Entries from March 2015 ↓

Revolting realtors

EASY POOL modified

Derek and Sherry sold their townhouse in the burbs of Toronto for $680,000 and bought a renovated semi in 416 for $925,000. The land transfer tax added $29,200 to the purchase price. “That sure hurt,” Derek says. “I wish somebody had told us.” But what hurt more was the $34,000 they paid in commission (5%) to sell.

Between the two, more than $63,000 was spent with nothing to show. “Worse,” adds Derek, “was the thought that the people we bought from paid another $47,000 in commission, which they probably added to the sale price. So did we just get screwed out of $110,000?”

Maybe. And now they can look forward to years of escalating property taxes and rising mortgage rates.

But let’s talk just about realtors for a moment. There are about 110,000 in the country, of which almost 40,000 roam the streets of the GTA alone. This is double the number of a decade ago, making it (hands down) the fastest growing job category in Canada. But what else would you expect in a country where manufacturing has shrunk, we’re running a giant trade deficit, people think debt is wealth and a quarter of the economy is based on house lust?

It’s estimated Canadians have handed over $47.9 billion in realtor commissions in the past decade of this boom, with $12 billion of that in the GTA alone. But let’s also remember that most realtors are one commission cheque away from failure. It’s believed that between 75% and 80% of all commissions go to just two in ten agents. They’re the Audi-driving realty rock stars. The rest worry about their monthly desk rent.

Still, as this boom continues (albeit in only two major cities now), with prices romping as the Bank of Canada cuts, the whole real estate industry’s in a titanic struggle with itself. It’s hard to imagine realtors won’t inevitably go the way of travel agents, thousands of whom have been replaced by a single, sexy Trivago guy.

As I told you a few weeks ago, the Toronto Real Estate Board (the continent’s largest such cartel) will be in court in a few weeks, trying to defend the indefensible. The feds’ Competition Bureau is pushing ahead with a case that could forever alter the real estate landscape, forcing TREB to make market data available to those who think consumers should have it.

Realtor rules currently say a potential buyer can be told the sales history of a property (previous selling prices, price changes, days-on-market etc.) only when he or she is the actual client of an agent. A broker can’t just publish recent or past selling prices on his web site, the way Americans do. (In fact, Zillow or Trulia tell you the values of all homes on a street, a multi-year history of every listing, annual property taxes, average prices by Zip code or neighbourhood and even provide suggested ‘proper’ market prices of subject properties.)

Brokers who try it (and several have) get whacked. The cartel sent a letter to members last month (we quoted it) saying if they sinned, their feed to all MLS data would be severed. As a result, several – like Zoocasa and Toronto Homes Sold – caved. This will all change if TREB loses its legal case, but in the meantime evolution happens.

For example, brokerage TheRedPin has cooked up a plan that could save homeowners half of the commission they now pay. If a seller lists their home with these online guys and at the same time engages them to buy a new one, half of the listing commission will be rebated upon closing. Interesting, but awkward. Most people either buy before selling (“Jimmy, where will we live if we sell and can’t find another house…?”) or do the opposite (“But Shelly, if we buy and can’t sell and have to carry two houses, we’re screwed…”).

Meanwhile the people behind the Toronto Real Estate Sold Report are going one better – online listings with commission-less sales. Well, technically you’re supposed to pay what you want to. But, you know…

“Today we are officially launching a one-of-a-kind brokerage service … the Pay-What-You-Want MLS® listing. Our Feeless MLS® Listing is a solution for you to list, promote and manage the sale of your property at a cost determined by you. While other real estate brokerages contract for substantial percentage fees, our mission is to empower our clients to realize more — both figuratively and literally. The price you pay for our MLS® listing, marketing and agency services is completely up to you.”

See what I mean? It’s an industry with serious issues. In a digital world where you know everything about Kim Kardashian’s rump, whole organizations are trying to blind you to data surrounding the biggest purchase of a lifetime. Why? So agents retain relevance and power, then lay claim to 5% of your asset’s value.

Now, I’ve argued in the past that all buyers should have an agent assisting them (but don’t sign a BRA – ever). I’ve also said FSBOs are mostly greedy sellers who don’t want to pay commission, but still price their properties as if they were. All this is still true. Your chances of getting laundered are high. Plus, sellers without an agent usually settle for a lower sale price. The savings are nebulous, at best.

In short, there’s a role for realtors, other than making politicians, lawyers and CRA auditors feel loved. But without deep reform, most are doomed. Stop smiling.

We’re here.

SURPRISE modified

Buy America, sell Canada. If you’re one of the unfortunate losers addicted to this pathetic blog, you surely remember that. It was the advice here two years ago (repeated often since) when it became apparent the US was on the path to riches, and we were on the road to horniness.

So, we’ve arrived.

We now know this: American interest rates will be swelling, probably in June, because the States differs from me and no longer requires continuous stimulation. The jobs report on Friday nailed it. Almost 300,000 new positions created last month, the 14th month of massive gains, taking the jobless rate down to 5.5%. That’s considered about normal. So the American central bank can start trashing those emergency interest rates in place for the last six years.

The news also spiked the US dollar, diving ours down to 79 cents and cratering gold by thirty bucks. In fact, Canada looks anemic. The latest trade numbers were the second-worst ever, showing a massive deficit as imports swamped exports. Oil revenues alone were off 23%, and with crude back below fifty bucks, this won’t get better soon.

This is a problem. A dithering economy here with people borrowing their buns off to buy million-dollar houses means it’s tough for the Bank of Canada to unhook us from cheap mortgages, or our own stupidity. But as the States powers ahead, with a surging currency and a rate increase, without higher Canadian rates a 79-cent dollar will soon turn into 75. Up goes the price of imports, sandwiching indebted families.

It gets worse, which is why you love reading this blog. RBC now says idiot Canadians took on $80 billion worth of new debt in the past year alone. Guess when most of it appeared? You bet. In the period since the Bank of Canada dropped its key rate in January. This is what I meant yesterday about the perfect negative correlation between rates and house prices.

In fact the bank said as much: “We saw mortgage rates fall in the month (January) to the lowest they’ve been in 10 years. So that may be encouraging some activity to be brought forward in the market.” So while Americans have been creating jobs, we’ve been busy creating debits. Household debt exploded 4.6% in January alone. People owe $1.82 trillion, which is more than the entire economy of Canada generates. Mortgage debt bloated almost 5.5% year/year in the same month as the bank rate fell. Mortgages alone total $1.3 trillion.

Now recall what we were yakking about here yesterday. The subprime mortgage business in Canada is exploding (25% growth in a year) as people borrow second mortgages in the 12% range just so they can raise the 20% downpayment needed to buy $1-million-plus homes with $800,000 mortgages at 3%.

Does any of this sound remotely sustainable to you?

Job creation in Canada has been weak. Even January’s stronger number saw full-time jobs shrink, part-time positions swell and more people become ‘self-employed’. The 20,000 retail jobs erased at the end of 2014 have yet to show up in the stats, along with an even greater batch in the oil patch. When they do, the loonie will likely sink a little further. It’s this labour news that’s got housing consultant and ex-realtor Ross Kay’s shorts in a twist. He’s now making this prediction for Cowtown: “Calgary will see sales plummet, shocking all analysts who thought a 35% drop was all that was coming.”

Speaking of the energy capital of the country, Greg works downtown, and Friday morning had this report as he snapped the picture below: “This parkade was always full by 7am, even a few weeks ago.   This morning at 8:15 it had 204 spots empty.  Traffic seems lighter in general.”

PARKADE modified

Of course, YVR and the GTA are not Calgary. But I sure hope nobody in either of the two remaining bubbly burgs feels immune from what’s around the corner. The advent of average million-dollar homes in both cities just underscores what cheap rates and house lust will do to a previously perfectly-fine economy.

Our household savings rate, once above 19%, has plunged to the 3% range. RRSP contributions this year are believed to have dropped by more than half. Our debt-to-income ratio has risen faster than in any country other than bankrupt Greece. Four people in ten live paycheque-to-paycheque and half of us could not get by if we missed only one of them. Family debt levels are higher here now than they were in the US before the housing crash.

America got stupid, got whacked and seven years later has repaired.

What stage are we at? Any guesses?