But is it possible for real estate in this province to experience a "soft landing" rather than a "hard landing", which will most definitely hit some jurisdictions in Canada? A soft landing is where incomes basically catch up to house prices. In this scenario, house prices could fall, but would stay within a 10% correction.
First, the stars would have to align, namely interest rates would have to stay low for a long period of time. This I believe will happen. Resources would have to stay strong for a very long term. No more busts. Employment, population and wage growth would also have to stay strong as well. To keep much wealth in the province and housing supply relatively low, we would have to expect that most recent retirees and baby boomers would not move to where real estate is cheaper and the climate is nicer. And no 2008 financial crisis could happen. Forget the stuff in Europe, a China hard landing, the US experiencing a Japan like scenario, etc.
While it would be tough, almost impossible for all of that to happen, maybe the worst that does happen would not be all that bad and in that case here is why a soft landing is possible for Saskatchewan real estate.
Here are few reasons:
Saskatchewan's "Housing Bubble" Is Smaller Than The National Average
House Price to Income
Even though Saskatchewan and it's cities have experienced the fastest house price growth across the country in the last decade, it has helped that house prices were at a low level. Our house price to income is less than the Canadian average.
Unfortunately Stats Canada data for household income is only up to 2009. In the last couple of years I believe the house price to income has most likely rose higher for Regina, Saskatoon and Saskatchewan but all still below the national average. As of 2009, the house price to income ratio using CMHC and Stats Canada stats stood at:
Canada : 5.1
Saskatchewan : 3.7
Saskatoon : 4.2
Regina: 3
We are not Vancouver who stood at over 9 times in 2009, that ratio is definitely over double digits now! Ouch!
Affordability
But we should remember that this affordability report does have it's flaws. Down payments have shrunk over the years and even though interest rates have plopped to all time lows, affordability is over the long term average for BC, Ontario and Saskatchewan. But on the other hand, the RBC affordability index uses a POSTED RATE. Looking at today's posted rate and we see it is at 5.24%. A discounted rate can be had for 3.49%, if not lower. So take this affordability index with a grain of salt. A true affordability index ( in my mind) would be the average first time buyer down payment, average household income and the discounted five year fixed over the last 25 years, but until that happens I will settle for this one.
As long as interest rates stay extremely low for a long time, affordability is not totally out of whack like Toronto in the late 80's and Vancouver now.
Saskatchewan Debt To Income And Mortgage Debt To GDP Ratios Are In Relatively Better Shape Than Canadian Average
One of the big reasons why Saskatchewan households are in better shape, relatively speaking, was that house prices were affordable for such a long time and households did not use debt like it was candy until 2007 or so. The rest of the country was piling into more debt 2 to 3 years earlier. Basically, households in Saskatchewan have been the last ones to the credit party. The following chart is from 2 years ago, I'm sure the debt to income ratio for Saskatchewan is higher than 116% now, but still in waters that are not as treacherous as Alberta or BC and still below the national average.
Provincial Wage Growth At The Top
Saskatchewan has had one of the best growth rates of wages in Canada. Saskatchewan and Alberta have been leading the provinces in weekly wage growth over the last decade and a half. The scary thing with Alberta is that they have had the highest wage growth and highest debt growth over the last decade. We don't want to be following in their footsteps.
Saskatchewan Economy Is Less Reliant On Consumer Spending
While only a few percentage points from the national average, Saskatchewan relies less on consumers for GDP and employment growth compared to the national average. And it is down from bubblicious BC by over 10 percentage points!
Tip for Saskatchewan Housing Market: Don't be Alberta or BC!
Saskatchewan's Economy Relies Less On Residential Investment For GDP Growth
At under 5%, Saskatchewan is also less reliant on residential investment for GDP growth. Each previous time ( early 80's and the early 90's) parts of Canada experienced house bubble busts when residential investment rose above 7% of GDP.
Provincial Government is in Relatively Good Shape
From CFIB Economics
Public Sector Debt Clock
| Federal | Provincial/Territorial | Total | /pers | |
| Canada | $644,616,489,514 | $483,999,047,367 | $1,128,615,536,882 | $32,278 |
| Newfoundland and Labrador | $9,388,886,074 | $7,700,000,000 | $17,088,886,074 | $33,555 |
| Prince Edward Island | $2,674,195,250 | $1,913,348,292 | $4,587,543,542 | $31,626 |
| Nova Scotia | $17,574,248,623 | $13,753,393,166 | $31,327,641,790 | $32,864 |
| New Brunswick | $14,006,859,565 | $10,193,438,041 | $24,200,297,606 | $31,852 |
| Quebec | $148,110,306,422 | $171,914,470,157 | $320,024,776,579 | $39,835 |
| Ontario | $251,150,164,457 | $240,643,410,471 | $491,793,574,927 | $36,100 |
| Manitoba | $23,277,629,919 | $14,826,696,583 | $38,104,326,502 | $30,179 |
| Saskatchewan | $19,344,457,658 | $3,553,393,166 | $22,897,850,824 | $21,822 |
| Alberta | $70,719,778,383 | -$14,733,034,169 | $55,986,744,214 | $14,595 |
| British Columbia | $86,307,992,229 | $34,133,931,662 | $120,441,923,890 | $25,727 |
| Yukon | $646,460,656 | -$200,000,000 | $446,460,656 | $12,732 |
| Northwest Territories | $796,671,409 | $200,000,000 | $996,671,409 | $23,064 |
| Nunavut | $618,838,869 | $100,000,000 | $718,838,869 | $21,415 |
( Saskatchewan debt does not include crown corporation debt in above table)
Saskatchewan's per capita share of debt is second best amongst the provinces. And as we can see in the next few graphs total debt has shrunk from over $12 billion in 2004 to just over $8 billion in 2011.
Here is how it looks when we break down debt from Crown corporations and debt from the General Revenue Fund.
People Feel Relatively Safer Investing In Homes
My feeling is that the stock market will be "sideways" and "choppy" for the next few years, this will lead to people continuing to put more money into real estate than the historical average. And for many people how can you blame them? Take a look at these next charts.
Do you plant your money in the "casino" or "steady eddy real estate"? *Note this is the TSX at the closing of each year. Does not include dividends.
This is another look at how the TSX and the average Canadian house price compare from 1996 to 2011.
Because interest rates are so low, people can pay off their mortgage principal quicker than in years past. Here is one example with a 20% loss in house prices, negative equity does not happen for too long.
Here is how a loss of 20% in house prices looks like with a 25 year mortgage at 3.5% being paid down at $1800 a month. In Saskatoon the average house in a decent area ( not condo or townhome) is around $360,000.
Conclusion
I believe Saskatchewan has one of the best chances in the country to experience a "soft landing" in housing but like I said before, the stars would have to align.
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