Entries from October 2013 ↓

Recyled virgins

BRA

When Kevin was cruising condo porn on Zoocasa yesterday, he came across something which looked oddly familiar. A two-bed, three-bath, one-parking job in the hipster Element building in DT Toronto. The site indicated the $489,000 listing had been added 29 days earlier, but Kevin knew otherwise.

In fact, he’d viewed the same condo for sale on the same site back in June, when it has been posted ‘about one month ago.’ But then it had a different MLS number and a different price – $500,000.

“I’m sure you already have a ton of these examples but just wanted to highlight some screen shots where properties are listed (and then re-listed again) – to avoid them becoming stale,” he tells me. “As a potential buyer, I think this is pretty critical information as it shows that the current owner is probably under some stress given his days on market is already well north of 90 (at least). At any rate, I’m just annoyed at how MLS/zoocasa never provides full disclosure on any of the properties – as when the property eventually sells… it will have a DOM of something much, much lower.”

Welcome to the murky, scary world of real estate stats, where realtors and their cartels work hard at misinforming and deceiving consumers. As you may have noticed this week, housing data-pooping is big news. The MSM has finally discovered that organized real estate routinely massages numbers to create the impression of eternally rising markets. Tools include allowing double of tripling listings of the same house on multiple boards, counting private sales in with ones realtors handle, quietly revising year-old stats so the new ones look better and deliberately masking price trends with the ingenious HPI Frankenumber.

But perhaps there’s no deceit more irritating to people like Kevin than taking tired old dog listings and pretending they’re pups. In places like Toronto and (to a lesser degree) Vancouver, it’s common practice. Some realtors rebrand their listings every thirty days, just so they’ll show up in a ‘recent’ search on the MLS site. Others create a fresh listing with every price reduction, getting a shiny new MLS number and bringing it out as a recycled virgin.

Why does this matter?

First, buyers are prevented from knowing the number of days a property’s been sitting around. This is worthy information if you’re searching for motivated sellers, or like the look of a place but don’t know about the toxic, killer mold that was recently covered with swimming pool paint in the furnace room. Listings with long DOMs always have a story behind him – priced too high, or flaws that repelled other potential buyers. But when every listing is New! it’s a blatant attempt to withhold relevant information.

Second, the stats that local real estate cartels collect never take into consideration previous listings. Take suite 303 in the building below (Merton Street, in mid-town Toronto), for example:

MERTON

The two-bedroom, 1,200-foot condo was originally listed for $649,000, where it languished for four long months. Then the agents, Sue Lee and Ron Chicora, relisted it at a more reasonable price – $575,000 – and the market responded. It sold two weeks later for $572,000.

How was the sale reported? Not as fetching only 88% of the asking price after 141 tortuous days on the market, but as a hot commodity that went for 99.5% of the asking price in a scant 17 days.

Now, imagine if all the relistings, moldy oldies and fleabag properties which eventually found buyers were reported accurately. Suddenly we’d have a far more accurate snapshot of the direction and velocity of the market, with trendings that could help sellers find the right asking price and guide buyers frame their offers. We might also finally get meaningful data reports from real estate boards, instead of the fictionalized junk many now publish.

This week that elfin deity we know as F had a session on the housing market with a slew of economists. One conclusion that leaked out: nobody actually knows what’s going on with real estate. Not the eggheads. Not the Fster. And certainly not the consumer. There’s simply no good, credible, dependable, non-biased data available, because all current stats must first be laundered by the industry itself.

This also opens up the issue of foreign ownership and the influence on prices of all those horny Mainland Chinese with their suitcases of money from Guangdong. Are they really forcing good little beavers out of their ponds, or is this a yellow peril thing used by realtors to scare us into buying? If the cartels can spend unlimited amounts of money creating elaborate, obfuscating indices, surely they can tabulate simple citizenship. Or the number of speculators. Or cough up accurate data on sales trends.

Days ago Goldman Sachs in New York looked north in dismay. Canada, it said, is careening towards a sharp fall in housing prices.

I expect the last place you’ll ever hear about it, is here.

(Speaking of phantom listings… Alex in Sudbury sends this along. Same house, two listings, two prices.)

phantom

Hit & run

stop

Betty is distraught. As I sat to write this post she messaged me from Surrey.

“My parents are putting in another offer tonight in less than 4hrs and please help me convince them NOT to buy! If you could not reply in time, I would really, greatly appreciate if you could reply (in simple language, as my parent’s english is not that good) so I can talk and convince them to STOP buying ……… now I just pray my father won’t submit another offer tonight….”

Here’s the story: they live in a suburban Van condo, falling in value (of course). “Scared by how the condo has gone down,” says Betty, “they are convinced a house is the way to invest and not lose value like our condo has (total face palm).” So they plan to bail from that place, and have offered on a 2,500-foot, two-storey suburban 1980s special north of the Fraser Highway. List price: $648,000. Hours ago the seller signed it back with a counter of $640,000.

This house, too, is blowing up. After spending $40,000 on renovations including a new rental suite over the last year, the owner’s taking a big hit. “My parents only see this as a steal of opportunity instead of sign that housing market is coming down,” says Betty. “Their argument is that they’ll live there for 15 years, sell it and make profit or at least live there for free.”

Let’s hope so, because they’ll have no money. Total savings amount to $200,000, which goes for the downpayment. Little equity will come out of the mortgaged condo when it sells. No TFSAs or RRSPs. Combined income, $90,000. The only way they’ll carry the house is with the cash from the rental suite. What happens when they retire? No idea.

Well, Betty, when I walked into the BNN television studio on Monday I should have had your folks in mind. The issue was how realtors and their cartels massage numbers to come up with one consistent message: buy. For months this pathetic blog has yammered away about phantom, multiple listings, quietly-revised monthly stats, presales counted as resales, private sales used to plump MLS data and the greatest misleader of all, the HPI Frankenumber – designed to mask market trends, and make ya feel good.

The manipulation now seems so widespread and indefensible (CREA has admitted to multiple listings of houses), that it calls into question the accuracy of every monthly report from every board. Nobody audits these numbers. There’s no regulatory oversight. They are prepared by salaried employees of the realtor organizations themselves, where every single person has a monetary stake in putting the best face on market conditions.

Bryan knows something about this. “At one point in my career I was involved with the re-write and re-design of the National Home Price Survey that was done monthly by Royal LePage,” he wrote me, after watching the BNN clip.

“The short of it is that I agree with your assessment. The data collection methodology was sketchy at best and there was a section that relied heavily on the “opinion” of the branch manager completing the survey, dealing with future prices. The survey, especially the future price part, was used as a sales tool to pressure people into listing the property for more than it might have been worth, and was instrumental in getting multiple offers on properties.”

In Winnipeg, David Gurvey was also watching. But I think he hates me. “I am not really sure you understand the fundamentals of what moves the real estate market.  I am also not sure why you need to attack various data collectors and their reports.  In any event, I provide research and analysis for some of Western Canada’s largest apartment owners on this type of matter. Perhaps this is a service you should engage unless your points of view are simply to gain TV exposure which in that case, KUDOS to you as you do this very well.  I have always wanted to be on BNN myself.”

So what are the fundamentals moving real estate? Simple. Supply and demand.  Both are massively impacted by what people perceive the market is doing, and will do in the future. When realtor experts and the media say sales are soaring and prices are hot, buyers scramble to get in before prices rise while sellers ask for top dollar. When the experts proclaim prices are taking a break, creating a buyer’s market and unbridled opportunity, Betty’s poor parents forget their losses and reach for new ones.

Because in the realtors’ world, it’s always an ace time to buy. And they have stats to prove it!

Betty, your close-to-retirement parents should not be erasing their precious savings while taking on debt they may never repay, at rates which can only rise in the years ahead. The house will bloat their monthly costs and give them a tenant to worry about. After their jobs finish what they’ll need more than anything is income, which means growing their liquid assets, especially within the TFSAs, to help provide a monthly stream of cash.

And haven’t they learned the lesson yet? Hard to believe, but real estate doesn’t always go up. It can fall just as easily – like now in Surrey and great swaths of the Lower Mainland. Their condo tanked. This house has already robbed the current owner. Why should the experience suddenly reverse? Because CREA and the Vancouver Board say sales are charging ahead?

Betty, tell them this. You’re being misled. By folks whose vested interest is to sell you an asset, then move on. There’s no responsibility for your welfare. And yet this single act has the power to decimate your financial future.

Don’t sign tonight. The house will be there tomorrow. And next month, too. Owned by a guy who once thought as you, and now desperately seeks a greater fool.