Canada’s Real Bubble Is Not About Realty But Realtors

Canada’s next housing bubble: real estate agents

The housing boom has not only resulted in record real estate prices, it has spawned an unprecedented number of realtors.

The number of people selling real estate reached 108,706 during the first quarter of the year, according to the Canadian Real Estate Association. To put it another way, that’s one realtor for every 245 Canadians over the age of 19.

No where is the bubble in agents more apparent than Toronto, perhaps the hottest market in the country for property. The Toronto Real Estate Board wouldn’t provided an exact number for its members but TREB’s boiler plate statement this month said it had reached more than 39,000 — or about one for every 140 people in the Greater Toronto Area.

Just over a year ago in December, 2012, that number was 35,000. That number grew from 31,000 a year earlier. TREB had about 20,000 members a decade ago.

We have almost as many people selling houses as making them. Statistics Canada said in its labour force survey for the year 2013, there were 131,000 carpenters. There are only 202,200 cooks in Canada.

You do two deals and you make $50,000

So what’s going on? Much of it is an influx of speculative careers from would-be real estate agents who see a quick buck to be made because they know someone selling their house and they want to get the listing and the fat commission — up to 5% of the house price — that comes with it.

“You’ve got some nice person making $30,000 or $40,000 as a receptionist. This is the American dream. You do two deals and you make $50,000,” says Lawrence Dale, a long-time thorn in the side of both CREA and TREB having sued both.

There is no data on commission rates but the general rule in Ontario is 5% of the sale price is split by two realtors on a deal while other provinces have a sliding scale where the percentage increases at higher amounts.

Toronto prices are soaring, especially single family homes. TREB reported this past week that average single detached home in Toronto sold for $965,670 last month, a 13.2% increase from a year ago. At $1-million, there’s $50,000 to be split by realtors.

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Meanwhile, strange things do happen even in the hottest real estate market …

The houses that don’t sell

Even in Toronto’s hot housing market, buyers aren’t always buying it.

A detached house in up-and-coming Little Portugal, near Lansdowne Ave. and Dundas St. W.

It’s been on the market for a month now without an offer.

“My wife and I consider ourselves somewhat knowledgeable about the real estate market, but we were not mentally prepared for this,” says Bryce, 38.

“All you hear about are the bidding wars but, as two agents have said to us: ‘You never hear about the houses that do not sell.’”

The Collins are panicked, living proof of the vagaries of the Toronto real estate market. They are also a cautionary tale that things don’t always go as you would expect, even in the hot 416 region where it can be far more difficult to find a house than to sell one, given the persistent shortage of for sale listings and the growing demand to live close to the core.

It’s as if the Collins’ three-bedroom, 118-year-old house on a quiet street just steps from the burgeoning bars and restaurants of Dundas and Queen St. W., has disappeared from the radar, even as semi-detached homes nearby have drawn multiple offers and gone for well over asking.

Realtor Elaine Mok is so perplexed, she asked a half-dozen colleagues to do a case study on the house, which she listed for $750,000 on April 9, based on the fact the more updated, but otherwise identical, neighbour sold for $809,000 last fall.

They agreed it was priced and marketed properly, although the Collins have since dropped the price to $729,000.

House hunters have commented that the two-car parking doesn’t come with a garage, the basement is unfinished and there is no basement apartment.

Beach realtor Rick DeClute is seeing the same thing at his listing on prime Leuty Avenue — a detached home, just five houses from the water that hasn’t had an offer in two weeks.

(In fairness, the average time on market for GTA properties, including condos, is about 20 days, although generally less in the 416 region.)

Even some online posters — the house was featured as blogto.com’s House of the Week — see it as a bit of a bargain at $1.5 million in a market where the average sale price of a now approaching $1 million detached.

“I guess it’s the HGTV thing: Everybody wants everything done. It could use a new kitchen. But you can throw a stone and hit a house nearby that sold (with a direct lake view) for $2.5 million,” says DeClute.

While multiple bids aren’t letting up, there is growing buyer fatigue, says realtor David Fleming. That’s only adding to the unpredictability in the 416 market, in particular: buyers who are walking away from houses they feel could attract multiple offers or, in a strange twist, walking away if there aren’t multiple offers, fearing that’s a sign that “something is wrong.”

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