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January 26, 2018 | Grossed

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

There are about 120,000 realtors in Canada, a third of them in the GTA and 22,000 in BC. Selling, financing, insuring, staging and appraising houses has become a huge business over the past decade. Since the credit crisis it’s emerged as one of our fastest-growing industries, which is interesting because it produces nothing. (The house-building and renovation sectors, where people get dirty and do stuff, are not included here.)

The other day this blog referenced a report claiming 3% of the entire national economy is now made up of house buying/selling fees and commissions. It’s a scary number, especially when you compare it to the US (less than 0.5% of their GDP).

Old Ron the Realtor thinks I’m full of it. Here’s his argument:

“I have been thinking about the estimates of residential real estate fees as a percentage of the overall national GDP, and the 3% figure I have read seems high. TREB trading area which is roughly the same as the GTA has the following numbers.

“Residential Sales: 92,400 (2017); Average price : $822,681 (2017); Gross Sales about $76 Billion (2017)

“Commish estimate 4% per sale. (I know everyone says its 5%, but I would guess that the commish is discounted in 3 out of 5 sales. Sometimes considerably.) This means $76 Billion in gross sales x 4% or $3.04 Billion in commission.

“The area’s GDP is estimated at $304 Billion, so residential real estate sales commish is about 1% of the total GDP. Further prices and sales volume would be less in most of the rest of the country which would tend to diminish the Commish-to-GDP ratio. Now if you want to include commercial real estate, legal fees, mortgage fees, and all of the ancillary business that real estate spawns then the impact on GDP clearly would be greater. “

And that’s the point. Real estate brokerage fees and other transfer costs in Canada, say Macquarrie economists, now eclipse levels experience in the US just before that real estate market imploded. (So does our household debt, for that matter.) Commission is a big part of it, but not all of it. If the country experiences a wide-spread real estate correction, employment could be seriously affected.

But why are so few houses for sale?

It’s getting extreme in Vancouver, and now even in the GTA. At the moment about 10,000 properties (of all kinds) are listed in a region of six million people, which is less than a two-month supply. Granted, this is explosively greater than a year ago when only half that many active listings were available to choose from, but lately a large number of them have been withdrawn or allowed to expire.

Buyers in 416 complain there’s nothing to view, especially in traditional demand areas. The market seems to be seizing up – lousy sales, reduced inventory, no pre-spring buzz – and the stress test is getting the blame.

It’s been a while since we heard from Mr. Deep, a Vancouver realty insider, but he’s broken his silence to tell you YVR is likely pooched.

“There are basically no listings…  none – nothing is coming on the market. My theory is that this is actually the first sign of a market decline.  Why is this? The listings in January are usually those who plan large scale move up buys. They start the year by listing and then hope to have a deal by spring so they can buy and move up. Since they can’t move up because of B-20 – they can’t list and won’t list because they cannot see a path to a transaction.

“New listings are dead… so dead in fact that the inventory from December to January – which typically is one of the largest nominal percentage increases – will maybe even be down. This has never happened. So what does it mean that listings are dead. Does this mean the market is about to stop? It’s all a bit strange.

“Sales are up because B-20 caused a rush to meet the old rules. But listings? These are real – current period.  They are dead.  I have 15 years of data by month and can’t find a similar pattern ever. So – it will be interesting to see what happens. 2018 will be one of the most interesting years. Ever.”

And here’s the interesting part. Inventory of good properties falling. And in the large markets, detached houses are taking it on the chin. Only 14% of such listings are selling in Vancouver, compared to almost 60% for condos. In the GTA, the sales-to-listings ratio for single-family homes has collapsed by half, and the market overall has gone from favouring sellers to smiling upon buyers.

As stated, it will take six months of data to confirm that rising rates, falling credit and insanely incompetent politicians have taken their toll. But by then, it may be too late.

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January 26th, 2018

Posted In: The Greater Fool

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