Today several Toronto Unions have thrown their support behind the movement. There will be buses of union workers coming into Toronto, meeting at King and Bay St. The unions say that they are joining the protest because they believe in the cause of fairness for the working class.

The Occupy movement does not have a central leader or a central message. The gatherings are loosely organized and people are invited to come and “Sit-in” or “march” on whatever topic they wish. However, the marches are targeted specifically towards Banks, Wall St, and Bay St., and the general theme of the protests seemed to be centred around the topics of:

- Fairness in wages
- The growing divide between rich and poor
- Corporate Profits
- Corporate Tax Breaks
- Excessive Executive Bonuses

These are all pertinent issues in today’s society. These issues seem to be more relevant to Americans than Canadians. The US unemployment is 10%. Americans have lost an incredible amount of net worth because of the housing crash. Canadians have not been affected by any housing crash and our unemployment level is not excessive and is still manageable.

The Occupy protest does have some valid points. But could it be that their demonstration should be aimed at the Government or even the consumer instead of Banks and Financial institutions?

If the Occupy’s beef is with corporate taxes, then shouldn’t they be demonstrating in Ottawa and lobbing to have the tax code changed?

If the Occupy’s beef is with the level of corporate profits, shouldn’t they be exercising their displeasure with their wallets? Will corporate executives pay attention to a protest, or will they pay attention to their sales dropping by 10%? If one million people show up to protest, what is going to change? If one million people decide to pull their money from a specific Canadian bank, or specific gas company, I imagine that executives will notice right away… and make changes.

Apparently the protestors are upset with Canadian Banks. Do these protestors have mortgages, lines of credit, car loans, credit cards? If they have these loans, then they are giving the banks money. If there is a divide between rich and poor, it might be because people don’t live within their means. (Side note: There was a study done in the US that examined poor people without credit cards to middle income people with credit cards. The study proved that the poor people without a credit card actually had a higher net worth than the middle income people with a credit card.) This study shows that some of the divide between rich and poor can be due to the “poor”‘s inability to live within their means. No bank forced anyone to get a credit card, take out a big mortgage, or drive a new SUV.

If protestors feel that corporate executives are making too much money, or have bonuses that are too large, they can also change this with their wallets or their votes. It might not be reasonable to think that a person can buy enough stock to vote out management of a corporation, but that’s the way it’s supposed to work: Shareholders get to vote on a board of directors that have control over a company. Alternatively, protestors can choose not to buy or use any of that company’s products. If you think GM or Royal Bank’s executives make too much money, then don’t buy their products.

Society’s issues are very important. It’s important to voice your opinion and exercise your right to free speech. The Occupy protests are a great example of democratic freedoms. Corporate greed, fairness, and the divide between rich and poor are all very important topics. Kudos to the Occupy movement for bringing them to the forefront of people’s minds. Now how about making an action plan that will get results, force change and change our society…for the better.

Its one thing to tell everyone that you are not happy with a situation, it’s another thing to change your behaviour and do something about your situation.

PropertySold.ca

I personally know multiple individuals who are in their late 40s and early 50s who have recently renovated their homes, and taken on vast amounts of debt to do so.

Two examples involve people who purchased a home 10 years ago for approximately $200,000. Instead of being mortgage free in their 50s, they both recently proceeded to renovate their home. One renovated for $290,000 and another for $400,000. Both renos were funded through cheap credit. Should people who are 50 years old be taking on this amount of debt? I suspect that freedom 55 was not in their retirement plan. Another case involved an individual who was also mortgage free, but decided to sell their family home and “upgraded” by taking on an additional $250,000 mortgage on their new home…at age 55.

Some of the rationalizing arguments of people who take on large mortgages when they should be saving for retirement include:

- You can’t take it with you
- We deserve it
- You only live once

Now you wouldn’t expect that people would be expected to live in a dump or to not enjoy their time, and living space, while they are alive. However, the expectations of all three examples is that they deserve to live in a newly renovated home. That the home they have lived in for 10 years is, all of a sudden, no longer adequate. Not only is it not adequate, but that it required $300,000-$400,000 in renovations.

The expectations of each person in the above examples, is that they can always sell their home and recoup their expenses. They also hold the expectation that they will not lose their jobs. Both of these expectations are on rocky ground. The first assumes that the Canadian Real Estate Market will continue to grow in value and not experience any real estate decline. The second assumption is that people in their late 50s and early 60s have never been replaced, downsized, re-organised or bought out?

I have met people in their late 50s and 60s that now work at Home Depot, Starbuck, and Walmart. They went from earning $100,000 a year to earning $20,000 a year. It’s tough to meet $300,000 in debt obligations when you make $20,000 a year.

The consumer obsession with debt is certainly a generational phenomenon. This “Debt Phenomenon” began in the 70s and has started to grow exponentially in the past 10 years. There seems to be no signs of a debt slow down in Canada.

People who are currently in their 80s and 90s never seemed to want to take on more debt. They experienced The Great Depression when they were young and they went through their life working to get rid of their debt. Early boomers (people who are now 65 years old), had the fortune of growing up in a time of an expanding employment market, defined benefit pensions, and a rapidly increasing housing market. How is it that people who are now 65 still have debt or are increasing their debt?

I think that our consumer obsession with debt will need to end…eventually. Just as there was a noticeable acceptance, and consumption, of debt by the baby boomer generation and Gen X, I think that the reverse will happen for future generations. The generation that is beginning to enter the workforce now will begin to see examples of how debt will negatively affect seniors and baby boomers. They will realize that they do not have a pension and that retirement is no fun when you are forced to work at Walmart. There are two sides to debt. One side is the happy side: Drive nice cars, live in expensive homes, buy nice clothes. The other side is the bad side: Calls from collections, Repo men, bankruptcy. Canadians have only seen the happy side of debt. When our debt to disposable income level is at 150% and seniors are increasing the amount of debt that they have, then the bad side of debt will raise it’s head … eventually.

PropertySold.ca

The Toronto real estate board just reported that the amount of sold homes increased by 25% in September and the average price increased by 10%. Wow!

This is great news for average Canadians. Average Canadians have most of their net worth in their home.

When housing prices increase by 10%, it means that average Canadians become more wealthy (at least on paper).

The average home price in Toronto has increased from $395,000 in 2009 to $431,000 in 2010, and it’s currently at $464,000 so far in 2011. The reasons for these house price increases include low mortgage rates, and high demand: new listings growth has not surpassed the amount of sold home growth, resulting in a seller’s market.

The increase in the average home price is making Canadian real estate owners and investors feel richer because homes in Canada are highly leveraged. For example if a home owner put 10% down in 2009 on a $400,000 home, it would mean that they invested $40,000 in the home and would have taken out a $360,000 mortgage. That home is now worth $470,000. This means that the homeowner has turned their $40,000 into $120,000 in 2 years (The home is worth $470,000 and the mortgage is now $350,000). That is $40,000 a year in appreciation. The home owner has tripled their money in 2 years. Of course the home owners would not see this money unless they sold (or refinanced their home).

The healthy real estate market is great for home owners, banks, and the economy. Home owners feel richer, banks receive their interest on mortgages, and the economy benefits from consumer confidence. Everything is fine for everyone, as long as home prices don’t decline.

Of course the rise in home prices means that anyone entering the market (without selling a home), will need to pay the higher price and will need to take on a larger mortgage. For example, like we mentioned above, a person buying a $400,000 home with 10% down in 2009 had a $360,000 mortgage. The same person buying a $464,000 home with 10% down in 2011 would have a $418,000 mortgage. The person buying a home in 2011 has a mortgage that is $58,000 larger. This additional $58,000 will actually cost more than $128,000 over a 30 year amortization at a 4% interest rate ($58K + $70K in interest). This is a significant difference. Does the person buying in 2011 know that they will be paying a lot more for their home than the person who bought in 2009?

Even looking at a $418,000 mortgage. Do buyers know how much money they make a year and how low it will take them to pay back that amount? Even if you can pay $20,000 a year in principal (not even including interest costs), it would take more than 20 years to pay for that home. Including interest payments, the buyer would need to pay $20,000 a year for 40 years. 40 years!

The increase in home prices is not being driven by increases in salaries. It’s not like Canadians are getting raises of $35,000 a year. Still home prices in Toronto are increasing by $35,000 a year. How long can this continue? Will home prices by 10% more expensive next year. Will buyers in Toronto be putting 10% down on an average home of $500,000 in 2012? Will the average mortgage increase from $418,000 to $450,000? I predict they will. I predict that as long as home prices keep increasing, home buyers will be willing to pay more for homes.

PropertySold.ca

Typically the variable rate depends on the Bank of Canada (BoC) lending rate. The BoC lending rate is the rate that banks can borrow money from the Government. The BoC lending rate is 1% right now. That means that Canadian banks can borrow money at 1% and lend to home owners (for example at 2.5%) with a variable mortgage. This means that the Canadian Banks make 1.5% “profit” off all the money they lend for variable rates. If the BoC raises it’s lending rate to 2%, then the Canadian Banks can raise their variable rate to 3.5% and still make the same profit.

It was very curious, this week, that RBC raised their variable rate, because the BoC did not raise their rate. It’s almost like RBC simply decided to make more profit, so they raised their rate (RBC also come out with negative earnings this week). This recent move by RBC leads us to wonder what will happen to variable rates in 2012 and 2013. Will the Canadian banks all decide to raise their variable rates even if the Bank of Canada does not raise their rates? The banks are allowed to raise their variable rate if they want too. Home owners typically contract for a 5 year variable rate mortgage, with the option to lock in to a fixed rate. Contracting for 5 years, allows the bank the ability to raise rates, without too high a risk of home owners switching mortgage. Switching a mortgage before your term is over can result in a large penalty.

Variable rate mortgages have been the best mortgages to have over the past 10 years. The variable rate has always been lower than the fixed rate. Interest rates have consistently dropped over the past 10 years. For this reason, variable rate mortgages are now very popular. There are millions of Canadians with variable rate mortgages. If the banks decide that they want (or need) to make more money, it might result in banks increasing their variable rates, even though the BoC does not raise their lending rate. Banks have a large customer base with variable rate mortgages, so if they want to increase profits, a simple increase will allow them to do that.

Why do banks need to make more money? Despite the fact that banks are reporting record profit increases, many people are speculating that in the near future, Canadian banks will have difficultly increasing their profits. Financial analyst feel that, over the past 5 years, banks have grown significantly by lending out millions of mortgages. Now that 70% of Canadians own a home, there will be less homes sold, and thus, less mortgages being taken out. This will leave banks searching for new ways to make money. It seems like a very easy way to make more money is simply by increasing the variable rate. This involves no effort or labour on the banks’ part. Any increase is all profit. If a bank has one billion dollars in variable mortgages, a 20 basis point increase (like RBC did this week) adds 2 million dollars in profit. Wow. What an easy way to make 2 million dollars.

Eight times a year, the BoC makes an interest rate decision. Most people follow the Bank of Canada announcements with bated breath. They are on the edge of their seat because they know that if the lending rate is increased, then the variable mortgage rate will increase. However, in light of the RBC increase this week, it appears that people should be watching the Canadian Banks profit and loss statements. If the banks need to make more money, they have an easy way to do it.

PropertySold.ca

For sale by owner has always existed in Ontario. The Real Estate Council of Ontario administers the Real Estate and Business Brokers Act. In the Act, it clearly states that an owner in Ontario has the right to sell their own home. Before the internet, private sellers relied on signs, newspaper ads, and word of mouth. The big FSBO company during this time was called Pear Tree. Pear Tree was a home marketing company that had a magazine and signs.

The explosive growth of the internet in 2000′s led to a change in For Sale By Owner advertising. Realtor.ca was becoming the most popular real estate website in Canada and buyers and sellers were becoming more comfortable with shopping for their next home online. Companies that still relied on newspaper ads faded. The internet resulted in many For Sale By Owner companies being started. Some were franchises, some were websites created by one person with only one employee.

PropertySold.ca was started in 2004. We know from day one that if you wanted to be a successful For Sale By Owner website, you needed to be the 1st search result on Google, Yahoo, and MSN. Along with being the 1st real estate website on search engines, we also provided excellent customer service and professional real estate signs. Because our website receives thousands of website visitors a day, we have a great success rate for sold homes. The more homes that sold, the more people used our website. We are now the growing by leaps and bounds. The volume of our new listings is even getting hard to keep up with!

In Ontario some types of properties are more popular for private sales. Typically detached and semi-detached homes for sale in the suburbs of Toronto and Ottawa are popular for FSBO sales. Condo sales are popular in downtown Toronto.

Cities like London, Ontario and Kitchener also have a great record for private sales. People in these cities are open to the idea of buying and selling without an agent. The popularity in Kitchener also spills over to Cambridge and Guelph. In Toronto cities with a lot of new homes, like Brampton and Mississauga, can be more popular than established areas like Etobicoke. But this is mainly because new home buyers do not have the equity built up into their homes and can not afford to use a real estate agent. For example, sometime when people buy a home for $200,000 and sell 20 years later for $500,000, they don’t mind paying an agent $25,000. But when someone buys a new home for $450,000 and needs sell for $500,000 just to cover HST, legal, and real estate fees, then they are more likely not to use an agent.

Whatever city that you live in, Ontario has a great environment for selling with or without an agent. All it takes is a good home, at a fair price, and to be on the best website…PropertySold.ca!

So it was a very impressive year for real estate sales in 2010. However, a closer examination of the number of sales reveals that in the first half of the year (from January to June in 2010), sales totaled 50,455 units and had increased by 23% compared to 2009. In the second half of the year (from July to December), sales totaled 35,715 and had actually decreased by 25% compared to 2009. So it appears that 2010 was a year in which sales skyrocketed in the first 6 months and then plunged (comparatively) in the last 6 months. However, these seemed to have little impact on price…

The average home price increased by 9% in 2010 and it showed steady growth month over month. Even in the last 6 months when sales were dropping, the average home price was well over the 2009 price for the same month. This is incredible when compared to other countries (Ireland, US, England…) who all saw home prices continue to drop in 2010. Some of the factors related to the increase in prices include a lack of listings (and a lot of people who wanted to buy!) as well as record low mortgage rates. In the graphs below, you will notice a increase in the average price and a decrease in the active listings.

Let’s see what 2011 will bring!

PropertySold.ca

- Sales will decrease slightly in 2011
- Prices will rise 3% in 2011

It should not be a big surprise that Remax would issue a positive forecast for the housing market. They are a real estate company. Their agents earn commission from real estate transactions. However, what is amazing about the Remax report is how almost every newspaper in Canada wrote an article about the report. Here are some titles from December 7th, from newspapers across Canada.

“Things are looking up for Calgary real estate” CTV.ca
“Vancouver house prices keep rising” The Province
“Real estate market expected to return to traditional cycle” Daily Gleaner
“2011 housing prices to climb while sales stall” CTV.ca
“2011 housing sales to be flat: Re/Max” CBC.ca
“Housing market to slow further in 2011: RE/MAX” Toronto Sun
“Regina’s real estate market expected to remain strong in 2011: RE/MAX report” mysask.com
“Housing market to see ‘greater stability’” Globe and Mail – Steve Ladurantaye
“Calgary real estate sales and prices to improve” 660 News – Kevin Usselman
“Average Canadian housing prices to rise three per cent in 2011: Re/Max” Winnipeg Free Press
“ReMax sees positive signs for Kelowna housing sales” BCLocalNews – Kathy Michaels
“Housing demand to grow” StarPhoenix
“Home prices expected to keep rising” Montreal Gazette – Derek Abma
“Housing prices continue to climb in Regina: Remax report” 980 CJME News Talk Radio
“Vancouver to lead 2011 housing sales activity” Business in Vancouver
“Housing sales to remain static for 2011: Re/Max” Canadian Mortgage Broker News

This is just a sample of all the articles in newspaper and TV stories, from yesterday, based on the Remax report. Every major media newspaper and TV ran a story. If you read the titles of the articles, you will see that they are mostly all positive.

Now consider this: The actual stats are that real estate sales in Canada have dropped by 15-20% since June. Had it not been for a very robust 1st half of the year, sales year-to-date would have been much lower than last year. In October, the average price for a home in Canada was 1% higher than in 2009.

One problem with reporting the Remax report in every newspaper with positive titles, is that the readers sometimes think that these are the facts. In fact, my brother called me to say that he “just read the newspaper and saw the news about the “great” Real Estate market. ‘it looks like the real estate market is still red hot’”. He had no idea that the newspaper article and tv report were only based on a Remax forecast.

Perhaps at the end of 2011 we will see that the Remax report was 100% correct (or perhaps not), but should newspapers create dozens of articles based on a report issued by a company (who’s business is to make money from real estate)? Or should the newspapers quote the facts and then perhaps mention that Remax has these “opinions”? Perhaps the newspapers could research the accuracy of previous forecasts by real estate brokerages and include that data in their articles?

PropertySold.ca

It looks like the real estate market is very hot despite all the recent “real estate bubble” articles and blogs, which predict a rapid decline in real estate prices. The average price was the 2nd highest on record. Only May’s high of $446,593 was more.

The decline of 21% in sales is significant, but sales were very hot last October. In 2010 there were 6,681 sales in the month of October. The sales for the same month in previous years were 8476 (2009), 5155 (2008), 7915 (2007). So although the sales last month were lower, they did not come close to reaching the “financial crisis” low of 2008.

Propertysold.ca

House prices on healthy rise: Royal LePage (Vancouver Sun)

Average house prices show return to normalcy: LePage (CTV)

HALIFAX HOUSE PRICES SEE HEALTHY YEAR-OVER-YEAR INCREASES (Newswire)

More recently CREA released their September stats in a press release:

September home resales improve from prior month (CTV)

Home sales rise slightly in September (Globe and Mail)

And here are some links to the recent REMAX reports:

Real estate picture improving: Re/Max (CBC)

ReMax paints rosy fall housing market picture (CTV)

Edmonton luxury-home sales up 26 per cent from last year, ReMax says (Vancouver SUN)

WARNING: Always take reports and stats from Real Estate Brokerages and Real Estate Associations with a Grain of Salt:

While there is nothing factually wrong or statistically incorrect with these reports, we must understand that it is the job of these organizations to promote real estate sales and to promote a healthy real estate market (regardless of if the market is healthy or not). You can be sure that no matter what the statistics are, that the reports generated by real estate brokerages and real estate associations will be positive. Here are some ways they make the reports positive, even when the statistics say otherwise:

Trick #1 – If the sales have declined significantly from the previous year, then the report will tend to compare to the previous month instead. For example, when September’s sales were down by 20% from September 2009, most reports by real estate associations compared Septembers sales to August (the previous month) and said that sales are increasing. Of course, most people know that you cannot compare September’s real estate sales to August, because real estate is seasonal. September should always be higher than August. It’s like saying that the sales of pumpkins in October have increased significantly compared to September’s pumpkin sales. Of course they have!

Trick #2 - Another way that these reports are positive when the statistics are negative, is that they simply find something that’s positive and promote that. Such as the report above that talks about luxury home sales rising. The title says that luxury home sales increased by 26%. Big deal? This means that they sold 240 luxury homes compared to 190. This is only 50 more. However, also in that report it says that overall sales decreased by 14% and this means that about 2000 less homes sold compared to the year before.

Trick #3 – Language: These reports will use words like “Balanced”, “Stabilized”, “Soft Landing”, “Buyers Market” in order to describe a housing crash. If the situation is negative, the reports from real estate associations will use words that sugar coat the reality. Remember – it’s their job to promote a positive housing market. With this being said, here is a link to an article called Calgary house prices stabilize One quote from this article actually uses two of these words in the same sentence “…as we approach the end of 2010, expect to see the Calgary housing market stabilize and balance out.”

Again, we are not saying that these reports are wrong. Perhaps the real estate market is healthy. Perhaps the recent sales decline in June, July, August, September, and October will not impact prices. These declines have not hurt prices so far. Home prices are increasing at 5-7% a year in some places and they are flat in other places. This might indicate a solid market that is not over heated. However, just a simple warning, that when the organization that releases the reports on real estate, is the same organization that is responsible for those statistics being positive, then you will always get positive reports.

Here is an excerpt from an interview (Jan 2009) with the former head of the National Association of Realtors in the USA from the article titled Former real estate bull admits, “I spun”:

Working for realtors, David Lereah was famously optimistic. Not anymore.
By Donna Rosato

As chief economist for the National Association of Realtors, David Lereah was famously optimistic. Now a private consultant, he’s abandoned what he calls the “positive spin.”

Q: Were you wrong to be so bullish?

A: I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Q: The NAR’s latest forecast calls for a slight increase in home prices next year. Thoughts?

A: My views are quite different now. I’m pretty bearish and have been for the past year and a half. Home prices will continue to drop. I think we’ll see a very modest recovery in sales activity in 2009. But we’ve still got excess inventories, a bad economy and a credit crunch that will push prices down further, another 5% to 10% more. It’ll take a long time to get back to the peak prices we saw in many markets.

Q: Any regrets?

A: I would not have done anything different. But I was a public spokesman writing about housing having a good future. I was wrong. I have to take responsibility for that.

Another great blog that shows the multiple positive NAR press releases as the market declines in the US, can be found here:

Tracking Realtor Spin

Propertysold.ca

Speaking on the sidelines of the Asian Investor’s Asia-Pacific Debt Investor Forum, [Rogoff said] “It’s a bubble and it’s unpredictable how it will play out in the banking system. Banks have lent too much in real estate and might have to write off a good proportion of the loans.” [Source: AsiaNews.it]

Rogoff bases his assessment on the trends in Beijing and Shanghai real estate prices and an even more careful assessment of the price trends in relation to sales trends. In both major cities, prices rose at an annualized rate above 12%, continuing a boom that began early in 2007. In stark contrast to prices, the aggregate value of sales in the major cities dropped 25%. Saying that investors “taken a departure from reality,” Rogoff criticized Chinese banks for encouraging speculation and fueling “the bubble” with ill-advised loans.

Rogoff also called attention to the realities of Chinese economic growth, of which most North Americans remain blissfully unaware: Like all of the modern industrialized nations, China has burped and coughed through the last several years, maintaining its strength primarily by foreign borrowers’ debt service. Rogoff emphasized that China stands right at the verge of double-dip recession. Moreover, Rogoff openly worries that the Chinese harbor grossly unrealistic expectations for sustained export growth—especially as other industrialized nations re-build, re-tool, and automate their manufacturing bases. “At some point [the Chinese] have to redirect their strategy,” he said.

Asian investors seem to agree with Rogoff’s assessment of the Chinese real estate bubble, and they have begun taking their profits and moving to the sidelines. During a five-day period in early July, 2010, the Shanghai Composite Index suffered its worst losses in a year, tumbling 6.7%.

In 2009, banks lent heavily in real estate. In recent weeks, some banks have had to re-capitalise, a step often undertaken to conceal huge losses, by increasing stock offerings. The Agricultural Bank of China Ltd for example has launched a US$ 20. Billion initial public offering. [Source: AsiaNews.it]