A while back we started a discussion about how the Real Estate market in Canada is what many consider to be ‘flat’ at this time; meaning that property values were no longer increasing, but also not losing value. This is particularly true for detached homes, and whether this cooling of the market suggests a further downturn remains to be seen. Many experts think that there’s enough of a likelihood of that to suggest that now is the time to sell investment properties because there may well be a significant value dip on the horizon.

Of course, real estate professionals from coast to coast will be keeping a keen eye on these proceedings, as swings in the market have a traceable line to their real estate business and the effects can often change the way a realtor has to apply their efforts in marketing clients homes and identifying client leads themselves. Here at Real Estate Leads, our online real estate lead generation system is a great way to keep the results you have from your prospecting fairly steady, and even in times of downturns in the market.

It seems a good number of leverage wealth experts are saying real estate investors in Toronto and Vancouver should sell now, coming from the age-old perspective that people should buy at high cap rate and sell at low cap rate. Looking at comparative asset classes and at risk-adjusted rates of return, rates on Toronto real estate are running as low as 2-3%. This means that if there’s inherent risk to the principal and many additional considerations then the vast majority of high-yield money market instruments or low-yield bonds have much less in the way of market risk.

Investors enjoyed an aberration in Toronto last year, and that’s hard to dispute. Appreciation climbing upwards of 30% in a single year is not sustainable. It’s not to be ignored however.

There is a belief when looking at this that the market is sliding towards a general upheaval, and the while it’s ever more likely the only thing we don’t know is how severe it’s going to be.

They suggest to start looking at high-end real estate and the vast majority of real estate investments, and if you do you’ll see that the actual yields on these—taking into account average rent based around the underlying value of the underlying security, the ‘gross cap’ as it’s called—are so low that the vast majority of people are actually working within the parameters of speculation real estate investing. If they are to consider maintenance fees, property taxes, default, the incremental risk of mortgage debt, it’s not a sound investment move.

Consider the yield curve as well, which has flattened out just like it has now to predict 7 of the last 9 recessions. These same individuals say that we can expect to see some form of recession as early as May 2019 based on the way the yield curve is flattening out. They insist further that investors need to come up with robust strategies if they intend to continue investing money in the Toronto and Vancouver markets.

Realtors with investor clients looking there should advise their clients to leverage wealth via strong cash flow, a balance sheet and a long-term investment horizon. Much of this is based on the fact that as values have gone up, many real estate investment clients are soon very top heavy with real estate holdings.

Sign up with Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads delivered to you exclusively and for your protected region of any city or town in Canada. It’s a dynamite way to supercharge your real estate client prospecting efforts and give you more of the opportunities to do what you do best as a realtor.

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Commission has long been the word associated with how a realtor is paid for their services, and being a ‘Fisbo’ (for sale by owner) was the only way a homeowner could avoid paying a commission on the sale of their home. Sure, there was 1% realty in select major areas of Canada, but even then you would be paying a small commission and that number would be determined based on the final sale price for the home.

That’s no longer the case, as we are very much living in an age where the trend is to create ad deliver business alternatives that ‘disrupt’ – as they put it – the long standing status quo of some facet of an industry. Now here in Canada that extends to the real estate industry as well, as an international online property powerhouse has purchased one of the world’s top web-based, commission-free real estate companies in a bid to deliver a similar shake up to the Canadian home-selling industry.

Prospective clients aren’t easy to come by for realtors these days, and our online real estate lead generation system here at Real Estate Leads is a great way to continue to prospect successfully in these more challenging times. It’s an increasingly competitive business. An exclusively commissions based business model meant that realtors pursuing ‘bigger fish’, so to speak, would be able to earn more for their efforts, but this recent development puts another notch firmly on the side of the consumer in as far as leveraging themselves in the quest to make the most out of the sale of their home.

Purplebricks has made a successful $51-million bid for Quebec-based duProprio and signs bearing their name will soon start popping up across Canada, with some major advertising campaigns to go along with them. Now it should be said that Purplebricks and its flat-fee realty service system isn’t expected to make a major disruption to the business from coast to coast, but it will be interesting to see to what extent some homebuyers migrate to it.

Do note though that since starting in 2012, Purplebricks has taken over about 5% of the British market and has since expanded to Australia, the U.S., and now here to Canada as well.

Growing Appeal

By buying DuProprio and its considerable market share, Purplebricks has bought is itself a global leader in discount real estate services. 20% of the market in Quebec is commanded by duProprio. Both Purplebricks and duProprio have their appeal in the way they allow a homeowner to avoid the 5% commission traditional brokerages charge. That is significant considering the average Canadian resale house now goes for $481,000. At that number, a homeowner would stand to save in the vicinity of $27,000.

All of this of course should be tempered by the fact that for-sale-by-owner transactions earn significantly less on the market, and many will say that this fact will pair with concerns most conscientious homeowners will have about the quality of the service. So in this sense Purplebricks will have to build up its reputability as would any business newcomer on the scene.

Getting What You’ve Paid For

It’s a fair concern, and the old adage ‘get what you pay for’ will be ringing in the heads of many who’d even consider Purplebricks. But when comparing an import sports car to a domestic hatchback, it seems many people would prefer to pay for the hatchback if the hatchback will do. And in many places in Canada where it is a seller’s market and the market itself is perennially hot then that hatchback will do because often times homes pretty much are selling themselves and often for over asking.

Purplebricks is a flat-rate, fairly-costed, full-service real estate agent and the company is focusing on marketing and driving new clients to its website. Then licensed real estate agents are sent out to provide these clients with their professional services, with everything from initial pricing to helping with purchase / sale negotiations.

The Model

Purplebricks promotes itself by saying that by taking the marketing component out of the realtor’s realm of responsibilities, it frees up some 85% of that realtor’s time for other initiatives that can be undertaken to sell the home. Purplebricks believe their company is efficient and can offer discount services because it has little office space and its agents spend their time doing what they do best; being a ‘people person’ and focusing on unique and creative ways to put buyers in touch will sellers – and vice versa.

Further, they insists that they sell houses faster, get more money for their customers than competitors, and that’s what’s made them the most positively reviewed real estate agent in the world.

The company has, however, also been accused of misleading the public with its advertising. Those allegations are nothing more than that though. Look for Comfree signs in Quebec to be among the first to be replaced by the Purplebricks brand, but they’ll be spending a lot of money expanding outside Quebec.

Discount services in the financial and insurance sectors, as well as familiar names such as iTunes, Uber and Airbnb, have all caused noteworthy ‘disruptions’ their industries and made things trickier for the traditional players, so it will be interesting to see if Purplebricks can do the same for real estate services in Canada.

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Recent data released by the Canada Mortgage and Housing Corporation confirms what has been said by most in-the-know about real estate in Canada – there were fewer new home buyers last year. Accordingly, similar numbers showed mortgages to new owners declined significantly as well. While the huge decline was indeed noteworthy, what is more worthy of focus for those of us working as real estate professionals is the fact that the average balance of these new mortgages inflated. New homebuyers are taking out fewer mortgages, but the ones that are being taken are much larger ones. This especially true for the suburbs of popular urban centres like Vancouver and Toronto.

Anything that changes the dynamic of what makes up the bulk of your clientele will be important for a real estate agent to understand and take into consideration when prospecting for clients. Here at Real Estate Leads, our online real estate lead generation system harnesses the power of the Internet to put more qualified leads into your hands and then allowing you to do what you do best in order to secure them as clients. With that market ‘flat’ as it is currently considered to be nationwide, this is more important than ever.

New Owners with New Buyer Realities

The CMHC’s new owner data is very interesting to take into consideration. A mortgage to a new owner is when the borrower takes out a new mortgage while not having one in the previous quarter. These are not first-time buyers exclusively, but a lot of first-time buyers are included.

As mentioned, the number of new owners went down across the country last year:

• 959,074 mortgages to new owners across Canada in 2017, a decline of 6.5% from the year before
• Kitchener-Cambridge-Waterloo is the only market with over 2,500 new owners to record any growth
• 5,795 mortgages issued to new owners in 2017, an increase of 2.69% from the year before

None of this reflects huge growth considering the total size of the market, but it’s growth nonetheless. On the opposite end of thing, the country’s largest markets saw large declines in growth:

• Toronto saw 68,176 mortgages taken on by new owners in 2017, a decline of 8.14% from the year before
• Montreal had 38,651 mortgages to new owners, a drop of 3.4%
• Vancouver had 30,336 mortgages to new owners, a walloping decline of 16.31%

Note that all 3 of these markets reported declines in loans to new owners for the previous year (2017) as well.

New Owners with Larger Mortgages

It would seem to be natural that those declines in numbers would correspond with smaller mortgages, but it the opposite has occurred. For example, Oshawa’s average mortgage to new owners was $364,989 in 2017, a jump of16.59% and the largest increase in the country. The Kitchener-Cambridge-Waterloo region had new owners assuming mortgages of $310,153, on average, up 15.69%. Barrie saw the average new owner mortgage hit $321,194, up 13.97%. Interesting to note that all of these markets were in Southern Ontario.

More conservative changes were seen in the country’s largest markets, with the exception of Toronto. That city’s average mortgage to new owners moved to $472,954 in 2017, a jump of 12.57% from the previous year. Montreal’s average mortgage to new owners reached $242,836, up 4.16% from 2017. Vancouver’s $473,382 was down 2.97% from the year before. The previous year saw increases for all 3 of these markets.

New owners aren’t typically considered to be a driving force for prices, but these numbers indicate they might well be. The average mortgage size taken out by new buyers has really ballooned, and not in markets with perceived density issues. Instead, the largest gains were in low density suburbs. This supports the belief that buyers have been maxing their credit instead of weighing purchasing decisions against any sort of fundamental pricing factors.

As always, a realtors who’s really in the know about every aspect of the local market and national housing and real estate trends is the one who’ll be regarded as the true professional. Sign up for Real Estate Leads here and receive a monthly quota of qualified, online generated buyer and seller leads delivered to you exclusively and for your own protected area of any city or town in Canada. It’s a proven effective way to generate more opportunities to turn leads into clients and further grow your real estate business.

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