Edmonton just out paced sales numbers from April 2006. For those too young to know what that means, between 2006 and 2008 home prices doubled in a real estate boom, and never did come back down to pre-2006 numbers. Even townhouse and apartment condo values are even showing signs of improvement.
To see detailed statistics on the housing and condo market, visit HERE
What does this look like on the ground? We reached out to schedule nine viewings this evening in the Westend, west of the Henday. Seven of the nine listings are conditionally sold or sold. Of the two available, we will be in que for one, and I am guessing the other is rough for it to be sitting the 66 days that it has been.
When does the bubble burst?
I think most of us agree this is a bubble caused by global governments flooding economies with cash to combat economic stagnation caused by the pandemic. Coupled with the lowest interest rates in history, travel and entertainment restrictions, and unemployment mostly affecting lower wage employees in the service sector, here we are, in a cross continental real estate boom.
What happens when we are all vaccinated and the covid bucks stop? I am going to think aloud here in an effort to come to a reasonable conclusion. With low interest rates and printed money in the form of economic stimulus, our dollar becomes worth-less and the cost of everything rises, better known as inflation. Historically, central banks will raise the Canadian Bond rate to encourage people to invest and raise its overnight lending rate to encourage people to save , borrow less and pay off their loans. Governments will, in a sense, try to take back money they injected into the economy to curb the rising cost of everything. I suppose this leads to the question, if the government does this, what will the effect be?
Historically, (well, my history anyway, I was young in the 80s) Canadian financial legislation has been world class. Because of our lending criteria, we survived much of the world financial crisis in 2009. From 2006-2008, mortgages were only given to qualified buyers, unlike the States where Ninja Loans were created, and then packaged as investment vehicles (Have you seen the Big Short? The Age of Turbulence is also a great read). Today, our banks only lend to us if we can cover the debt higher than the actual interest rate we are given. I think we are qualified at 5.5% while we are getting mortgages at 1-2%. The question then becomes can the government manage sufficiently to keep our interest rates well under 5% while curbing inflation and keeping the economy running. To that I have no answer. Unfortunately, these things are so much clearer to read about they have already taken place.
An entirely non-compliant house
Real Property Reports with compliance are becoming more and more of concern as the market heats up. When there is more activity, more mistakes happen. Here a story from last month. A Seller agrees to list and sell his rural property. The standard form listing contract he signs with his agent says that he agrees the home is built to municipal compliance and he the Seller will provide a Real Property Report with compliance within 10 days of signing that agreement. The home is listed and sold before anyone ever sees the Real Property Report. When the lawyers go to close the file, the entire home is found to be non-compliant as it was built off the wrong site plan.
Why does this matter? The Seller breached his own contract, and no buyer in their right mind will buy an entirely noncompliant home as technically, the municipality can ask you to correct noncompliance whenever they like. The Seller and their agent are now responsible to a buyer, their agent, and their lawyer. I suspect pants will be sued off. With the Seller thinking their property was sold, they committed to purchase another property, the Seller is legally responsible for that contract, and the bank was only lending to the Seller with the notion that the proceeds from house #1 were on the way. With no pants left to sue, the Seller and their agent could be naked for some time.
This story is second hand, but how could this have been avoided? If a Seller gets a good offer before they can view their own Real Property Report and compliance certificate Sellers can ask that a condition be added to the purchase contract. It lets them review their own RPR and compliance certificate before communicating to the buyer that the home and permanent structures on the property are compliant or not. Buyers can protect themselves by asking to view the RPR and compliance certificate up front. Sellers may not yet have one, but at least it will start the appropriate dialogue to protect everyone.
There were a few smaller cases last month where sellers signed listing agreements and purchase contracts stating their homes were compliant without knowing if they were or not. Non-compliance issues like decks, porches and fences come up at closing with the lawyers where buyers typically benefit by money off the purchase price or cash being held back until the compliance issues are corrected. In one case, the Sellers held their agent financially responsible for suggesting they sign the contract when they didn’t have compliance.
We ran into a situation with a furnace failing on possession day. The furnace was working fine when the Seller finished cleaning the home that morning for possession and by the afternoon the new owner was having trouble with it. Of course, it was an expensive high efficiency unit. The Sellers were unaware of any furnace trouble. The buyer’s Lawyer ended up sending a demand letter to the Sellers lawyers saying it is the Sellers responsibility to correct it, of course the deal had been completed, so outside of small claims court, the Seller nor their Lawyer had any further obligation to the Buyer or their Lawyer. The buyer was fully protected in this case, they had an inspection, the Seller had provided invoices for deficiencies corrected from the inspection, and the buyer was given the chance to walk through the home 48 hours before transferring the full purchase amount.
In this case the furnace failing was dumb bad luck. But what can Buyers do to further protect themselves? I think having realistic expectations is important. Home ownership consistently costs money. End stop. And watching this above scenario unfold, like it or lump it, your home will always cost you money. Reading the room a bit can help too, if someone is willing to show their home when it looks like a dump, I’d fully expect that is what I or worse get on possession day.
How can I protect myself as a Seller? Although the Seller was not responsible to the buyer after possession, legal threats and accusations can be emotionally draining. If a buyer and their agent are difficult during negotiation perhaps let them walk before getting into a contract with them. For the first time in many years, it is a Sellers market, less tolerance for other people shortcomings is needed to get your home sold.
Mortgage Brokers are turning deals much faster and at lower rates than big banks right now. The benefit to big banks right now is they can be a good source for less conventional lending on smaller condos and mobile homes.
A local lawyer notorious for casting shade on Realtors was called out yesterday on social media. The response was astounding. It turns out we have all had similar experiences with the lawyer, and people started to speak up in unison. Personally, he threatened to send me to our regulator on a file years ago. Everything I was doing was above board, he was putting on a show for his clients, I suppose to justify his value. It turns out this is a part of his schtick and people have had enough.
We are currently limiting property viewings to two adults and an agent per viewing. Masks, sanitizer, social distancing, limited touching, hold harmless agreements and health questionnaires are required. Typing it out it seems much more labour intensive than it actually is, most of us are acclimatized to these restrictions. On a lighter note, no one can see your face in a mask, I make a practice of making whatever face I like while grocery shopping, it’s kind of fun. And hey, don’t forget to smile, it can be tough out there, everyone can read and appreciate smiling eyes.
A Personal Note
Thank you all for your engagements over the last month. I get a few positive comments or two every month and even new email addresses to include in the mailer. Did I mention no bounce backs? It is so encouraging, and I appreciate it. Thank you everyone.