Whitehorse house prices: a one way bet?

In the old days, Sourdoughs celebrated the coming of spring by betting on when breakup would sweep the ice off the rivers.

In the old days, Sourdoughs celebrated the coming of spring by betting on when breakup would sweep the ice off the rivers. Modern-day Yukoners seem more interested in ploughing their cash into the housing market, which shows a remarkable surge in volumes in springtime according to the Yukon bureau of statistics.

Anecdotal reports reaching Yukonomist from Riverdale, for example, suggest prices are buoyant. No signs of the California housing bust here. People who laughed at their friends for paying $100,000 for an old government “one and a half” house in the 1990s are now punching holes in their drywall in frustration.

Since 2003, investing in a Whitehorse house has turned out to be a much smarter investment than most of the things the brain trust on Wall Street would have suggested you get into. The average house price in late 2003 was $170,900. The most recent data for the fourth quarter of 2009 had that same ‘average house’ going for $324,800.

That’s an increase of 90 per cent, not bad when inflation over the period was just 12.8 per cent. It looks especially good compared to the people who invested back in 2003 in Nortel (down 100 per cent since then), Bear Stearns (down 100 per cent) or asset-backed commercial paper (frozen solid). Whitehorse houses beat the Toronto stock exchange index handily over the period, and didn’t expose you to any near-death investing experiences like stock investors suffered during the financial crisis.

But the fine print on your mutual funds will tell you that past performance is no guarantee of future performance (even if your realtor might not mention it).

So will Whitehorse house prices keep rising? That’s tough to predict. People who thought house prices were unreasonably high in 2007 have seen them continue to climb, and missed an opportunity. As the old joke goes, the market can be irrational longer than you can afford to short it.

But boosters should remember it’s mathematically impossible for house prices to rise more than 10 per cent per year forever.

One way to think about it is to ask the question, “What would I have to believe in order to be confident that house prices would keep going up strongly?”

Which brings up supply and demand. On the supply side, the city plans to hold lotteries for lots in the big new Whistlebend subdivision in late 2012, with more lots coming into the market in late 2013. To be bullish on houses in other parts of Whitehorse, you have to believe that this development will be late, or that 295 lots is not a big enough number to depress house prices in other parts of town. Or that the house you are buying has a unique location or other characteristic that makes competition from new Whistlebend houses irrelevant.

On the demand side, you have to believe that either more people will be moving to Whitehorse or that current residents will be awash in cash and keen to move up the property ladder. The latter seems improbable, since about 44 per cent of Yukon workers are employed by the government. The salaries and pensions may be generous compared to lots of private-sector jobs, but they don’t rise quickly. And we don’t have too many bankers or software tycoons.

So the big question is whether there will be another influx of homebuyers.

From March 2004 until employment peaked in the Yukon around August 2009, the number of government officials in the Yukon went up about 1,000 or 15 per cent. That’s a lot of homebuyers. Plus, the number of private sector workers went up about 400 during the same time. These numbers put the scale of Whistlebend in perspective.

A thousand new government workers clearly had a big impact on demand for housing, and played a key role in price rises over the last few years.

But will government keep growing at such a pace? Or will mining or the pipeline spur enough economic activity to bring similar numbers of workers here over the next few years?

Time will tell. But if you are investing in Whitehorse real estate, you are implicitly answering “yes” to one of those questions.

Keith Halliday is a Yukon economist and author of the Aurore of the Yukon series of historical children’s

adventure novels.

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