns -- but I doubt it.

[Toro]

Observer

I am very happy that real estate has done well in Saskatchewan, not only because the economy has been so bad for so long, but because I have a personal stake in it since I still have family in the province!

There are some very legitimate reasons for rising home prices. The province is the largest exporter of wheat in Canada, and farming is the biggest earner for the province. Also, there may be oil sands on the eastern part of the province not yet discovered.

Having said that, the rising real estate prices are at least in part, if not primarily due to the excess liquidity sloshing around the world. Homes are becoming unaffordable to many people in the province.

As an anecdote, friends of mine bought a home a block off Broadway, a trendy part of the city, in October 2006. They told me that had they tried to buy in November, they would not have been able to afford the same house. Prices literally were jammed up in a matter of weeks, going up 60%-70% almost overnight. Its crazy.

[The Observer]

Crazy... hard to imagine how the market got so tight, so fast.

[Running Amok In Fantasyland]

Short POT.

[The Observer]

Not yet... http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aZrUvzrktz1A

[TraderMark]

its amazing how excess liquidity creates the same bubbles all over the globe. Those that get hurt are those without the funny money; usually locals.

[Saskatchewan Real Estate]

The smaller cities in Saskatchewan still have great real estate investment potential. Take Melfort for instance: with the possibility of the largest diamond mine in the world opening up just 45 minutes away, current real estate prices appear to be a steal.