SOLUTIONS
I’m feeling a little like Charlie Brown today. Let me explain.
I’ve been a subscriber to The Globe and Mail for at least the past 30 years. I find that of all the “national” newspapers in Canada, it’s, in my opinion, probably the most centric paper in terms of what and how it reports – with the exception of one area.
The Globe and Mail hates residential real estate. Rob Carrick, their personal finance columnist, wrote in today’s edition about what must happen in order for young buyers to afford real estate.
Read the article here: The only way young buyers will afford houses is if current owners give up some of their gains
The gist of the article is that, in order to make the housing market more affordable to young buyers, something drastic must be done. Mr. Carrrick is suggesting that current homeowners, meaning sellers, should be prepared to sacrifice some of their gains in the marketplace for the good of entry level buyers. That “sacrifice” in his opinion, should be a tax on capital gains or some sort of cap on what you as a homeowner should be allowed to claim as a tax free gain.
We have explored in a number of our posts the issues and causes around the current demand and price inflation we’re experiencing in local housing markets. We’ve identified the lack of inventory, and lack of a solid plan to expand the housing stock in the country.
The solutions, as are typical of a complex problem, require a lot of long term planning and commitment from all levels of government. However, for many politicians that think in 4 year terms, the solutions proposed are usually bandaids at best, and tailored to fit into a 30 second sound bite.
The one thing Carrick got right in his article is that as Canadians, we do see housing and homeownership as a foundational issue.
It is ingrained in the Canadian psyche to be as self-reliant as possible, and in the minds of many, that means your home is your castle and your primary source of wealth in retirement. It’s our biggest asset that will see us through to the end.
But, taxing capital gains is not the answer. Let’s look at long term strategies that will help build housing stocks up that people want to buy and live in affordably. The problems we have in today’s market are not caused by foreigners or even speculators for that matter. The root of these problems is that there are not enough homes available to be bought or rented to satisfy the demand that is there.
Poor planning, rent controls, land transfer taxes on land transfer taxes, and not enforcing the current tax structure of properties that are flipped are just some of the low hanging fruit that this country could start to address.
A number of people point the finger at the real estate industry as the problem for the massive price increases. There are a lot of things that can be improved within the real estate industry, but thinking that Realtors somehow control the prices of homes is not realistic or valid.
The current trend of blind bidding wars is responsible for some of the price inflation we’re faced with. This is a short term tactic being used to deal with the demand in the marketplace. The easy solution here is to open up that process so that everyone gets to see what’s on the table and can therefore make buying decisions in a more realistic way. Realtors are not responsible for this tactic. This is the result of the way the current legislation is written.
The law in Ontario, as it is now stipulates, is that I cannot disclose the terms of other offers to any other party. So, while 12 people may be bidding on a house that day, the law prohibits us from disclosing the details of any of the offers to the other participants, unless everyone coming to the table agrees. Good luck getting voluntary compliance on that. The legislation should be changed to have a bidding process that looks more like an auction. This would take some of the crazy bidding over list out of the picture.
The short term solution also involves the buyers and their representatives.
There are plenty or recent examples of sellers and their agents trying to price homes realistically in this market. They are avoiding the tactic of deliberately underpricing to create a feeding frenzy. Buyers and their Realtors have been programmed that the list price is artificially low, and that even if a listing is priced accurately, the expectation is that it should still sell well over list price. The simple solution: don’t buy into the cheesy marketing messages from some agents that crow about their superior efforts in procuring offers well over list price.
The short answer is this market won’t last much longer like this, and we will need a long term strategy to address a supply issue that has been growing for decades. The solutions will take local, provincial, federal and industry leads to address.
Don’t shoot me – I’m the messenger, and I want to be part of the solution – for the sake of our industry, and our clients.
THE PAST WEEK IN THE GUELPH REAL ESTATE MARKET
This past week in our local market, 81 homes were sold – a dramatically busier week than the same week in 2020, where a mere 26 homes sold. It is relevant to note that this week last year, we were approximately three weeks into a brand new and entirely unknown global pandemic.
The median home this past week was 3 bedrooms, 2 bathrooms, and 1,405 square feet. This home sold in 7 days for a median sale price of $705,000 – that translates to $439/sqft. Sellers negotiated 108% of the original list price.
Same week last year, the median home was approximately the same size, with 3 beds, 2 baths and 1,490 square feet. In contrast, this home sold in 13 days for $585,500 – that’s $403/sqft and 100% of the original list price.
66 of the 81 homes sold this past week went at or above list price (that’s 81%; the last two weeks we saw 88% and 87%).
You’ll find the details of the past week’s sales in the weekly reports (find the link in your email), and if you’re not a subscriber, sign up below to receive exclusive access to this sales data.
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