Trish Bongard Godfrey

The House Crash Begins... Or so they said

13 September 2013
Trish Bongard Godfrey

"The House Crash Begins."

“Vancouver house prices have plummeted by 12%. Toronto sales are stalling. How the meltdown will play out this fall." That was Canadian Business Magazine's cover story on October 1, 2012, by Joe Castaldo.  

As a realtor, I often wonder how these “media experts” distill all the available information to make these predictions, why they bother, and how accurate they turn out to be. The “why they bother” question is easy: to sell magazines. How they filter facts from opinions is another question. I have great respect for the journalistic profession – especially when they "report" news. But I have less time for the sensationalist stories and predictions the editors dream up to scare the public into buying their product. Here is alink to the so called "crash" article.I won't repeat the details ad nauseam. 

However, referring to Vancouver and Toronto, Castaldo states: "Now it's clear there is trouble ahead. The weakness in both cities marks the start of a reversal in the long boom for Canadian Real Estate."

"The crash begins!" The housing market did not crash. In the two cities he focused on (Vancouver and Toronto), Vancouver saw some of the biggest gains in the country this year. According to the Canadian Real Estate Association (CREA): 

  • In one year to the end of June, 2013, the average price of a Vancouver home increased 8.8% to $762,861 from $701,141.
  • In one year to the end of June, 2013, the average price of a Toronto home increased 4.5% to $531,374 from $508,622.So much for getting Real Estate advice from a journalist.

The article was one part of their Special Report on the economy and future trends. They made five other predictions:

Grocery prices would rise. Yes, they did. But not in the way they predicted, and not by as much.

Facebook's stock would get its groove back. I have to ask, does this really matter to readers of Canadian Business? Anyway…On October 1, 2012, FB closed at $21.99 (USD on the NASDAQ). Yesterday it closed at $26.29. On May 18, 2012, it closed at $38.23. Is that getting its groove back or was Facebook a face-plant?

The US would retreat from the fiscal cliff with a band aid solution. Nailed that one – but really, did Canadian Business think they wouldn't find a solution of some sort? 

The Eurozone would bail out Spain. Didn't happen the way they predicted. In fact, to my way of understating it, Spain was offered a bunch of money – a total of ? 100bn – in rescue money to prop up its banks and stop the country from slipping into default. However, it has only used ?41bn thus far, and it has until the end of the year to tap into the rest. In fact, they have asked for an extension to allow them to continue to stabilize their economy. The Eurozone has actually relaxed their requirements for Spanish banks – I would think as an indication that things are headed in a better direction. They did not "soak up" the ?100bn as described in the magazine.

Digital wallets will finally arrive. New payment apps will turn smart phones into credit cards! Not so fast, Joe. That’s true for my iPhone’s iTunes app, which has allowed me to surf, discover, and download some pretty cool apps and music I wouldn’t normally hear on the radio. But dump my credit and bank cards in favour of my phone? Hardly. I can't get my phone to fit into the bank machine for cash.

So what is my point? Bad predictions make people act in ways that may not be in their best interests. Journalists do not know more than other people about what is going to happen. In fact, maybe less so.

If I scream from the top of the CN Tower, "Hey Toronto! Ya gotta live somewhere!", it is a common-sense version of the Royal Bank's prediction in the article, which the author sort of ignored:

"The Royal Bank of Canada put out a report in July (2012) that argued the booming condo market ‘does not imply a bubble.’ According to the RBC, the influx of new residents to Toronto over the next few years will be enough to populate the tens of thousands of condo units. A structural shift in housing is also happening. Few single-family homes are being built today, which means young families will have to turn to condos.’"

Facts and Feelings

I reckon predictions are based on a few facts and some feelings mixed together to make us think we can see the future, for better or worse. The last point I want to make is this. If you are buying or selling a house, you need to discern between facts and feelings and not base your opinions on what a journalist "predicts".

Ask yourself:

Facts: What evidence does the realtor present to justify the listing and probable selling price of my property or the one I want to buy? Do I disagree with the agent based on facts, or based just on my wish and belief that my home is worth more?

Should I offer more for a listed property when we are in multiple offers? When you are buying, you can decide if you want to pay more, but as a seller, your feelings about your property don't play much into the way a buyer sees it. Facts are your friends. Listen to facts.

Feelings and Intuition: Can I trust this realtor with my personal information and my most valuable asset? I may not like the listing and selling price they gave me, but can I trust his agent to give me straight answers, and honest feedback and to listen to my concerns?

It's a relationship you're entering into, and one that ideally you need to feel good about. Realtors can't make accurate, absolute predictions about the market (we'd be out of a job if we were as bad at it as this journalist), but based on our daily on-the-ground experience, networking with colleagues, and readily available data, we should be able to give you good idea about the value of property in today's market, and how to act accordingly. Ya gotta live somewhere.