The real estate market is healthy. The real estate market is going to crash. Prices are unstable. Prices are going to rise. It’s a good time to buy. Buying real estate in 2012 is suicide.
Nobody knows anything, and those that think they do, change their opinions daily. So just keep on guessing…
I work in today’s real estate market.
Not yesterday’s, and never tomorrow’s.
It’s impossible for any person, anywhere, to accurately state what is going to happen in any market in the future. People can make projections, predictions, assumptions, or anything in between, but in essence, these are all just guesses.
Some people are better than others at guessing. An economist would likely be a better guesser than a layman, but sometimes, the experts are even more wrong than the people who are completely unqualified to be guessing in the first place.
Which brings us to the term “educated guess,” which I essentially believe is a synonym for “projection” when that projection is made by any expert in any market, be it real estate, stock, or other.
I write this blog post not out of frustration with the market, or its participants, but rather out of frustration with the ever-changing opinions of the market outsiders.
In Wednesday’s Globe & Mail, I read the article called: “Soft Landing Forecast For Housing Market,” and I thought, you’ve got to be kidding.
No, I’m not frustrated by the article and its content, because I actually agree with it.
But I’m frustrated because it was only two months ago that The Globe & Mail was printing articles about the impending market crash, and the Canadian Mortgage & Housing Corporation was making negative prognostications.
All I saw in the media in December and January was negative coverage. Everybody was predicting “this is it, it’s finally going to burst” and they had all the statistics to back it up!
But now CMHC projects that the national home price will hit $368,900 in 2011, and $379,000 in 2013.
So why the quick turn-around?
Well, it’s pretty easy to predict who is going to win a football game after it’s been played. And when you can switch between the Patriots and the Giants forty times during the course of a 60-minute game, and then change your mind again when the winner is declared, how can you go wrong?
“I told you the New York Giants would win,” you can proclaim, after starting out with the Pats, then changing your mind to the Giants when they lead 9-0, then back to the Patriots when they were up 10-9 at half time, and on, and on, and on.
This morning, I was just about to delete my daily junk mail bounty when I saw “LinkedIn Today” and their headline read: Housing crisis to end in 2012 as banks loosen credit standards. Really? It’s going to end? That’s AMAZING! Thank GOD I was informed by…..LinkedIn…
But what really gets me is that this isn’t a “prediction” or a “guess” but rather it comes off as a statement. “Housing crisis TO END.” It’s like they’re telling us as an authority figure, when the reality is, nobody has any idea. And is “loosening credit standards” really the answer? Is that the end of a crisis, or just the start of a new one? That’s a topic for another day…
So right about now, you’re probably saying, “Okay, David, so if nobody knows anything, you’re no different, then why the hell am I hiring you as my Realtor?”
Last week, I met with a young buyer and his father for a preliminary discussion, and everything was going well until his father said, “I need you to promise me that if Jonathan buys a condo, and if I sink my own money into this, that the real estate market will go up, and we’ll look back on this as a fantastic investment.”
Huh?
You need me to promise you that? How the hell can I do that?
I’m a Realtor. I’m not a fortune teller, and I’m not a miracle-worker. I don’t have almighty powers. I can’t promise you that the market is going to go up, because I don’t have any control over it.
But even if the father had asked, “What do you think the market is going to do in the next two years?” My answer would have been a projection at best, and it could very well be deemed a “guess.” An educated guess, maybe. But how educated do you have to be in order to make an educated guess? I have a minor in Economics, but what is that really worth? Face it – I took a dozen courses in economics during my undergraduate degree. Does that qualify me whatsoever to make any educated guesses about the economy? Then what do we call educated guesses by more educated people?
People have been guessing for years, and for years, they’ve all been wrong.
I got into the business in 2003 when everybody was saying, “The market is going to crash.” I wouldn’t have been qualified to say “you’re right,” or “you’re wrong,” but having chosen to say the latter, I can look back in hindsight and say that I was a great guesser.
Many of the expert guessers have been wrong too.
I wrote a blog post in March of 2008 called “Garth Turner: Bubble Boy” where I ridiculed his new book, “Greater Fool: The Troubled Future of Real Estate.” Turner predicted a massive, imminent crash of the real estate market, specifically in Toronto.
The average home price in Toronto in at the end of 2007 when Turner released his book was $376,236. The average price of a house after 2011 was $465,295 – an increase of 24%. So if you had listened to the “expert,” Garth Turner, he would have cost you just shy of $90,000, on average.
But not just the experts were making negative predictions, and not just the experts were wrong!
In February of 2008, I wrote a two-part series called “Is The Market In Trouble,” where I predicted that despite the word “bubble” being used every single day in the media, the Toronto market was not in trouble, and in fact was very healthy.
Later that year in August, one of my readers made the following comment, which set off a few days’ worth of discussion:
The “crash” (10-20% by the end of 2009) has now begun. Surely there is not any doubt about that?
I wrote a follow-up post a few days later called “One Share of Stock, One Condominium” where I compared the volatile stock market to the steady real estate market, and I included the above quote. My reader messaged back and said:
In fairness, I will concede that it was cheap of me to say “Surely there is no doubt
”. Of course it is not a slam dunk. Economics never is, and maybe I’m completely wrong. By the same token I suggest you shouldn’t have focused your essay on the “20%” figure as it was the high end of my range. Nonetheless, because I am impressed that you wrote an essay in response to my post I give you my word that if I am proven wrong I will come back in 16 months and give you a 750ml bottle of Dom Perignon (if the decrease is not 10%+).
True to his word, blog reader daveythej showed up at my office a year later and gave me a gorgeous bottle of 1998 Dom Perignon, which I saved for four years and an oh-so-special occasion: my engagement. Thanks, Davey!
The average house price by the end of 2009 was $395,460, which was a 4.2% increase over 2008. My reader suggested a 10-20% drop in the average price, so he was off by as much as 24%! How could anybody be that wrong?
I’m not trying to pick on daveythej here, because I happen to know that he’s a very successful individual who is intelligent, savvy, and likely in a better position than most of us to make predictions about the real estate market. But I’m trying to demonstrate that anybody can be wrong, and nobody really can say with absolute certainty where the market is headed.
Let me tell you another story about a person who was wrong.
There is a writer for The Grid who wrote an article called “Real Estate Predictions For 2012” this past January, and said:
Stagnant growth.
Housing prices soared in 2011. In November, the average sale price of a home was 10 per cent higher than a year earlier. My colleagues might kill me for saying this, but I don’t think we’re going to see those double-digit percentage price increases we’ve grown accustomed to. I don’t expect prices to fall either, but I wouldn’t be surprised to see them rise one to two per cent overall. Mortgage rates are still low and there will be transactions aplenty, but I think the Toronto market needs to catch its breath for a year.
So the writer wouldn’t be surprised to see 1-2% growth in 2012? Really? Because the early indications are that Toronto is headed for another 10% increase over last year.
Who was this writer?
Me.
I went on record and said that house prices wouldn’t increase “double-digits” in 2012, and while my “I wouldn’t be surprised” vernacular didn’t really predict 1-2% growth, I really, truly thought that with everything that’s happened in the Toronto real estate market over the last decade, that this could be the year we finally see stagnant growth.
I was wrong.
Or at least, early indications suggest I will be wrong by the end of 2012. It’s going to take a massive turn-around; a complete 180-degree shift in the way things are going for us to see stagnant growth year-over-year. Perhaps I was being a dreamer; hoping that the market would hold its position so we’d all be better off in the long run.
Back at the top I sarcastically asked, “David, what good are you, if you can’t predict the future of the real estate market?”
That’s not the job of a Realtor. That’s the job of a fortune-teller.
I’m experienced and knowledgable about the product – real estate. I know the product better than anybody, as the exaggeration goes. I know location. I know pricing. I know houses and I know condos.
I can spot the red flags, and I can identify the up-and-coming pockets.
I know how to stage, price, time, and market properties.
I’m a top negotiator. I work seven days per week. I connect with my clients better than anybody, and make the process of buying or selling simple.
But no Realtor out there that can put “I can tell the future” on his resume. That’s not our job.
I think it’s better to be in real estate than to be out of it, and nobody makes money sitting on the sidelines. If your $500,000 condo does drop by 10% in five years, you’ll lose $50,000 on paper, but that $1,800,000 house you’re going to buy will be $180,000 cheaper. There – I just made you $130,000 by telling you to be in real estate and not waiting for the crash.
Crash? No.
Decrease in prices? Eventually. Of course.
But when that day comes, nobody can tell you.
They can’t even hazard a guess…
Darren
at 7:40 am
Do we get the thursday rant tomorrow? 🙂
David Fleming
at 11:25 am
@ Darren
I almost forgot what day it was!
Actually, I figured I’d rather have two days of discussion on this subject than leave the lame video from Wednesday up for two days.
Ralph Cramdown
at 7:59 am
If your $500,000 condo drops by 10% in 5 years, you’ll lose $20,000 in property tax, $30,000 in condo fees, $22,500* in commission when you sell, $12,200 in land transfer tax, $50,000 in equity, $13,750 in CMHC premiums, $74,792 in interest (30yr fixed at 3.34%) and a conservative $6,900 in opportunity cost on your 5% down payment. That’s $230,142. Offset by the $120,000 rent you didn’t pay. Sell for $450,000, mortgage balance of $424,708, and after commission, your real estate agent presents you with a cheque for $2,792, assuming you paid all the fees upfront rather than rolling them into your mortgage.
The $1.8MM house will be what it is regardless of whether I’m in real estate or other investments before I buy it. The question is, will I have a down payment? I’m not sitting on the sidelines, I’m playing in another game.
2muchdebt
at 11:27 pm
Ralph..
You are bang on…This guy is a clown, sure buy a house even if you expect it to go down in value, heck you are only going to lose your 50k and your new dream house is going to be 180K cheaper…”I just made you 130k”…ARE YOU FCKING KIDDING ME!…what the hell kind of math is this. What a load of crap. The only one who makes money out of this deal is you the real estate agent…first commission on the initial purchase, then on the sale and then on the third purchase. Secondly who goes from buying a $500k condo to a 1.8 million dollar house? WTF…hell why not buy a 15 million dollar house, there you just made your client 1.5 million dollar…what a great real estate agent you are. You shouldn’t even be selling used cars with logic like this…unbelievable. I feel sorry for anyone that follows your logic. You say you can spot the red flags I hate to tell you buddy but you are the red flag.
Scott
at 4:43 am
You may think he’s a clown, 2muchdebt, but I think you’re a troll.
If you really have to insist on so much perfection, please go and poison someone else’s blog with your presence and leave the rest of us alone.
Anonymous
at 8:13 am
Here’s another article by the Globe today…
http://www.theglobeandmail.com/report-on-business/economy/housing/housing-cools-as-sellers-hold-back/article2339028/
Statistics can really be used to prove anything.
Kyle
at 9:43 am
Great post. I have peppered your comment section with my own views on where the RE market is going, so i won’t rehash my position. Instead i’ll say historically, owning is a better long term financial strategy than renting. And if you plan to own for the long term, where the market goes shouldn’t be, the be all and end all of your decision making. After all we all need somewhere to live.
At the end of the day, if you plan on owning for the long term, who cares what the market will do this year or next, if in the long term, you are building equity. The real decision maker should be whether you can truly and comfortably afford the house you’re considering buying, under different scenarios. Before taking on decades worth of debt, people should be asking themselves the hard questions? Can you still afford it if there was a change in your job situation, if you have kids, if you had to take a temporary leave of absence, etc? Even if the market crashes this year (which is VERY remote at best), some owners MAY temporarily have lost some equity on paper, if however you keep renting waiting for some kind of collapse, then you CERTAINLY will have permanently reduced your equity and contributed to your landlord’s.
Though it’s cliche, RE really is like a ladder, other than those buying for the first time or selling for the last time, most people are both buyers AND sellers at the same time, so all this “buyer’s market”, “seller’s market” talk really is BS media fodder.
Ralph Cramdown
at 11:51 am
This is mostly true as far as it goes, however:
– Historically, landlords could expect reasonable cap rates. Here and now, nothing pencils, unless you want to run a rooming house. The flip side is, here and now, renting is a good deal.
– If you’d bought in Toronto in 1989, you would have been looking at almost 20 years before you were even again, inflation adjusted. Overall, real estate typically beats inflation by a small margin. Post-WWII North America has done much better, with a few exceptions.
– It’s easy to look at a long term, nominal dollar chart and forget all about tax and transaction costs. As I outlined above, transaction costs are a killer if you move every five years, unless RE outpaces inflation by a wide margin as it has been doing. With a little bit of self-denial up front, I’m planning on structuring my move into home ownership such that my mortgage interest will be tax deductible, and much of it will flow straight into my RRSP. I think I’ll come out way ahead. But I’m also timing my entry point.
Kyle
at 2:15 pm
I agree Toronto cap rates have become crap rates, but i would not be surprised if rents rise to bring the ratio back to equilibrium.
Also agree that transaction costs are a killer if you move frequently. I think this has a lot to do with the lack of decent listings ever since the TLTT came in, but longer term i think ownership wins out if you stay put for a while.
Sounds like you’re thinking about a Smith Manoeuver, which i hope you do well on. Definitely takes some cajones to deal with the potential volatility. I wish you luck.
Joe Q.
at 2:48 pm
The available data on rents in Toronto (which is admittedly very limited) suggests that rents are increasing slowly here (below the rate of inflation), much slower than the rate of increase in home prices. The figures for the condo market (normalized on a per-square-foot basis) are particularly shocking.
Ralph Cramdown
at 4:15 pm
Given trends in unemployment, wages (especially for the bottom quartile, most likely to rent) and all those condo towers that are going up floor by floor with, what, 50% investor presales? And every couple that stretches to buy a SFH, planning on a mortgage helper in the basement? Am I the only one that notices that HGTV’s Scott McGillivray NEVER factors in the cost of the reno in his cash flow summary? It’s easy to make good money as a landlord in Toronto — you just have to have bought ten or more years ago.
There’s a hilarious post on another local RE team’s blog (I won’t dignify it) purporting to show that maybe 1/2 of all renters could afford to buy — somewhere in their metro area. The linked study looks at prices for the bottom decile of condos versus renters’ incomes. Brilliant! You too could enjoy the dream of home ownership if only you were willing to sign for a place under the flight path, where the police won’t go in less than squadron strength, and the special assessment is, well, a talking point.
Jen
at 10:01 am
Well said Fleming!
Punditzview
at 10:30 am
First of all – I really enjoy your blog and I respect your philosophy to the business.
Where I agree with you is that nobody knows the future. Where I disagree with you (I’m paraphrasing here – not meaning to put words in your mouth…) is the implication that because “experts” are often wrong too, their opinion is not worth any more or that one shouldn’t try to predict the future.
I’m a retired analyst and a market historian. I’ve learned that bull markets continue longer than anybody expects. I’ve learned that there’s an advantage to being stupid when it comes to bubbles. (That’s because the dumb money will often ride the bubbles the whole way up while the so-called experts get out too early because they think they know better). I’ve learned that valuation is never a great timing indicator for when the correction will occur. However, when it does occur, that’s when valuation becomes very relevant indeed.
Property may be local but it’s still subject to (global) rules of risk & return. Property in Toronto is overvalued (I’m sure you know the usual arguments). Now that doesn’t mean the correction will happen now, but what it does mean is that when the correction happens (and valuation becomes relevant) there’s a lot of downside — which in my opinion is a lot more than the 10% you suggest. And if it rises more before this correction takes place? Then it will fall from a higher height.
As an analyst, I was required to have a view. But what my clients really paid for was the analysis, which they incorporated into their own risk management. Let me leave you with a question: if as an analyst, I rightly predicted the US housing crash (but was 2 years too early) was my view worthless?
Check out the video I made on the CMHC and Canada’s housing bubble. Too much time on my hands ….
http://www.youtube.com/watch?v=Xk3j6g50Krs
Raj
at 12:12 pm
“Let me leave you with a question: if as an analyst, I rightly predicted the US housing crash (but was 2 years too early) was my view worthless?”
Would that make your view worthless? No, it wouldn’t make your prediction worthless, but as analyst yes it would discredit the value of your statement significantly.
David Fleming
at 12:59 pm
Wow, this is awesome! Well done!
Joe Q.
at 2:45 pm
I agree with Punditzview here — predictions are great for the media and bloggers, but the analysis (the reasoning behind the predictions) is what is most useful for potential buyers or investors.
jeff316
at 9:53 am
The usefulness of predicting a market event too early or too late is wholly dependent on the intent of the client for whom you’re preparing the prospectus.
If the client’s intent is to avoid any and all equity loss and they cash out two years in advance of a market crash, then the prediction was definitely worthwhile.
If the client’s intent was to maximize revenue by selling as close to market peak as possible and they cash out two years in advance of said peak, the prediction certainly wasn’t worthless but certainly did not fulfill the client’s stated purpose, and depending on the purpose of cashing out the financial impact of not selling at the peak could be anywhere from minimal to severe.
If the client’s intent was to avoid purchasing a house on a market upswing and the client waited out the market only to enter the market after the predicted event did not materialize, then the prediction was not only worthless, but potentially disastrous for the client.
Timing isn’t the only factor but it certainly is an important one and it’s relevance can make or break someone’s analysis, depending on the client’s purposes.
Kyle
at 3:32 pm
No offense, but being right or wrong on ONE call should not define an Analyst’s or their analysis’ worth. In my opinion, unless someone is consistently batting significantly over 500, i don’t consider their predictions or analysis to be worth any more than food for thought.
Joe Q.
at 2:55 pm
I think it’s better to be in real estate than to be out of it, and nobody makes money sitting on the sidelines. If your $500,000 condo does drop by 10% in five years, you’ll lose $50,000 on paper, but that $1,800,000 house you’re going to buy will be $180,000 cheaper.
David, I’m not sure that this is a fair argument. My understanding is that the last time Canadian house prices crashed (late 1980s-early 1990s) condos were affected much more strongly (on a proportional basis) than single-family homes were. This also seems to have played out in Canadian RE markets that have already turned, e.g. the Okanagan region of B.C. Given the dynamics of the Toronto condo market, I can see the same thing happening here if / when home prices decrease.
David Fleming
at 3:16 pm
@ Joe Q.
I know it was a simple point, and Ralph did a great job of breaking it down much, much further.
I was just trying to finish with something thought-provoking but also demonstrate that everybody who did sit on the sidelines in the past decade has lost a huge opportunity, and who’s to say that this upswing won’t continue?
Joe Q.
at 9:01 am
True enough, though I wonder how people justified the claim that housing was “over-valued” in 2002 (at that point, the ratio of Toronto average house price to after-tax income had been stagnant for about 8-9 years — that ratio is now 50% higher than its 2002 value).
holly
at 3:08 pm
HI David et all
I hope I can get an idea from here
Recently I’m looking to buy a condo or loft for investment ,I have enough down payment to go for resale as well as presale and also I am looking in the Toronto core area .
I am wondering which one is a better option for investment to buy a presale or a resale condo and loft
Appreciate your help
Kyle
at 9:57 am
At current pricing, the ONLY way precon/presale could have any potential upside, is if Real Estate continues to rise at the same pace that it has or more. In my opinion i think this is highly unlikely. if you look at the potential downside, you actually face a lot more risks: project not completing, market falling or not rising enough to cover your transaction costs, over-supply of condos when your project completes). Personally i would not touch precon/presale.
As for buying a resale unit and renting it out. I think the cap rates are pretty unattractive right now, and i think they could get worse before they get better, as more investor units complete. Longer term, i think rents are going to rise as the “fat” part of the income distribution starts getting priced out of owning in the core. If you can find a cash flow positive situation, then it might be worth while, but you should probably do a lot of scenario analysis beforehand, and understand that being a landlord is certainly not a hands off endeavor and should be considered a long term strategy.
Devore
at 9:16 pm
Yes, it’s a crapshoot, but it would serve realtors immensely if they dropped the “it’s a good time to buy” and “it’s a good time to sell” (as if laws of economics are magically suspended for real estate, and it’s possible for both to be true at the same time). At any given time, the PARTICULAR property is a good buy, or it is not (implying it may be a good time to sell it). No such thing as a “buyer’s market” or whatever, it is merely a pitch to bring in more transactions. At the end of the day, you’re asking a 100% commissioned salesman whether it’s a good time to buy. Seriously?
David Fleming
at 10:33 pm
@ Devore
“It’s always a good time to buy! Or sell!” (adjust’s tie)
(leans in and smiles) “Tell me, folks, what do I have to do to get you into a house or condo today?”
(reaches out to small child) “Hey there, cutie, what’s your name? Have you got your bedroom picked out already?”
(gets serious) “Listen folks, I had a really interested couple here earlier today looking at this car…er, I mean house…”
Yeah, I hear ya….
Joe Q.
at 8:54 am
Unfortunately David, the reputation of realtors as a group is set “at the margins” — by people like the ones you’ve caricatured above, by the 32-bid Mimico double-ender, the fraudsters, etc. The real estate boards don’t seem to do much about it, either.
David Fleming
at 1:26 pm
@ Joe Q
No, the real estate boards don’t do much. Unfortunately, they’re underfunded and understaffed, and can’t investigate all complaints. I’ve basically stopped complaining to RECO because it never goes anywhere.
Two years ago, an agent with the initials GC contacted my seller (under contract, listed property), set up a meeting, went to her condo (that I had listed), and rattled off his services and ideas and suggested that she terminate the listing and re-list with him. She called me and told me that she wanted to terminate the listing, and I got her to admit what had happened in an email. I had a perfect paper trail. She suspended the listing, waited until the listing was over, and re-listed with him. I took my paper trail and filed a complaint with RECO, and it should have been a slam dunk. We never even got off the ground.
Things like this happen every day, unfortunately. Sometimes, agents dog other agents, and sometimes, agents dog their own clients.
A friend of a friend was being represented by a very well-known agent who signed him up to a TEN MONTH buyer agency agreement, without explaining it, without giving him a copy, and then he tried to fire her (after she did 2-3 things that should/could get her in trouble with RECO), she essentially said, “You can’t buy a house because I have you signed to a contract until next year. Tough luck.” He’s fighting to get out of it., but his chances are slim.
I could go on, but this is getting really depressing…
Devore
at 12:30 am
You can only hope that over time the amateurs and fraudsters will get sorted out of the system. Overheated markets always bring out these types out of the woodwork, eventually they will leave for greener pastures. The REBs are just paying lip service, I find it hard to believe they are enforcing much of anything, and not because they’re overworked. Do you have any stories of realtors facing consequences? Beyond a stern talking and suspension of license?
David Fleming
at 1:28 am
@ Devore
Personally, I don’t know of a single person who has ever had his or her license taken away. I don’t even know if that’s possible, or what one would have to do in order to have his or her license terminated.
There will always be real estate agent haters out there, and I don’t blame them. But somewhere in the mix, there are professionals, and people who are experts at what they do. I can’t cleanse this industry on my own, but I’ll continue to talk openly and freely about its issues for as long as I have MY license…
Adam
at 5:54 pm
My predictions for downtown Toronto are a solid 4-5% per year increase over the next 3-4 years.
chipshot
at 10:06 pm
It’s funny how the only people saying it is not a bubble are salesmen. A whole generation has never seen a true correction but they are about to. 2008 was just a teaser.
Anthony
at 9:31 am
@chipshot
Apparently you’re from the future and transported back to report to us that the end of the world is 12/2012 so that’s why real estate crashed as well as everything else. Seriously. If 2008 was a teaser, put a date and time on YOUR prediction. When will it be? 2013? 2017? When will the big correction happen Chipshot? Like that analyst that came on here and said he was 2 years off…that’s great. It doesn’t cut it as a professional analyst to be 2 years off. Well sorry to break the news to you folks but the people that bought in 2008, 2009 and even 2010 have already made a killing in profit that you can only drool over. So HA! They got the last laugh! So the FACT is that even if the market crashed in the year 20XX, the “time-frame” is so off that people already cashed in and cashed out and everyone else fell asleep and missed the door crasher! People got richer while these doom and gloom market analyst (who are ones that cause buyers to artificial hold off due to fear and artificially cause the market to slow down) have done more damage to people’s life than they know. People have been priced out of the market because they listened to people like Mr. Punditzview. How some of them have a job is beyond me. I mean isn’t there any credibility in a profession anymore? I mean when TD bank comes out and announces that the market will drop 10% by the end of 2011 and it goes up 8%. That is almost a 20% swing. How can a bank of that magnitude by so far up the creek? That’s just embarrassing. What they’ve done is a disservice to every customer who was thinking of buying a house. Read the full article here, http://www.moneyville.ca/article/848301–td-forecasts-10-drop-in-home-prices
“The excessive pricing of Canadian housing in relation to fundamentals is now clearly correcting,” TD Bank economist Grant Bishop said in an economic note Monday. “We expect a moderate correction in prices over the coming year.”
The bank is forecasting a “downward correction of 10 per cent in monthly average prices, followed by several years of stagnation of price growth,” according to Bishop.
“The market went up faster than most people have expected and it’s going down more quickly than we had anticipated,” said BMO Capital Markets senior economist Sal Guatieri.
I tell you what, if Mr. Bishop or Mr. Guatieri was my financial advisor they would be see the door. A 18% swing means a house of $300,000 would mean $54000. That is a huge margin.
What’s the difference in a gypsy and an analyst? If Mr. So and So who works at TD or BMO or countless positions is off by 2 or 5 years, how is it possible that they still have a job doing what they do? It’s incredible! Let’s hire the gypsy@ $12/hr instead! I’d love to have a job and be completely wrong regularly and see a pay cheque every month! Who wouldn’t! And yes I am a realtor.
My advice contributed to the wealth of my clients and those that didn’t listened to me wished that they had! In 2008 I said, this was the window of opportunity to buy. Those that took the risk have never looked back and will never look back even if the market were to crash. We will NEVER go back to 2008 pricing unless the world market implodes like nothing we’ve seen. If we do go back to 2008 price, that means we’ll all be saving food coupons like during the great depression and be eating can beans for dinner here in good ol’Canada. It may happen yes but do you really want to roll the dice on that? No one can be right 100% of the time, BUT some of us have a much better gut instinct than the analytical types who look at the numbers. I agree with Punditzview that there are those speculators that ride the market up to the point of collapse, and when the bubble does burst he’ll remind us who the analyst have said so “for years”. That’s like the weather man saying it will rain on Friday, but then it doesn’t rain until next Tues. Timing is everything!
So back to chipshot…put a time frame on your prediction or it holds absolutely no merit.
David Fleming
at 10:54 pm
@ Anthony
I went to high school with Grant Bishop! Actually we played hockey together since we were kids! Maybe I’ll look him up and ask him about the future of the real estate market…
Kyle
at 12:53 pm
Actually i’m not a salesman, nor am i affiliated with RE in anyway, and i don’t see a bubble in TO. And if you look at the past comments where this has been debated back and forth, frankly not a single bubblist has ever effectively supported the existence of a bubble, other than in their own mind.
emmi
at 8:48 am
You don’t have to be a fortune teller to pass on really basic good advice to buyers. For example: look, people end up as unexpected landlords. happens all the time. not a bad idea to make sure the house you are thinking of buying would rent out for enough to cover all your costs. all of them (and here, because you are in the industry) you could actually enumerate those costs with estimates because a scary number of people shopping for houses seem to think the cost of owning is mortgage payments and nothing else.
Have you ever done that for a buyer?
Adam: Downtown toronto condos are down 7% since September. Where is your gain going to come from?
manny
at 1:16 pm
Garth Turner’s reposte in his comments section of todays blog post to what you said . Care to comment David?
“I wrote a blog post in March of 2008 called “Garth Turner: Bubble Boy” where I ridiculed his new book, “Greater Fool: The Troubled Future of Real Estate.” Turner predicted a massive, imminent crash of the real estate market, specifically in Toronto”
Actually I called it neither ‘massive’ nor ‘imminent’, and not ‘specifically in Toronto’. But he did get my name right. — Garth
jeff316
at 12:23 pm
Regardless of whether one is a bull, a bear or neither of the two, the crazy thing is that someone like Garth Turner was once Minister of Revenue for the entire country! That’s nuts.
Now, Minister of Revenue is a rather meaningless position invented to increase the number of Cabinet seats available to reward your allies, but that is the quality of the person we’re electing and putting into positions of national economic leadership. Someone with such a limited and blindsided understanding of the economics of our country.
Help us!
lookoutbelow
at 1:56 pm
So, David, what exactly did you say in the blog here?
You are not a fortune teller, we knew that. No one can predict the future, we know that. That Real Estate always appreciates in the long run, we know that.
Here is what I need from a “top notch” realtor that you say you are:
WHAT IS THE LEVEL OF RISK IN THE BUYING DECISION THAT I AM ABOUT TO MAKE NOW, GIVEN MY SPECIFIC FINANCIAL CIRCUMSTANCES AND THE CURRENT REAL ESTATE MARKET METRICS ?
Now, surely as a top notch realtor, you can gather the information needed and help me make that decision, can’t you? As a realtor who knows the market, you, should be able to place a level of RISK that a Buying decision would entail if I acted now.
I personally think, in the current Toronto market, the level of risk is HIGH. So simply put, the current prices for a 2BR Condo, that I need, are near top of their historical range. Conversely, for example, prices are in the Phoenix Arizona area are in near the bottom of the range. SURELY WE CAN AGREE ON THIS FACT. I am not saying they can’t go higher or lower, I am simply stating the prices are near the top in Toronto.
For that 2BR Condo purchase, I can afford to pay cash (so no interest rate risk) and have a steady retirement income stream to pay for all the expenses. My “investment horizon” is 5 years. Now what do you say the level of Risk is in my case? In other words, in your opinion, what are the chances that I will LOSE money if I buy now?
jen
at 3:59 pm
This piece is a voice moderation. House prices either move vertically or up. They never go down anywhere – ever.
Which is why there is no housing bubble.
RealityCheck
at 10:23 pm
Where did you go to school!?
Or was it a lack of oxygen to the brain at some point?
The opinion piece is somewhat moot.
At the end of the day you should never pay for something more than what YOU think it’s worth. A 300k shoebox in the sky with paper-thin doors and low-quality finishes and poor workmanship?
It shouldn’t take an economist to realise that the emperor wears no clothes.
Regardless of opinions, we will (for better or worse) one day see the results of a few years of artificially low interest rates.
The only investment I think you should be making is one of time in the earning of a GED.U
Joe Q.
at 11:37 pm
Thanks for the chuckle.
Anthony
at 11:56 pm
@LookOutBelow
If I may, I don’t think it is a RE’s job to assess the risks. Why would it be our job to predict how the world economy would affect real estate when not a single economist seem to predict accurately the growth in just a year span. An agent can’t say whether Greece will default and throw a whole blanket over everything. It’s incredibly hard. We can all agree that the dynamics of the world is complex and very unstable right now.
Who you are looking for to assess risk is an Actuary, maybe an Economy Analyst, or Financial Adviser.
What the RE’s job is:
1. Understand the market value of a property in a particular neighbourhood
2. Negotiate a price to make the deal happen
3. Advise on the personal needs on the client what areas/products to look at
4. Know the neighbourhood, schools, amenities
What you’re trying to determine is if they market has peaked essentially. Well no one thought last year the market would pull 8% including myself. If buyers continue to be comfortable with interest rates, and have a secure job, the market will chug along. Investors are still pumping money into RE. Prices will continue to climb. If you are looking for a correction, then you will have to wait. No one can promise anything or make your comfort level better. Life is a RISK. If everything was a gaurantee everyone would put down their money and wait for the big payout.
@David
Hockey is the best sport in the world! I’ve been playing and watching since a kid..through the Harold Ballard era yikes! I even worked for Chris Stamkos (Steven’s dad) 🙂
Ralph Cramdown
at 12:30 pm
With respect, if agents are going to give predictions to the media, and form boards and regional and national bodies, all of which hire spokesmen who also continuously make predictions, the average punter might get the impression that agents make predictions. Nobody expects a macro magnum opus on the ultimate implications of Greek default on Toronto’s economy, but something founded on historical local price/income and price/rent might be refreshing.
lookoutbelow
at 3:45 pm
Thanks for your words…The NET I got from your reply is that you are going to do your best to earn your commission, I can accept that, you have to make a living.
Once again, I am just asking about the LEVEL OF RISK that I might be taking if I BUY NOW. That’s all. If you think the risk is LOW then say so, if you think is HIGH then you can say that. But at least give me an opinion about my specific situation. After all you know the market, therefore I assume you know which way the market is trending.
But I would like to hear a Realtor’s honest assessment of the LEVEL OF RISK associated with acting now. Will I be buying nearer to the top of the market or nearer to the bottom of the market? I thought you guys have Sales to Active Listings and Sales to New Listings ratios that you use to assess whether it’s a Buyers Market or a Sellers Market. Again, just looking for your opinion. THANKS.
Joe Q.
at 11:49 pm
I have to agree with Ralph Cramdown here. If the RE agent’s responsibilities are limited to the four you’ve outlined above, then the individual companies and boards should stop making predictions, carrying out economic analysis, or promoting housing as an investment (I’m looking at you, ReMax)…
Joe Q.
at 11:46 pm
David writes: Personally, I don’t know of a single person who has ever had his or her license taken away. I don’t even know if that’s possible, or what one would have to do in order to have his or her license terminated.
I sure hope it’s possible for a realtor to have his license taken away. Otherwise, what’s the point of licensing in the first place? The whole point of having a professional system (with a governing body, licensing system, etc.) is accountability. (Think doctors, engineers, lawyers, etc.) If there’s no accountability, it’s not a professional system.
David Fleming
at 11:56 pm
@ Joe Q.
Certainly, like any other profession, there ARE things that Realtors can do to have his or her licence taken away. I’m just saying that on a person level, I’ve never seen it. I’m being a bit facetious when I ask “what one would have to do in order to have his or her licence terminated.”
David Fleming
at 12:11 pm
@ Joe Q.
This headline just came out today: “RECO SUSPENDS BREKLAND REALTY.”
“The registrar of the Real Estate Council of Ontario has issued an immediate suspension of registration to Monster Realty Corporation, which operates as Brekland Realty Group. RECO has also charged the Mississauga-based real estate brokerage with failing to disburse trust funds in accordance with the terms of the trust. The bank accounts of the brokerage have been frozen.
As a result, the brokerage and its 213 employees can no longer trad in real estate. They employees can apply to RECO for transfers to another brokerage.”
Joe Q.
at 10:59 pm
David, can you translate “failing to disburse trust funds in accordance with the terms of the trust” into plain English? What did they do, and are all the agents associated with the brokerage really at fault?
David Fleming
at 1:19 am
@ Joe Q.
I would guess that the brokerage was using the funds in the trust (these funds are made up of many deposits being held until the time of closing for listed properties), for their own personal discretion. It could be that they were drawing on the funds and replacing them, or it could be that they were hitting the casino with them. Who knows, as we’re only speculating. The unfortunate part here is that the agents working for the firm did nothing wrong, and they’re in limbo as their brokerage has been suspending from trading in real estate. They could apply to join another brokerage tomorrow, but it would take some time to process, and their businesses will likely suffer as a result.
I caution new Realtors to choose their brokerage carefully. If the deal seems to good to be true, it likely is.
Joe Q.
at 11:11 pm
Actually, your post prompted me to check out the RECO website. It’s a fascinating collection of documents and an interesting perspective on what can and does go wrong.
http://www.reco.on.ca/section-buyer/tc-233/spage-complaints.html