You may remember when this pathetic, but oddly addictive blog broke the story of phantom house listings. That’s the neat trick realtors have of taking one house and listing it two or three times, with differing MLS numbers, on several real estate boards.
Why would they do this? Mostly for wider exposure. So a townhouse in sexy, hip Milton also pops up on the Toronto system, where the sexy, hip people actually are. The trouble is, when that house sells, it can get counted as two or three sales – once by each board. The boards then ship their stats off to the mothership, where CREA aggregates them and tells an expectant nation’s media what the housing market is doing.
So, it’s basically fraud. (Imagine if trading volumes on the stock exchange were manipulated.) Sales numbers have probably been inflated for a long, long time, but it took one peed-off ex-realtor to change that (& one pathetic blog). After Ross Kay told me and I told you, the story was picked up by the MSM and then CREA reacted. I reported all this to you.
In fact, the realtors’ most credible guy, economist Gregory Klump, was sent into battle to belittle Kay, but at the same time confirmed in a rebuttal newspaper column that the practice exists. However it’s a piffle, he argued, affecting overall numbers by a mere 0.8%.
This week we may have learned differently.
CREA’s latest media release, run pretty much verbatim by all the crack, truth-seeking reporters, indicated that sales last month across the country were 37,995 and so far this year (to the end of September) 340,980 houses have changed hands. Okay, we get it. But CREA’s news release from a month ago – before the phantom listings story broke – said “Some 325,180 homes have traded hands across the country so far this year.” That was to the end of August.
The trouble is the year-to-date number for September (340,890) minus the year-to-date stat for a month earlier (325,180) is 15,710, not the reported sales of 37,995. So where did the other twenty-two thousand sales go? Did Canadians really buy almost 38,000 houses last month, or was it less than half that number? What the heck is CREA doing?
Kay says he knows. “They have secretly and quietly revised their numbers down to reflect the fact that they got caught with their pants down on the multiple listings,” he says. And it sure looks that way. Kay estimated that actual home sales across Canada to the end of August were 22,622 fewer than CREA was reporting and… voilà kiddies… we now have a 22,285 mystery adjustment.
By the way, this is not the 0.8% pimple that Gregory Klump suggests phantom listings were pumping national numbers up by. It’s actually 6.5%. But what’s a mere 712% error to an outfit that invented the Frankenumber?
So, CREA now joins the Toronto Real Estate Board, which secretly adjusts its monthly sales numbers on a routine basis, almost always to inflate current sales. And, of course, there are suspect numbers coming out of others boards like Calgary, Kay says, where private sales have been added into the stats, then compared with previous years where they were excluded.
“They continue to pontificate numbers to consumers which are simply not accurate,” Kay says, “and based on that, people go and buy houses, thinking the market’s hot. The only reason prices have been rising is that inventory is falling faster than declining demand – this is a false market being manufactured by CREA, which is the only source of real estate information to Canadians.”
And he’s right about that. The realtors own MLS, control the data and have no government-appointed regulatory body verifying the information. Revisions can go completely undetected, especially in a country where reporters are too lazy to compare one month’s reporting with the month that went before. So when CREA states (as it did this week) that sales jumped 18% nationally last month, the news itself is a market-mover.
Let’s remember that the giant 1% leap in mortgage rates earlier this year has an army of pre-approved buyers out there desperate to lock up a real estate deal before their cheapo mortgage commitments expire. That means a significant amount of demand is being drawn forward, which has been a big determinant of higher sales in places like delusional central Vancouver and the piteous streets of Leslieville.
Economist Klump may be hoping nobody notices, but David Madani, of Capital Economics, is on the job: “Home sales are getting pulled forward at the expense of later this year and next, as potential homebuyers jump into the market before mortgage rates rise any further,” he told the Toronto Star (imagine that). “Accordingly, we expect home sales to flop in the not-so-distant future, which will once again apply downward pressure on house prices.”
Now, you might not think that realtors diddling numbers is much of a story. But you’d be wrong. If BMO lied about the daily values of its mutual funds, regulators would punch its little blue lights out. Rightly so. Without truth and trust, there is no functioning market.
“I can’t believe consumers are being abandoned like this,” says Kay. “They are being left to the wolves.”