The reason that residential real estate boards exist in major cities across Canada is to both protect consumers with home purchases and ensure integrity, professionalism, and transparency with members working as real estate agents in Canada. The second part of that should be fairly self-explanatory, but when we consider the first prerogative there we need to remember that there are 2 distinct parts to that equation. There are home buyers, and by necessity there needs to be home sellers that have their homes on the market for the buyers to be able to buy.

Both sides will have their own interests, and nobody is going to deny that there is a housing crisis in Canada and there needs to be solutions tried. But the Liberal governments recent promise to introduce legislation that will, among other points, ban ‘blind bidding’ is very short sighted and a mere band aid fix that will provide a small amount of benefit for one interest group while compromising the interests of the other.

Real estate agents are often homeowners themselves, and they have other interests that go along with growing their personal real estate business. Facilitating that growth means bringing new clients into the fold, but every realtor will tell you that’s easier said than done. That’s why our online real estate lead generation system here at Real Estate Leads is so highly regarded among realtors who are looking for real advantages. The power of Internet marketing is put to work to generate genuine client leads and these realtors are the only ones to receive them.

But back to our topic this week, let’s talk about why most realtors will disagree with this proposed legislation proposed by the Trudeau Government, even if it may be well intentioned.

Market Reflections

The reason that blind bidding exists is solely because of the wish of ever greater numbers of people to own real estate in Canada being matched with a supply of homes that has never increased even remotely in step with this demand. The Ontario Real Estate Association believes this plan would harm hardworking Canadians and make them less able to choose how they’ll sell their homes, and in the bigger picture regulating real estate practices through the Criminal Code is going to be harmful in both the short and long term.

No matter what side you’re on, that’s as accurate a statement as you’ll find and it’s illogical to think it is possible to fix Canada’s housing crisis by denying millions of hardworking families the choice of how to sell their home and also pitting homeowners against buyers in some sort of competition.

What this will do is negatively impact Canada’s housing market and making home ownership even more unaffordable. Let’s look at Australia and New Zealand that have much healthier housing markets and nowhere near the affordability and supply crisis that we do here in Canada. Open auctions are the norm there, with sellers much more often than not choosing to use the open bidding process.

Why? Because it’s better for everyone and is again a function of the market and its dynamics dictating purchaser behaviour. Auction fever creates its own reality with hopeful buyers crowding in front of a home with a live auctioneer, or online, and the bidding begins. This actually doesn’t make homes more affordable – it can actually drive prices higher, and force buyers into making rushed decisions involving tens of thousands of dollars with the feeling that the window of opportunity to make a successful purchaser bid on the house is closing.

We can also expect that the Liberal’s ‘Home Buyers Bill of Rights’ will be predictably empty once it’s opened up. It would include banning blind bidding, on the notion that having bidders not know the bids of other prospective buyers is somehow going to be helpful. We take no issue with the other part of it establishing a legal right to a home inspection and requiring real estate agents to disclose to all participants in a transaction.

But changing the bidding process for the sake of mistakenly addressing the crisis at hand really doesn’t make a whole lot of sense.

Protect Consumer Choice & Buyer Means

The smart general consensus in the industry is that consumer choice and consumer privacy should be always come first in government policy. Federal public policy is best when it recognizes the right that consumers have to privacy and allows them to consent to the disclosure of personal information. It’s pretty simple to understand that this is better than penalizing home buyers and sellers. Punishing home buyers and sellers for wanting to keep their financial decisions private for the largest transaction of their lives is a real example of bureaucratic impropriety and there’s really no debating that.

However, some transparency can be helpful but there is a need to find a middle ground so that this doesn’t benefit homebuyers entirely at the expense of the individuals selling the homes. It is possible to utilize our current regulated offer process but with tweaks that let Realtors share the top offer with the seller. This would go along with all participants being aware of the amount attached to the leading offer and giving each an opportunity to up their offer or decided it’s time to bow out.

But even more transparency won’t solve Canada’s housing affordability crisis or stop price growth. The real root factors being housing unaffordability in Canada are not being addressed.

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If the big backyard and proverbial picket fence are that important to you as a would-be homeowner in Toronto, be prepared to shell out big bucks for those kind of living arrangements. Some will say that 1 million is only the number it is based on arbitrary criteria, and surely there’s many mortgage brokers who will think similarly and say it’s only 100k more than 990 thousand. But it is something of a threshold number, and that is reinforced when prospective homeowners look at many of these homes and wonder how if they weren’t in an inflated market would this home really even be worth 800k?

Housing prices are unnaturally inflated all across the country, but in Toronto and Vancouver most notably. Real estate agents working in these cities will like that reality on one end of the equation, but on the other end it means a) more agents in the game and b) fewer homeowners who can qualify to buy these detached homes in the first place. Try being a new realtor in the business in either city and you may find you’re not able to get clients as readily as you’d like, although there are plenty would-be 1^st time home buyers who will be looking to get into the market with a Toronto area condo.

This is why our online real estate lead generation system here at Real Estate Leads always makes a lot of sense for any realtor who sees the need to get more out of their client prospecting efforts. It’s quite amazing what can be done with Internet Marketing, but you won’t need to know how this system works – just that it does work and there’s plenty to suggest that it does.

Let’s get back to looking at the almost surreal expensiveness of detached homes in most of Toronto.

Not Just Toronto Proper – All 905 Areas

Satellite cities certainly haven’t been spared the meteoric price increases that have been seen in Southern Ontario’s desirable locations over recent years. Our friends at Re/Max tend to know their stuff, and they’ve shared that the TRREB that in all 60 areas of Greater Toronto and the ‘Golden Horseshoe’ there were only six had detached homes on the market and priced at less than $1 million. Whether or not that’s in a buyer’s or seller’s market is irrelevant at that point. It’s going to be very good for one side, and really not appealing at all for the other.

Overall home sales in Toronto exceeded 70,000 between January and June, working out to the strongest first half ever for the TRREB, and going way past record levels set in previous years. Without a serious influx of new listings to ease the upward pressure on pricing in the coming months, it is projected that the market will likely stay on this upward trajectory.

There were 11,297 active listings in the first half of the year, but that was down 35% from the 10-year average of 17,260 and in large part a reflection of the ‘cool down’ seen in real estate across the country through April and May. But this is countered by a 97% of TRREB areas. Almost half of those areas saw values go up nearly 25% year-over-year.

Certain trends are showing that first-time homebuyers are leaving Toronto to buy homes further away, and then move-up buyers are doing the same but often staying in certain areas and buying homes of higher value after selling their previous homes. Increased transit options and hybrid work schedules have made these sorts of relocations even more possible. This goes along with first-time homebuyers who are expanding their horizons mostly of a desire to get into the market before prices increase even further. Communities in Durham, Peel, Dufferin County and the most northern part of York Region have been the primary beneficiaries of this when it comes to properties sold to new owners.

There’s no denying first-time homebuyers are struggling with what supply and demand is doing to median home prices, while existing homeowners have been enjoying equity gains that have gone up immensely over the past 2+ years. Move-up buyers are taking advantage of lower interest rates and those equity gains to trade up to larger homes or neighbourhoods closer to the downtown core.

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Having a homeowner own more than one home would not be especially noteworthy if the prices for real estate in Canada’s big cities hadn’t exploded over the last decade. This is especially true for detached homes, and yet interestingly many of these homeowners we are talking about here have detached homes to go along with the detached home that’s their primary residence. Needless to say that’s doing wonders for the accumulation of equity, and it’s something interesting to note that around 1 in every 10 homeowners in Vancouver, Toronto, and Montreal own more than one property.

It also goes without saying that these will be the exact type of clients that real estate agents will be keen to work with, and especially if they are homeowners who have the financial means of acquiring other property to use as investments. The reality, however, is that it is in these 3 locations and other big metro areas in Canada where more and more real estate agents are entering the profession given what can be made in commissions on sales of houses that often sell for way above asking.

This is why our online real estate lead generation system here at Real Estate Leads is even more highly recommended for new realtors working in densely populated and ‘desirable’ areas of the country. It’s in these areas where the competition to be listing homes is going to be the fiercest, and being able to be first to contact legit potential homebuyers before any other realtor does. That’s no guarantee you’ll secure them as clients, but you’ll have the opportunity to do so and that’s a great way to start building up your real estate business.

Let’s look at these new estimates in greater detail and with each of the 3 big cities individually.

Vancouver

Vancouver is the 3^rd largest metropolitan area in Canada, but it has the highest number of multiple property owners – 14% of them. Of those homeowners with more than 1 property owned, 27% don’t collect rental income, 51% rent the homes out full time aside from their primary residence, while 13% use them alternating between personal and rental properties. Approximately 7% of the homes are vacant, and yes it’s safe to assume those are investors who are assuming the speculation and vacancy tax in BC as simply a cost of doing business.

It’s fair to say that real estate is an integral part of retirement planning for many Vancouver homeowners and many of those with multiple homes are looking to build future equity as a means of sustaining a desired lifestyle into their retirement years. More commonly than having them used to subsidize monthly income, these home are owned as a long-term investment.

This 14% stat also applies to multiple property homeowners who are between the ages of 18 and 35 too, and that may be the one that people find most surprising. Again though, we can safely assume that the majority of this group started on the property ladder with parental help if they’ve managed to own 2 homes while still being in what most would consider to be their youth.

Toronto

The percentage of homeowners owning multiple properties in Toronto is only slightly less, with 13% of them owning more than one property. Of those 27% do not collect rental income from those properties. 49% rent them out and 15% use those additional properties either themselves and for rental income / long-term investment purposes.

18% of homeowners in that same 18 and 35 age bracket who own in Toronto have multiple properties, while 11% of those 35 and up do as well. Demand in nearby areas that are just outside the GTA like Guelph and London factor in here too. Receiving outside financial assistance has likely benefited young homeowners here too and applies the same way it does for Vancouver. And of course both cities are far and away the two most popular destinations for newcomers to Canada, many of whom arrive with much greater financial means than many Canadians.

Montreal

Of Canada’s 3 biggest cities it is Montreal that is the most affordable, although that’s a very relative term and that will be immediately obvious if we compare house prices here to ones in smaller cities anywhere in the country.

An estimate of 12% of homeowners in Quebec’s major metro city own more than one home. Of them 37% do

Out of Canada’s three largest cities, Montreal area real estate is the cheapest and it’s allowed 12% of survey respondents to purchase more than one property. Of these multiple property homeowners, 37% don’t collect rental income from properties owned beyond their primary residence, while 25% rent out the properties. 9% used properties for a period of the year and collect rental income on it outside of that time. 4% leave the properties vacant as long-term investments and this will primarily apply to condominiums in the city

One noted trend here is that secondary property owners in Montreal use them for leisure more often than an investment. That may be in large part because while the MTL market is hot, it’s not red hot like the ones in Vancouver and Toronto and as such there’s a little less incentive to put properties to take advantage of serious price gains.

16% of homeowners aged 18-35 own more than one property, while only 11% over 35 do, and that lower number for the second group is again likely a reflection of their being less of a frenzy for owning second homes for rental income or investment.

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For the longest time it was the term ‘red hot’ that was applied to the Canadian real estate market, and a big part of that resulting from the fact demand far outstripped supply and so buyers were willing to paly the obscenely high costs attached to many of the homes being sold in desirable locations in Canada. Much has been made of how bidding wars were driving up the final sale prices to be WAY above asking prices for the homes, and while that’s great for the homeowners it’s not in the interest of the collective good as it prevents many would-be homeowners from getting into the market with homes that are good fits for their families.

The consensus in the industry is that now – in the middle of the summer of 2021 – the market is still fairly hot, but that it’s cooled down some. Some will suggest it’s a temporary pause, while others think that there is something of a more permanent correction coming. Like any major trend, this affects people working in real estate and for some the decrease in activity will factor into their business more than it will for others. That’s why our online real estate lead generation system here at Real Estate Leads is so beneficial for realtors who want to ensure they continue to drum up new clients consistently.

But back to our topic for this week. One of the things that all these bidding wars do is create buyer fatigue, and that shouldn’t come as a surprise if you can imagine what being constantly outbid will do to a prospective homebuyer’s psyche. Whether that’s leading more and more of them to drop out of the game remains to be seen, but it’s certainly a believable theory.

Huge Detached Home Demand

One thing that’s well established is that families will prefer to raise their children in a home with a backyard, and not in multi-family housing as is usually the case for people in major metro areas. The pandemic has amplified that too, and to give you an example of this possible buyer fatigue a realtor selling a detached home in Burnaby BC for a clients received 42 offers above asking price on the home.

That’s 41 buyers who were willing to pay more than the listed price going away disappointed, and this is increasingly the norm in the Greater Vancouver and Greater Toronto areas. This house in particular sold for $216,000 over asking price at 1.715 million.

It’s not difficult to imagine that some of these buyers will become disillusioned to the point that they’re choosing to sit on the sidelines for a while and let this frenzy pass. If so, that could and would cool sales although you could also believe that given population inflows into these areas that there would be other willing buyers to replace those who are taking a ‘time out’.

Buyer Fatigue?

The increase in buyers that will come with opening to immigration and international students will be a factor too, and some buyers may be even less enthusiastic knowing that median prices are likely going to rise again once this happens. There is a report that states real estate markets across Canada are moderating nationally, but what is the cause of this?

Fewer bidders willing to engage in bidding wars may have homeowners keeping properties off the market knowing that the frenzy that would otherwise accompany the sale of the home isn’t going to be to the same extent. Another factor is that easing restrictions related to COVID will cause attention to wane from real estate over the next few months, and the thinking of wanting more ‘space’ won’t be as pronounced as it was at this time last year.

The desire to buy a home could start subsiding as pandemic measures are lifted and many workers return to offices, and while that is likely true it’s also accurate that the country’s housing market remains near record-high sales levels. And the signs of moderation that have begun to appear over the past few months are really very small indicators to this point.

Statistics Canada noted a 0.7 percent drop in new home listings in June 2021.

What’s not small is the percentage of the decline. Stats Can has stated that sales activity was down 92% in all local markets for June 2021 on a month-over-month basis and that is a marked contrast from both previous months and this time last year, when real estate was as hot a commodity as you could ever imagine.

Along with this national home sales decline by 8.4% on a month-over-month basis for June, and that’s the 3^rd straight month with a decline. The average price of a home in Canada rose 0.9% however during that same time, but that’s not as relevant to the discussion of volume of sales

The association also reported that the typical price of a home in Canada rose 0.9 percent month-over-month in June 2021, “continuing the trend of decelerating month-over-month growth that began in March”.

British Columbia is an ideal example of this, with the B.C. Real Estate Association reporting sales and prices across the province dropped for the third month in a row in June after the market peaked in March 2021.

However, there is good news in the fact that despite the month-over-month deceleration in new house price increases, year-over-year gains remained near record highs for June and that is predicted to continue for the duration of the year

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Sign up for Real Estate Leads here and receive a monthly quota of qualified, online-generated buyer and / or seller leads that are from genuine buyers who are in the same area of any city or town in Canada where you are working as a real estate agent. But what’s most important to most realtors is that you will be the only realtor who will receive those leads, we won’t be providing them to anyone else. This is a dynamite way to supercharge your client prospecting efforts, and comes highly recommended from realtors just like you.

As a real estate agent, you like to see your clients and prospective homebuyers being approved for the financing needed to get them into a new home that works for them. Most realtors will have a mortgage broker they trust that they are happy to refer clients too, and it is nice when you see they’ve been approved for their mortgage and their on the way to getting into that home before long. The issue is that the homes many people are getting mortgages for nowadays are very expensive, and if you live in some major metro areas of the country it’s not uncommon to be taking mortgages on homes priced at 800k or even much higher.

It’s no secret that low interest rates have been kept low by the Federal Government as a means of providing economic stimulus at a time when it’s very much needed. Having lenders of either zero-down or very little-down payments on homes when taking mortgages may be an associated part of that too, especially when you consider that real estate makes up a significant portion of Canada’s GDP. But minimal down payments or no required down payment at all may be leading to a lot of buyers biting off ‘more than they can chew’, as the expression goes.

In the immediate scenario this isn’t a bad thing, and especially for someone who works in real estate. More prospective homebuyers receiving financing means more homes sold and deals closed, but as always there’s going to be more realtors working for a slice of the pie than there is pie to go around. That’s why our online real estate lead generation service here at Real Estate Leads is as highly recommended as it is. It lets you get the jump on being in touch with people who are looking to sell or buy a home, and for someone who’s new to the real estate business it can be a massive benefit for building their business quickly.

There is concern that this down payment on a mortgage flexibility is going to be problematic, so let’s look at why that is.

Bull Market Continues

This is the 25^th year for the great Canadian housing bull market, a pretty much uninterrupted straight line up that hasn’t really been seen elsewhere in the world. It’s true that real-estate prices are soaring all over the globe, but it’s only New Zealand that has a more frenzied housing market than Canada. Years of price gains have been the norm, and that includes a 21% surge since the pandemic began. The reality is that millions of middle-class Canadians don’t have the means of making that conventional down payment of 20%.

So this boom in riskier loans is chipping away at the most crucial of the three pillars that industry insiders are the foundations of good housing. Conventional, conservative lending practices, rising demand, and tight supply. Yes, there are regulations that prevent applicant risk, but many of those who are approved for loans today are assuming debt loads people would have thought were unthinkable in generations previous.

Having borrowers financing bigger chunks of their purchases is a legitimate concern. Often these massive loans are being taken out by borrowers with relatively low incomes. Mortgages considered to have a high loan-to-income ratio — when the principal is a minimum of 4.5x the borrower’s annual income – made up around 17% of new insured home loans in the fourth quarter. That’s up from 6.5% just two years ago, and it’s true that loan officers have loosened mortgage lending conditions in each of the past 3 quarters.

Benchmark Rate Must Rise

In Canada, most borrowers reset the rates on mortgages every five years or less. Traders now expect the bank to begin lifting its benchmark rate from 0.25% over the next 12 months, and to bump it up at least three more times before the close of 2024.

The concern is that the first of the rate hikes may come even sooner than markets are foreseeing, especially if the incoming inflation trend is worse than expected. This could result in housing prices being pushed down and that would mean many people defaulting on their mortgages.

However, products like zero-down mortgages are still only a small percentage of all mortgages, and insurance against default is required for any home purchased with less than 20% down. This is part of why major Canadian banks in recent years haven’t had much in the way of losses from bad mortgages.

It will be interesting to see how this plays out in the coming years, and especially if interest rates rise as many are saying they eventually must.

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