Realtor ethics….an oxymoron?
I know there are honest realtors out there, so the title is a bit unfair. I also know that a number of realtors frequent this lowly blog. I don’t have a problem with realtors who don’t abuse the asymmetric knowledge relationship between them and their clients. Realtors are expected to possess a knowledge of market fundamentals and then to use that to help their clients make prudent decisions. If you are a realtor who sticks to this code of conduct, this next rant is not directed at you. However, it’s a reality that the compensation structure within the real estate industry ensures that many will not adhere to the ethics described above.
Case in point. Consider the email circulated by a certain GTA realtor highlighted over on Garth Turner’s blog:
“If you have been thinking of buying a home, NOW is the time to do it as there will be less people qualifying to buy a home after the March 18th, 2011 expected effective date!
Thinking of selling? NOW is the time to do it as there will be less people qualifying to buy a home! This includes yours! There could be a lot more houses on the market than there are buyers qualified to buy them. This could in turn, decrease the current value of your home after the March 18, 2011 estimated effective date.”
It should be evident to anyone whose neurons are still firing that it cannot simultaneously be a good time to both buy and sell a home. It’s strangely reminiscent of this ad taken out by the National Association of Realtors in the US as their market began to dry up.
Pretty shady stuff! For a hopefully more rational discussion of the logic involved in either buying now or waiting until after the new rules come into effect, check out these posts:
Do buyers or sellers determine real estate prices?
Why a ‘rush to buy’ is completely irrational
CPI hits 2.4% in December
The Consumer Price Index registered a 2.4% (seasonally adjusted) increase in the 12 months ending in December, the largest seasonally adjusted pace of increase in two years.
Price increases were broad based, rising in 7 of 8 components.
Ontario saw the greatest price increase with the CPI increase registering at 3.3%
On a nominal, month-over-month basis, prices were flat.
The core CPI which excludes the most volatile components such as energy, and which the Bank of Canada aims to keep at roughly 2% registered an increase of 1.5%. Despite the headline numbers, there’s nothing in this report that would suggest that the Bank of Canada will feel any sense of urgency in hiking rates to keep a lid on inflation. However, the trend is certainly a concern.
Cheers,
Ben
Financial Insights 
Despite these inflation statistics, isn’t it still more likely that deflationary pressures will take hold of the economy as per your primers?
It’s also very possible to see rising prices during a deflationary spiral, is it not?
Absolutely! The post just prior to this one might help answer your question.
Some points to consider.
The GDP seems ok.
The PPI seems to be creeping upward. So….. its no wonder our dollar is remaining strong.
The inflation realization will only happen if we continue to falsely evaluate the economy and over inflate the actual economy.
To me it seems that commodities markets are hedging on a stronger than actual recovery and that is driving the CPI up as well. I think this will be a key contributor to next huge correction coming our way in the near future. Hopefully our markets here in Canada make this realization soon enough to make the proper changes and adjustments so that we can realize a true recovery.
Ben,
CPI hitting 2.4% – this is in support to what I have been saying on this blog.
Prepare for a long period of interest rates lagging inflation and stagnation on home prices.
Most goverment workes are getting increases bigger or at least the same as inflation rate. I think about 50% of our workforce is on goverement payroll.
In my department, the wages have increased consistantly at 1 to 2% more than the inflation rate for the last 20 years I am here. So is the case this year. Sure, it is a hard time for people without a stable job.
That’s probably more the exception than the rule though, especially going forward. Here in the BC government, we’ve seen wage freezes, reclassifications of jobs at lower pay grades, and layoffs. Going forward as the necessity of austerity increases, that is only going to get worse.
You are assuming that the CPI increases are being passed on in the form of income gains. If the PPI doesn’t rise accordingly, it means a squeezing of margins….not a good sign. I’m not dismissing the chance of a stagnating real estate market while income catches up, but I put it as a considerably less likely scenario.
One problem with low inflation environments is that inflation can’t magically “re class” labour properly so I’m willing to bet with the next economic cycle the layoffs will probably be more severe.
FEI (For Everyone’s Information):
Here’s what The Mortgage Guy says about making deals on houses after the March 18th deadline. It’s been a spot of confusion for me as I wonder if “horny young granite and stainless buyers”, to borrow a phrase from Garth, will be able to extend the 35-year amortization for 90 to 120 days after March 18th, as they have done with mortgage pre-approvals in the past. The good news is it looks as if they can’t.
“The adjustments to the mortgage insurance guarantee framework will come into force on March 18, 2011. The withdrawal of government insurance backing on lines of credit secured by homes will come into force on April 18, 2011.”
Because CMHC and Genworth(the mortgage insurers) only approve the mortgage once an offer has been accepted, a pre-approval with a lender that holds the rate for 120 days, does NOT hold the current guidelines(ie the amortization at 35 yrs while the clients are looking for a house). An offer must be accepted and the CMHC APPROVAL put in place prior to the March 18th, 2011 deadline, to use the current guidelines.
If the client does not have the CMHC approval prior to the March 18th, 2011 deadline, then the client would be held to the new 30 yr amortization guidelines, 85% refinancing rules.
Similarly with the secured line of credit, if the CMHC approval has not been given prior to the April 18th, 2011, then the client will no longer be allowed to have a secured L/C over 80% of the property’s value.”
Source: The Mortgage Guy
http://tinyurl.com/6cvw95h
That makes sense. The pre-approval is between the customer and the lender, not the insurer.
How in the hell did Flaherty keep a straight face?
Canada has been responsible? 0% down/40 year amortizations? HELOC’s? 5% down/35 year amortizations, and the 5% down given as cash back?
If this isn’t the most irresponsible behaviour, I don’t know what is. The sheeple are about to be fleeced.
Whatever happened to a downpayment? Oh, I see, there’s no way that the young couple could come up with 20% of $400,000.00. Why, that’d be $80,000.00. That’s too much and too long a wait to save it up. Realtors, mortgage brokers and bankers could starve in the interim. Better to give it to them right away, so as to pump the market up. The only reason prices went up is because cost of credit went down. People who would never ever have gotten a mortgage before all of a sudden were able to. What a Ponzi scheme; keep sucking the lower end in, thereby pushing the prices up.
When this all falls apart (and I’ve seen it happen a few times now), they will walk. Who gets the bill? Yes, you guessed right, the taxpayers.