Can We Ever Expect Truth From CREA?

September 6th, 2010 · 6 Comments · Buying or Selling Your Property

On a regular basis I get upset with the Canadian Real Estate Association and to a lesser extent the local real estate boards. I find their whistling in the dark irritating. We are in the process of a major adjustment of the real estate market and we could use some good guidance and information. I find their dissembling and prevarications and smoke screens offensive. I wrote about one of their smoke screens and how ridiculous it was to Blame the HST for the Housing Slump.

What can we expect from CREA in the Future?

Well we can look south to the USA for the answer to that question. How is the National Association of Realtors dealing with their horrible market? I read this great article about it this morning, Attention RE Agents:NAR spin is Counterproductive.

The bottom line is that every single analysis that falls short of what actually happens destroys credibility. This has happened like 6 times already this year. At the very least CREA should do a best case scenario and a worst case scenario analysis to provide some balance. What we get in reality is a lalaland interpretation of the real estate market. Excuses and smoke screens are offered up. It’s the HST. It’s the summer. It’s the weather.

Then in the New York Times, Widespread Fear Freezes the Housing Market again from the USA. Here they discuss the problem that people want/have to rent but investors can’t qualify for mortgages. (Pg 2)

Why Is This Relevant?

My entire lifetime I have noticed a trend, every time the USA goes into a recession so do we. We’ve been sitting up here relatively unaffected by the disintegration of the American economy for a few years now. It can’t go on forever, they are our major trading partner.

We also started following their housing crash in spring of 2008, but this was somehow miraculously averted. To be honest, our government did everything they could to keep our economy going and everyone expected a US recovery much sooner. Our housing market has been trending upwards steadily for the last 20 years. So we should all stop pretending that things are OK.

Sheep led to Slaughter

It’s really unfortunate but CREA and their members need to keep selling houses, that’s what they do. Basically everything they do and say is oriented in that direction. Every person they can convince to buy a house is one more commission for them. The absolute destruction that real people who believe in them will experience is irrelevant to them. If there’s one thing you can count on is that people will always act in their own self interests. The only thing you can do is not be a sheep yourself and don’t be distracted by their excuses and smokescreens.

It’s really unfortunate that so many people will believe the media and the press and CREA. Their financial future will be destroyed. People who believe in the sanctity of real estate appreciation will pay for their error. All the first time buyers that bought this spring will be hurting especially if they over extended themselves by “investing” in their “dream home”

NAR Economists

Then there’s an interesting article about David Lereah, positive spin was paid for and certainly brings into focus that some people will say whatever they are paid to say. So they can’t be trusted. The article is called Former NAR Economist David Lereah is a Jackass and in a few years we can look forward to similar articles about CREA economists.

Plus Canadian Mortgages Are Different

If we do have a prolonged housing drop in prices, Canadians may well find themselves in a precarious situation, forget sub-prime mortgages. We have out own problems with mortgages, namely that our mortgages have terms where we have to renew and people in the USA don’t. Basically if you bought a house that’s affordable and you can make the payments your mortgage is guaranteed for the whole time of the mortgage in the USA, it doesn’t matter that your house is worth less than you paid for it. Not so in Canada where we have to renew every five years or even less. In the past, banks just go ahead and refinance with no real problems but what if a lot of houses are worth 20-30% less then they were purchased for? What if interest rates go up? Sounds like a perfect storm of our very own.

What If you Want To Buy?

Buy something extremely affordable. Now is not the time to buy a dream home. Find out how much you would pay in rent and buy something that is equivalent or lower than that. Forget location, forget investment, think – roof over my head. Put as much money down as you can. Frugality is the name of the game. If you have two incomes find something affordable on one income. Buy something you can pay off in 5 -10 years. Don’t be a sheep.

Believe it or not I’m not a real estate bear, real estate has intrinsic value that cannot be duplicated by a bunch of shares and a rental house. I work in the rental and housing industry and believe me I’m grateful I don’t have to rent. I was a tenant before I became a property manager. I am very aware of the shortcomings of renting. Landlords selling, not fixing the place and not doing proper pest control. You’ll have to be smart and possibly consider adding value in other ways like I covered in my initial post for Million Dollar Journey on How to Make Money in Real Estate.

I have to tell you all that I sincerely hope I am wrong. Really wrong. I own a house myself and I know countless investors and homeowners. I don’t want the Canadian housing market to follow the trend set by our southern cousins. I want some good news, but not at the expense of swallowing CREA’s lies and hiding my head in the sand.

Just Sign up for Email subscription (Upper Right) or RSS already. I can’t even think of anything remotely funny today for my promo so the quality of my thoughts and writings will have to do.

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6 Comments so far ↓

  • Jordan

    My perspective on it is that CREA is essentially a lobbying group for the RE industry. They are out to represent the best interests of their members. That’s all.

    What bothers me more is that the media, when reporting on issues related to RE, rarely seems to seek out a contrarian voice of any kind. It’s easy to find RE boosters in Canada — there is CREA, its 100,000 RE agents, and heaps of banking, mortgage and construction industry folks who all stand to benefit when more people buy more expensive houses — but voices urging caution seem to be in short supply (although less so in recent months).

    I don’t want to see people’s savings wiped out, but at the same time, it is hard to argue that the housing boom we’re at the top of comes from anything else but low interest rates, high debt tolerance, and house-lust / bubble mentality. Perpetually high house prices are not good for the economy and I would prefer to see a situation where savers are rewarded instead of one where risk-takers have to get bailed out by the government (a la USA).

  • Graham

    Right off the top, let me say that I own a successful company that helps Canadian private home sellers (FSBOs) sell without using a realtor. So, obviously, I have a vested interest in the direction of this discussion.

    There is no doubt that the Canadian real estate industry is beginning a long, large shake-up. It’s one of the nice things about an economic slow-down (helps get rid of unproductive, inflationary practices – like charging 6% commission when I sell my home).

    I am not surprised by CREAs attitude or tactics – they have used fear and pressure to help their members justify charging outrageous fees for many years. What does surprise me, however, is the general lack of leadership from the federal government’s housing authority (CMHC).

    At this critical economic juncture, Canadians need trustworthy advice, credible statistics and realistic forecasts – none can be expected from CREA but shouldn’t we all hold CMHC to a higher standard and demand a balanced voice in Canadian real estate?

    If we look past the mortgage debacle down south, we see what the Canadian real estate landscape is becoming – home owners selling their own homes for a reasonable profit by using practical, available marketing tools and leveraging their own local networks and the power of the internet.

    Fortunately, CREAs monopolistic power is starting to crumble away and with it also, the one-sided, fear-inducing, fee-justifying rhetoric.

    • Rachelle

      I did attend a lecture about 3 years ago where an analyst from CMHC was speaking and even then he was talking about the housing affordability gap. He cited at that time that the average Toronto family was making about $75,000 per year and the average house required about $96,000 in annual income to buy. Statistically speaking that is a very significant gap. Unfortunately it seems that either the media doesn’t ask to talk to them or they don’t offer, I’m not sure which.

      If they’re anything like me they don’t even like to say these things, the thought of this kind of fall out makes me very uncomfortable.

      What blows me away is the lack of any profit margins in income properties these days, it’s crazy and another sure sign of a market out of whack.

      Seriously anything that help Canadians save money on their home equity is very welcome in my book… want to do an email interview for my blog?

  • Financial Uproar

    I agree wholeheartedly with Jordan. It’s a shame that mainstream media outlets take CREA’s info and report it like it’s the gospel.

    I fully expect that either real estate agents will either have to cut commissions substantially or face guys like Graham taking a big part of their market share.

    Real estate agents can add value to a transaction. It’s tough to argue that they add enough to justify their large commissions. It’s only a matter of time until discount real estate companies take a large part of the market in Canada. Then maybe CREA won’t be able to afford economists anymore!

  • Graham

    Hey, like any business, there are some good ones and some not-so-good ones. Unfortunately, in my experience, too many realtors are lazy, ill-informed and woefully uncreative. Generally speaking, if buyers don’t call because they see a listing on MLS or because they drive by an Open House, well then the property sits there until they do.

    Regardless of competency level, with an average selling price north of $300,000 these days, and at a negotiated 5% commission…that’s $15,000 plus tax. Sorry folks, in my books, that’s way too much just to find me a buyer.

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