Thursday, October 2, 2008

Don't Believe Everything You Read

The current issue of McLean's magazine has a cover story pertaining to the Canadian real estate market. As is the usual posture of the media, negative, sensationalisitic headlines draws attention and generates revenues through the sale of newspapers and magazines. My written response sent to the Editor of McLean's in my capacity as the President of the Georgian Triangle Real Estate Board is as follows:

Jason Kirby’s article pertaining to Canada’s real estate market entitled “It Could Happen Here” is another example of fear mongering media sensationalism that offers little relevance to current real estate market conditions here in Canada.

Much of his article is based on the so-called expert opinion of an economist and as we all know, economists have historically had a poor track record of accurately predicting what is going to happen and when as is aptly illustrated in the current real estate and economic mess south of the border. In this case it’s an economist with Merrill Lynch and given their recent write-down of $40 billion U.S. in bad debt over the past year, their past lending practices are arguably part of the problem.

Your columnist Mr. Kirby states that “…tighter lending standards affecting first-time homebuyers might not knock the foundation out from beneath Canadian house prices.” The fact is tighter lending practices exist for Canadians in general and not just first-time homebuyers which has resulted in a much more stable banking and financial environment in Canada overall. Sloppy credit management practices driven by the greed of both lenders and over-zealous buyers coupled with a weak U.S. economy are not conditions that loom ominously on the Canadian economic horizon as you would have us believe making the title “It Could Happen Here” somewhat of a reckless, unsubstantiated statement.

Too often the media is quick to make statements as does Mr. Kirby relative to “average” house prices without qualifying this information. Ultimately “average” house prices are typically impacted more by the mix of product being sold versus price appreciation or depreciation. The average house price throughout the market can be positively driven upward when there is a significant increase in higher-end home sales. Conversely, increased activity at the lower end of the market tends to exert downward pressure on the average price. Quoting in the article that “in 2000 the average selling price of a house in a major Canadian market was $158,082” followed by “Earlier this year it hit $327,620” suggests to your readers that based on this information homes have increased on average by 107% in less than 8 years and nothing could be further from the truth. Without question, housing markets in Vancouver, Calgary and other western Canadian cities have been grossly over-heated and are due for a correction. Such is not the case across much of the country. Further, quoting examples such as a trailer home in Fort McMurray originally purchased for $190,000 now allegedly worth half a million dollars or a boarded up home in Detroit which was vandalized and subsequently sold for $1 are again hardly examples of the Canadian real estate market as a whole.

Most markets across Canada have had an abundance of properties listed for sale during the past several years giving buyers ample choices so “…streets cluttered with For Sale signs…” is not a new phenomena. A high inventory of homes available on most MLS® systems across Canada in recent years, our strong economic performance and attractive yet prudently managed lending practices have helped to fuel sales activity in recent years. Comments made by Merrill Lynch’s economist that on a national basis “houses are 9.2 percent overvalued” is but one person's opinion, as market pricing is ultimately driven by what buyers can and more importantly are willing to pay. Unless our economy shrinks drastically and or interest rates spike significantly, there is no reason to think that real estate market conditions in general will not remain stable yet balanced for the foreseeable future.

Lastly, let’s not forget about the impact of demographics as author David K. Foot stated in his book Boom, Bust, Echo “…the real estate market is affected far more by demographics than it is by economics.” Baby boomers approaching retirement, first-time buyers looking to move-up and others who are perhaps able to and choose to work from home, are but many of the “non-economic” drivers that will affect future real estate market conditions. It certainly will not be the $1 foreclosure sale in downtown Detroit.

I look forward to McLean's printing this letter in a forthcoming issue. Further, a year-to-date summary of current market conditions here in the Georgian Triangle will appear in my next posting.

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Rick relocated to Collingwood from Toronto in 1985 through a transfer with Goodyear Canada. In 1987 Rick was recruited by a major client of Goodyear’s, managing their Canadian business based in Barrie before moving to Chicago in 1992 as Vice President of Sales & Marketing. Upon returning to Canada in 1996, Rick ran an industrial products manufacturing company in Stratford, Ontario. In 1998 Rick returned to Collingwood with his two children. Rick is a licensed real estate Broker with Royal LePAGE Locations North in Collingwood and holds his MVA designation (Market Value Appraiser-Residential). He is an active volunteer in the community serving several years on the Board of Directors with the Collingwood Chamber of Commerce as Treasurer, 6 years on the Board of Directors for the Southern Georgian Bay Association of REALTORS® of which he is the Past President (2008) and currently serves on a committee with the Ontario Real Estate Association. Rick is a diverse executive manager with extensive experience in strategic planning, manufacturing, finance, human resources and quality assurance management.