Saskatchewan Average Weekly Wage Is Now $918, Saskatoon $856

From the Globe and Mail

Average weekly earnings rose 2.1 per cent among Canadian workers in March, led by Saskatchewan and Newfoundland -- where wage growth is running at twice the national pace. Alberta, Saskatchewan and Nunavut have added the most amount of employees over the past year, while Nova Scotia and New Brunswick have fewer workers. Ontario lags the national average by this measure too. 

Workers in Saskatchewan now earn, on average $918.15 a week, a 5.9-per-cent jump from last March. Earnings in the resource-rich province have outstripped the national average since last August. 

Hooray for Regina, as they have helped push Saskatchewan's average weekly wage higher.  Regina's average weekly wage is now at $955, which is $99 more a week than Saskatoon.

And if take that first graph and adjust for inflation we get this:

Actually, since 2009, the average weekly wage in Saskatoon has grown less than inflation.
One tip: whether union, non-union, private, public or you work for yourself, make sure you are getting more than a 3% wage increase during this "boom".  If there are jobs getting wage growth less than inflation during this "boom", what are they going to get when the boom fades?

BHP Billiton hints at Jansen potash mine delay; a look at Provincial Debt

From the Globe and Mail "BHP Billiton hints at Jansen potash mine delay" (HT to anonymous)

BHP Billiton Ltd.'s (BHP-N61.56-2.46-3.84%) move to reconsider major spending plans may delay the construction of a promised potash mine in Saskatchewan, another sign the commodity “supercycle” is gearing down as slower global growth cools demand.
The Jansen project, estimated to cost as much as $12-billion, has the potential to become the largest potash mine in the world and is one of three major projects BHP was slated to consider for approval later this year. But comments by the global mining giant's chief executive officer, Marius Kloppers, suggest the company could postpone such developments.
“You should not expect in the next six months any new major approval of projects,” Mr. Kloppers said in an interview with Caixin Media Co.
“The economics of some of these projects has changed,” he said. “I think for the next two years, 18 months perhaps, we will just wait and see how things develop.”
Resource companies around the world have become nervous as growth in China and India cools, easing global demand for commodities. The mining industry has enjoyed an extended stretch of high prices, but this so-called supercycle has escalated capital costs and prompted some governments to raise royalty rates in an effort to cash in on the boom. Now that supplies are more closely aligned with demand and costs remain hot, megaprojects may be losing their allure.

Read the rest of the article here 

What's going on with BHP? This was from last fall.
 The Star Phoenix is reporting that BHP Billington is eyeing up to 5 more Potash mines in Saskatchewan.

BHP Billiton Ltd.'s ambition is to build five new potash mines in Saskatchewan, all potentially as large as the huge Jansen project proposed near Lanigan, a top executive said Tuesday.

 "We just think there's the potential for three, four, five or more mines in Saskatchewan, and we think the demand is growing at the appropriate rate to be able to support that," Ryder said.

Some quick notes on resources and Potash.
6% of Canadian's employed in resources work in Saskatchewan

Here is a quick peak at some noteworthy Saskatchewan Potash expansions and start ups. 
Agrium- will increase annual production to 3 million tonnes from 1.8 million tonnes.  Expansion to start in 2012 and end in 2014.
BHP Billiton- Jansen mine will annually produce up to 8 million tonnes starting in 2015.  Expected to make a decision on the go ahead with the mine in 2012.
Mosiac- Mosaic is one of the largest potash producers in the world with 10.4 million tonnes in capacity and an expected capacity of approximately 17 million tonnes following completion of several expansion projects by 2020.
K+S Potash- Legacy Mine Start of production and first volumes expected in 2015.  $3.25 billion expected to be spent.
Western Potash -Will start construction in 2013, with production starting in 2016.  Will have annual production of 2.8 million tonnes.
Vale- Will decide in 2012 if they will go ahead with a 2.9 million ton annual production mine in Saskatchewan.  Would cost near $3 billion.
Rio Tinto, North Atlantic - Have signed a deal for Potash.  This is in the development stage.


Here is a link to Potash Corp expansions.
Allan- Between 2005-2012, $760 million will be spent on expansion.  More than 95% complete.  Will increase annual production by 1.3 million tonnes to 2.7 million tonnes
Cory-Between 2007-2012, $1.55 billion will be spent on expansion.  More than 95% complete. Will increase annual production by almost 2 million tonnes to 2.7 million tonnes.
Lanigan- between 2005-2008, $410 million was spent on expansion. Completed. Annual production is 3.6 million tonnes.
Patience Lake- Between 2007-2009, $110 million was spent on expansion. Annual production is 600,000 tonnes.
Rocanville_ Between 2003-2005, $130 million was spent on expansion. Between 2007-2014, $2.8 billion will be spent on expansion.  Almost half has been done ( $1.3 billion).  Annual production is 2.8 million tonnes.  After ramp up, annual production will be 5.7 million tonnes.
New Brunswich- Between 2007-2013, $1.7 billion will be spent on expansion.  To date, $1.3 billion has been spent.  Annual production is 800,000 tonnes, after ramp up, it is expected to be 1.8 million tonnes.

By 2020, potash production from these companies listed above, will be over 50 million tonnes if all these potash producers are at peak production and the Jansen, Rio, Vale mines go ahead.  This is up from about 20 million tonnes in 2005.

Here is how potash prices have done over the last couple of decades.

BHP most likely sees a flood of Potash supply if all companies go ahead with the start ups.  This would keep prices down and would make BHP's ROI very risky in a volatile world. 

Provincial Resource Revenue and Debt
This BHP thing will definitely have the attention of the provincial government. If BHP were to completely pull out, that would be a huge sign that the boom in commodities is fading and if true, the Provincial Government would have to start looking at other ways to knock down that debt.


Here is a quick peak at Saskatchewan Government resource revenue.   At the peak of the commodity bubble in 2008, resource revenue was $4,612,408,000 , but in 2009 resource revenues dropped to $1,910,624,000 after the market crash.  For 2010, resource revenues rebounded rather nicely to 2,527,799,000. Off the peak of 2008, but the second strongest on record.

 

And resource revenue sure helped the Provincial Government knock down some debt, but they got a ways to go yet.

Interesting times.

Saskatoon Average Weekly Wage Jan 2006 - March 2012

Here is the average weekly wage from Jan 2006 to March 2012.

Here is how Saskatoon and Regina compare since 2008.

Some people are wondering where I get the average weekly wage number for each city, as stats Canada does not have average weekly wages for cities.  But CMHC does here. Click on your selected city and go to about page 28 for each city.

Here is growth of the average weekly wage and average house price for Saskatoon, indexed from Jan 06.

There should be no wonder why we don't hear about a boom in wages over the last few years.  The next time you read about a story about our "booming economy" try to find a sentence about a wage boom.  My uneducated guess says you won't.

RBC Affordability Report May 2012

RBC is out with their affordability report for May 2012

Here is their take on Saskatchewan

Saskatchewan —Affordability improves; resales surge
Saskatchewan was the only provincial market showing an across-the-board improvement in housing affordability in the first quarter. Minimal price increases or even declines (in the case of two-storey homes) in the first threemonth period helped lower the costs of homeownership for all housing segments in the province. The RBC measures fell between 0.2 and 2.0 percentage points, thereby representing, for the most part, the third-consecutive quarterly improvement. This latest easing in the measures brought affordability levels even closer to long-term averages in Saskatchewan, which implies that any undue stress being exerted on provincial homebuyers is dissipating. Very strong market activity since the fall of last year seems to corroborate this. Home resales have surged to record-high levels in the first quarter of this year in Saskatchewan. Rapid economic growth will continue to support the province’s housing market in 2012.

Saskatchewan is the 3rd least affordable province after BC and Ontario, but only slightly higher than their historic average.

Saskatoon remains one of the most unaffordable cities in Canada when measuring monthly payments (not by much though) but it's down considerably from the highs of 2008, mostly because of lower interest rates.

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A Closer Look At The Resource Boom in Western Canada

There is no doubt that when you read the business section of the newspaper, there will be something about resources.  We are told that Canada is a " resourced based country" " a petro dollar" etc.  With that said, 2 out of every 100 Canadians actually work in the resource sector.

Even though the percent of the labor force in resource employment in Canada has fallen over the years, western Canada has gained a larger percentage share, especially in Alberta, which holds almost half of all resource jobs in Canada.  The provincial share of the percent of the Canadian labor force that are employed in resources looks like this:

Alberta -48%
BC- 12%
Saskatchewan - 6%
Manitoba- 2%
Rest of Canada- 32%

There are just over 4 out of every 100 western Canadians employed in the resource sector.  The National average is 2%. ( see first graph)

Many sectors of the economy have piggybacked on the resource boom, and the housing boom is no exception as it is leading the pack in Western Canada.  Here is how housing related industries are doing right now.

Here is how average house prices look like from a few Western Canada cities since 1980.

How each housing market in Western Canada would hold up with a resource downturn remains to be seen. But consumer confidence would take a hit along with consumer spending as it is at all time highs throughout Canada.  BC yikes!

The bigger question is how would each economy hold up with a resource downturn, especially when resource employment, housing related employment and consumer spending are at or near all time highs.  A resource downturn would negatively affect all sectors which have piggybacked on the resource boom.  With record debt, many households are vulnerable.

Why It Could Make Sense To Buy A House Even If Prices Fall 20%

While I have often warned about highly leveraged buyers who could be in trouble down the road, there are scenarios in which buying a home right now is not exactly a terrible idea.  If one has a significant down payment, is saving for retirement and/or a rainy day, is in a stable job, not planning to move for quite some time, can stomach a loss in real estate and if rent and mortgage payments are close, then it can be in some circumstances, not a bad time to buy.

I have had some ads emailed to me from kijiji where some people are paying $1400 to $1600 and more just to rent for a house!  To me this means not only are we in housing bubble but a rent bubble.  While house prices are financed by credit, rents are financed by wages and the increase in rents are not a reflection of the increase in wages over the last few years.  What has happened is that recent speculators or landlords have bought at crazy heights and must charge astronomical prices for rent to make ends meet.  But they have lucked out as housing demand is tight and so poor renters are forced to pay what these landlords are charging.  Eventually, the rental market will correct, timing it though is tough to figure out.  With that all said, it seems rents are a mortgage payment are not that far apart.  More on this in a bit.

The argument I hear is that maybe house prices fall down a bit here in Saskatoon, but with mortgage rates being so low, any negative equity that does happen will not be for long. So of course I graphed this scenario.  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.

Here I am suggesting in this example the value of this house would lose 20% in 5 years and stagnate for a decade.  Does not look so bad, does it?  Negative equity would only happen for a small period of time.  But this does not take into account that the monthly economic  maintenance cost of a house is near $300 to $400 a month, property taxes of $300 a month, home insurance of $60 a month, and mortgage and disability insurance ( non-smokers, smokers add more) of $90 a month. So even though rent at $1600 and a mortgage payment of $1800 are nearly the same, the associated costs of a mortgage compared to renting are quite a bit higher. Ownership cost is near 50% higher. And this is factoring in that interest rates stay 3.5% for 15 years.

On the other hand, the benefits of paying over 50% more for a mortgage compared to rent of a house might be worth it to many people.  But there a few households that are first time or young buyers who can shell out $2500 a month or more just for an average house AND can save for retirement, AND pay for kids activities, AND save some for kids schooling, AND save for vacations, AND not be house poor.  But if you can do all that, can potentially stomach a loss in real estate values and look at a house as a place to live in, not as an investment, then maybe the premium of home ownership can make sense.

Canadian Cities House Prices and House Price To Income

Here are average house prices for select cities across Canada since 1980.

And if we adjust for inflation since 1980

we see that many cities took decades to recover from the 80's bust ( ahem Prairie cities).  When we index the numbers it all comes out quite clear.

Moving on...
Here is how average house prices have climbed in Eastern and Central Canada since 1990.

And if we adjust for inflation since 1990

we see that many cities took a beating when we adjust for inflation.  And if we take a quick peak at the National average ( adjusted for inflation) it looks like a "soft landing" from 1990 to 2000 but in reality it was the lowering of interest rates as to what cushioned the Canadian real estate market when it came in for a "soft landing" during the 90's.

There won't be a lowering of interest rates for a "soft landing" this time.  Where is the Bank of Canada gonna go this time? Negative interest rates?


House Price To Income
Here is the house price to income for select cities across Canada since 1990 to 2009.

When I get numbers for 2010 and 2011 I will put them up.  But I can almost guarantee that every city except Edmonton have higher price to income ratios now than in 2009.  Vancouver is in absolute bizarro land, the rest of Canada is not too far behind.

2 Years Later Pleasant Hill Housing Lacks Buyers

From the Star Phoenix "Pleasant Hill housing lacks buyers"

The City of Saskatoon will offer a 10 per cent grant to try to sell townhouse units in Pleasant Hill that have failed to move since hitting the market in 2010.
Three years ago, the city agreed to purchase any units not sold by two developers - the Affordable New Home Development Foundation and Cenith Developments Inc. - after the units were on the market for six months. The guarantee was offered to attract home builders to the project.
The Affordable New Home Development Foundation built a 24-unit townhouse complex called Parkview Green on 19th Street West while Cenith built a 12-unit townhouse complex on Avenue N South. The units, which are in the Pleasant Hill Village revitalization project surrounding the new St. Mary school project, range from $190,000 to $240,000.
Eighteen of the 36 units were purchased by non-profit housing corporations Quint Development Corp. and Cress Housing. The city was forced in late 2010 to purchase 18 units at a fixed price.
Only four of those units have sold, leaving 14 townhouses still on the market with a total value of $2.7 million. That leaves $270,000 in potential grant money that will be doled out by the city to purchasers. The money will be funded through a city land sales reserve.
The city will offer a 10 per cent "equity grant" for any family purchasing the homes to own and live in. The grant can be used to fund a down payment.
Construction in the area has hurt sales and other developers are offering incentives for similar projects in new neighbourhoods, a city report said.
"When offered a choice, many prospective purchasers would prefer to live in a newer neighbourhood, which is not undergoing redevelopment," the report said.
The completion of St. Mary school and a Knights of Columbus seniors complex on 20th Street should help spur sales, said Alan Wallace, the city's planning and development manager.
"Sales have been slower than expected," he said.
The incentive program is meant to bring more home ownership to Pleasant Hill. The homes purchased by Quint and Cress remain rentals.
The city considered a number of options to sell the homes, including a rent-to-own program and an offer to purchase for below market value from Habitat for Humanity, but wants to absorb as small of a loss as possible, a city report said.
Council will also consider offering a property tax abatement on the homes, which would be phased out incrementally over five years.

These units range from 190k to 240k, but in 2006 the median household income for this area was 26k and the average house price back then was just under 60k.  Pleasant Hill had a 25% home ownership rate.   Is there any surprise on why these units are not selling going into the third year.  And this is at a time when the city is booming.

Mortgage brokers warn about new refinancing rules

This is very, very significant and the tighter mortgage rules could quite possibly hamper credit growth more than previous rule changes.

From the Globe and Mail "Mortgage brokers warn about new refinancing rules"

Canada’s mortgage brokers are warning the banking regulator that its proposed mortgage underwriting rules could result in people losing their homes.
The brokers are concerned about a number of the potential rules, but the one that worries them most outlines what banks would have to do when a consumer wants to renew or refinance their mortgage.
The proposed rules suggest that banks recheck areas such as employment status, current income and the current value of the home for renewals and refinancings.
“This would be a significant, significant change,” Jim Murphy, the head of the Canadian Association of Accredited Mortgage Professionals (CAAMP).
Currently, when mortgages come up for renewal, banks tend to focus on the borrower’s payment history. They rarely appraise the property again and not all banks will check the borrower’s updated income level, Mr. Murphy said.
“CAAMP strongly recommends that this concept be clarified so that mortgages continue to be renewed at maturity without requalification,” the industry association said in a submission to the Office of the Superintendent of Financial Institutions (OSFI).
“If not, homeowners who have been in compliance may no longer qualify. This would result in a number of properties hitting the market at the same time and thereby driving down prices.”
Such a phenomenon could add further fuel to a real estate downturn if lower house prices and higher unemployment caused more people to lose their homes upon renewal, Mr. Murphy suggested.
Household debt driven by mortgage credit expansion is the main threat to the credit risk profiles of Canadian financial institutions, Fitch Ratings said in a report Monday.
OSFI unveiled the proposed new rules in March, and requested submissions from the industry. Rod Giles, a spokesman for the banking regulator, said it has received a significant number of submissions from trade associations, lenders, insurers and the brokers as well as private citizens.
OSFI is still reviewing them, but hopes to release final rules by the end of June, along with a summary of the submissions and the reasons for its decisions.
It released the potential rules after the Financial Stability Board, a global financial oversight body, called on all regulators to ensure mortgage lenders were adhering to certain underwriting principles.
But, with Ottawa seeking to prevent a runup in Canadian house prices from leading to a crash, Canada’s proposed guidelines go a bit further.
OSFI has signalled it wants banks to limit home equity lines of credit to 65 per cent of a property’s value.
“Many borrowers use HELOCs to invest in capital markets or even for their own business purposes,” CAAMP says in its submission. “In this way, many Canadians are using their HELOCs for retirement and job creation – a positive goal which the government is trying to encourage.”
Canada's six biggest banks held $912-billion worth of exposure to the residential mortgage market at the end of January, according to figures compiled by Fitch. That included $730-billion of mortgages and $182-billion of home equity lines of credit.
The mortgage brokers would like to see people with good credit and income be able to borrow more than 65 per cent of the value of their home.
One proposed rule that the group applauds would eliminate so-called “cash back” mortgages, which essentially allow a consumer to borrow their down payment from the bank.
In 2008, Finance Minister Jim Flaherty changed the rules so that consumers had to put at least 5 per cent down (after a period of time during which Ottawa had allowed mortgages with a zero down payment). However, Ottawa left the door open for consumers to borrow that 5 per cent. The big banks subsequently came out with products in which they will lend a mortgage and give the borrower an amount equal to 5 per cent of the value up front (at a steeper rate).
“Borrowers should have ‘skin in the game,’ ” CAAMP said in its submission.

Average Canadian House Price and Weekly Wage Since 1990

Here is how the average house price in Canada has looked like since 1980.

Because I only have weekly wage growth back to 1990, I can only chart back that to 1990.  Here is how growth in the average weekly wage and the average house price in Canada has looked like since 1990.

As we can see in the above two graphs, house prices followed wages from 1990 until 2001 and then well, we know the rest of the story.  Wages across Canada have barely beat inflation over the last 22 years, but house prices have done rather well as Canadians have piled on the debt.

A huge warning sign of a debt induced bubble

The average house price in Canada has increased from around $300,000 in the second quarter of 2007 to over $360,000 at the end of 2011.

But home equity has decreased in that time period.

Which means that increasing home values have given Canadians the illusion that they are wealthier. They have been... on paper...for the time being. Simply put, Canadians have been borrowing faster than the increase in their homes value.  A sure sign of a debt induced bubble.

Eastern Canadian House Prices, Nominal, Real and Indexed From 1990

Just putting these out so people have an idea how house prices have moved across the country.  It's different everywhere.

Do real estate prices always go up?

You have heard that before right?, or maybe the statement"over the long term real estate will go up." 

At first glance of this graph, it looks like real estate always goes up.  Except for the blip in 2008, real estate is a great investment over the long term, right?

But those prices are in nominal terms and do not account for inflation.  Here is how inflation adjusted house prices look like since 1980 using 1980 dollars.

If a house was bought at the peak in 1980, house price gains when adjusting for inflation do not come back for air for over 20 years.

Here are a few other cities and the national average since 1980 in inflation adjusted terms.

Here is a list of some cities and the loss of real home prices in the early 80's, early 90's and late 2000's.

Vancouver tops the lost with a 44.4% loss in the early 80s, while Calgary comes in 2nd with a 40.9% loss and Edmonton clocks in at 32.9%.  Toronto lost 32.4% in the early 90's. 

If one were to have bought a house in Saskatoon in 1981, house prices made less than inflation all the way until about 1992.  So in over a decade, house prices did not go up.  But if one were to have bought in the mid 90's, yeah, house prices have gone up.  So answering the question "does real estate always go up"? is tricky because it really is time and location specific.

Saskatchewan house prices and wages since 1990

Here is the average weekly wage in Saskatchewan since 1990.

Here is the average weekly wage and house price in Saskatchewan  indexed from 1990.

Here is how it all looks when we adjust for inflation and index the growth from 1990.

No doubt there has been a boom in house prices, but wages have barely outpaced inflation over the last 22 years.  Anybody else still waiting for a wage boom?

CIBC: No debate about the fact that the housing market is overshooting.

In a research note today CIBC mentions that

"There is no debate about the fact that the housing market is overshooting. The only question is what will be the nature of the adjustment. It appears that we are at a turning point in the real estate market. Recent signals from the market suggest that activity is slowing down. We continue to call for a gradual softening in the market, with
prices potentially falling by around 10% in the coming year or two."

But some good news; consumer credit growth is now actually slower than the Americans.

The bad news is that Canadian consumer credit outpaced the US for almost 10 years by quite a bit.  It could be a nasty hangover once the credit party ( consumer and mortgage credit) ends.

CMHC Mortgage Insurance In Force Hits $567 Billion

CMHC's annual report for 2011 is out.  You can find it here.  We find that mortgage insurance in force hit $567 billion at the end of 2011.  Remember that the cap is $600 billion. 

Canadian House Prices From 1980, Indexed and Inflation Adjusted

The following 4 graphs have Vancouver, Calgary, Edmonton, Saskatoon, Toronto, Ottawa and National average house prices from 1980 to 2011.  I also have many Central and Eastern Cities from 1990 and I will chart them in a post in the next few days.  Here we go.

Here is the average house price in nominal dollars.

 

Here is the average house price indexed from 1980 in nominal dollars.

 Here is the average house price adjusted for inflation in 1980 dollars.

Here is the average house price adjusted for inflation in 1980 dollars and indexed to 1980.

and of course here is the same graph with some quotes I made and clearly show previous housing bubbles in Canada.

I also have Winnipeg, Kitchener, Hamilton, Oshawa, Montreal and Halifax from 1990 onward.  I will graph them later this week.  Just a heads up, Toronto was not the only city in Ontario to suffer from a housing bubble in the 90's.