Thursday, 19 February 2015

Are suburbs really dead?

Many books and reports have come out in the past ten to fifteen years regarding the death of the suburb. There's "Death By Suburb", "Death of A Suburban Dream" and "The End of Suburbs" to name a few. Of course, many of these books focus on the American city and how their inner suburbs are failing as opposed to the outer suburbs which are often still growing in successful cities.

The suburbs came into prominence after World War II, though the existence of suburbs have been around well over a hundred years. Returning war vets came home and purchased a slice of the good life. Buyers back then craved spacious homes, large lots and trees where there was generally a low crime rate and decent schools. The city centres at this time became a place where minorities would go whether they were poorer folks, outcasts or new immigrants from other countries.

So, what happened? Well, in the 80s and 90s young university-educated adults started returning to the  cities in great numbers attracted by jobs, and the urban culture which was often a reflection of the immigrants and outcasts who came before them. Plus, in growing cities like Toronto, the commute became too long. You couldn't be done work at 5pm and expect to be at the dinner table by 5:30pm like when Toronto was much smaller. We have seen the number of city dwellers explode in the past twenty to thirty years. Toronto, and most growing major cities now have a thriving downtown. The suburbs no longer pull businesses and wealth away from the city. In many cases, it's the opposite.

Strangely, Toronto's downtown never quite lost its appeal. It always maintained a village atmosphere and never had the flight from downtown that many American cities had. Still, the big return to the city centre has changed this city too.  And we have the condos to prove it.

It would appear that suburbs do not serve the purposes they once had, and now they are even more expensive for municipal governments to support because of their low density. There are simply just not enough taxpayers to go around. At a quick glance it would seem that the suburbs are doomed.

But wait! What was the fastest growing city in Canada last year per capita? Toronto? Calgary? Edmonton? Nope.  That would be Milton, ON, a suburb of Toronto.

So, the suburbs are not dead yet. They just serve a much different purpose than they used to serve. In my opinion, there will be some suburbs that will deteriorate and ones that will not. Many of the outer suburbs have a better shot because they serve a purpose right now. The reasons many people are going to the suburbs have changed. Now, it is because many buyers cannot get the space they want in the city. Plus, it's hard for places like Toronto to grow when the city has limited land. Suburbs are not the promised land, but a compromise for buyers to find space while understanding they may have a long commute if they work in Toronto.

Suburbs have not really changed with the times though. The problem with suburbs is their poor design. They often lack good public transit and mains streets for people to form communities. As an investment, it has become a greater risk than the city. Cities are becoming more affluent and location is key to your investment. In the suburbs, you need to invest wisely. There are rich suburbs, like Oakville. There are new suburbs for the middle class like Milton. Increasingly, there are suburbs where the poor are being pushed toward. Not just the usual neighbourhoods like Rexdale or Jane and Finch, one of the few Toronto pockets where real estate prices have not increased in recent years, but there are increasing poverty rates in Mississauga, Brampton, Oshawa and Markham. To make things more complicated, there are suburbs like Etobicoke that were once a small town, then a suburb, then part of the city of Toronto. Even within Etobicoke, the change varies widely. Many parts of Etobicoke below the 401 that are becoming more city than suburb. There is  higher density and still decent access to Toronto. The same goes for Scarborough. Some parts of Scarborough would be a poor investment area, others would be great with access to the highway, the lake and the city. It's much closer than Milton!

In the end, location is becoming more and more important. It's not as simple as the further you go from the city, the cheaper housing will be, though there is some truth to that. You need to be in a neighbourhood with some potential or some current success, or a walkable main street, a community hub, something distinctive and appealing, or you need to be on a transit line or future transit line.

The suburbs are not what they used to be, but some are alive and thriving.  People are still going there... at least in some suburbs. In others, the suburban dream is over, like an old amusement park or an abandoned mall. Their time has passed.

Thursday, 12 February 2015

Will Alberta Real Estate Bring the Rest of Canada Down?

Alberta has been riding high on its horse for awhile now. And really, who can blame the province for its exuberance? When you have the kind of oil they do, and the subequent growth, it's easy to see why Alberta has been the envy of many provinces for some time. Drawing in workers from all parts of Canada and abroad, it's been the fastest growing province per capita over the past ten years, and it still manages to keep its books relatively balanced, at least as far as Canadian provinces go. Though it does have a debt of $7.7 billion, it is nothing compared to Ontario's massive $281 billion debt. These happy times have led to real estate and population booms in both Edmonton and Calgary. Though prices are not as high as here in Toronto, the increases have been huge over the past 20 years in the Prairie provinces.

Of course, the good times have taken a bit of a pause in Alberta with the falling oil prices as of late. Jobs are slipping away, and real estate sales volume is at its lowest point in seven years. Some believe it is in an early stage of a correction.

As we have seen across Canada, a change in the demand for Alberta oil can effect things on a national level. Take, for example, the value of our dollar. Alberta oil has played a large part in bringing the dollar's value down across the country. So, would this mean that a slip in Alberta real estate prices could cause a domino effect in the rest of the Canada's provinces?

I think the short answer, in my humble opinion, is probably not. The fact that the dollar has slipped creates better opportunities for provinces like British Columbia and Ontario. Ontario manufacturing can now sell its products internationally at a lower price making us more competitive.
Of course, it could be a tipping point for the rest of the country if a certain amount of fear gets injected into the national consciousness. Real estate is run on emotion, despite the numbers behind it.

National real estate crashes are possible. Everyone remember the U.S. during the last decade. Prices fell an average of 30% across the country, much higher in states like Nevada and Florida.

Canada could have a correction is real estate, but it would require, in my opinion, a big change in the interest rates or major changes in the world economy. A sharp increase in interest rates would likely pause the real estate market across the country, and in some cases, lead to a fall in price. The thing is, rates will only go up if the economy of the country is undergoing strong growth, but with oil down, that's not the case.

The dropping oil prices in Alberta have had the opposite effect. Interest rates are lower now than they were last year making the interest costs on your mortgage lower this year than last year for the same priced home. Foreign investors are now seeing that Canada's low dollar may be an opportunity to get in on this market while the dollar is down, though some may be waiting for the dollar to bottom out.

The first few months of this year have shown me that the price increases here in Toronto are similar to last year. It's a seller's market for the most part. Our Toronto real estate market is currently affected more by specific local factors than by national ones. There is a shortage of houses in this city. So, house prices, and condo townhomes are increasing in value more than larger condos. Certain emerging neighbourhoods are attracting more buyers who are priced out of established neighbourhoods. Transit, or lack of it, is determining where people will live. A well-built, well-run condo in a well-planned neighbourhood will do better than one that is not.

All in all, the cities of Alberta run a much stronger boom/bust cycle because their economy is tied to the resource sector. Luckily in Toronto, we have a diversifed economy that is not tied too much to one thing, and our steady appeal to immigrants from all over the world will keep the city growing and the real estate market healthy without the massive explosions of growth followed by a bust, like Alberta.

Thursday, 5 February 2015

Discount Brokerages: Are They Worth It?

There's a new duck in town. It's called "Fee Duck". And strangely enough, it has something to do with real estate. I'm not sure where the name came from, but I suspect the word "duck" comes from the word "deduction", at least it sounds like it may if you say "deduction" out loud. 

This is how it works: Let's say you want to sell your house and would prefer to pay the lowest commission possible. You would go to Fee Duck, sign up, and sit back as real estate agents bid on who will obtain this listing. The listing does not go to the highest bidder. It's the opposite, a reverse bidding process where real estate salespersons are lowering their commission so that the seller could select the salesperson with the lowest bid, and therefore, save money on paying out commissions. 

Though Fee Duck may be new to Toronto, the idea of a discount brokerage is not new at all. Since I am a real estate salesperson myself, it may surprise some that I fully support discount brokerages. In many ways, discount brokerages make my job much easier at finding my buyer clients better deals. Why? Because discount brokerages often tend to attract salespersons who do less for their listing, market properties poorly, and who cannot compete with the pros. In turn, I find it easier to find better priced homes for my buyers. At least that's been my experience. In my day to day life as salesperson, the seller ends up losing more money in the long run by selling at a lower price and netting less of a profit on their sale, even with significantly reduced commission. 

When a real estate salesperson cuts his or her commission enough, then the focus turns more to obtaining the listing over marketing to obtain the best price. A seller's job should be to find the salesperson who markets the house the best. To be  honest, any one can sell your house or condo unit, but you need someone who will maximize his or her marketing and skills to get you the best price that would justify a higher commission.

Still, in the past year there is boom in companies trying to appeal to a lower commission while taking a piece of the commission for themselves. 

And I have a pretty good idea why this lower commission option has become so appealing. Some agents in the past have charged 5%, and did very little marketing and preparation on a property. It leaves the seller scratching their head wondering what the agent had done to earn a fat commission cheque.

Subsequently, sellers have become so focused on the commissions they pay out that they lose sight of what a real estate agents do, or at least should be doing. 

There are a lot of real estate agents in Toronto. More than half of them do two deals or less per year. They are hungry for a deal and lack experience. So, they will cut commissions. The thing is, these deep-cutting commission agents may lack the skills and the revenue to sell your home. You never know, you may find a discount brokerage that offers you a lower commission option and sells your home at a price with which you would be happy, or you may find a lousy agent who wants 5% and does not have the marketing plan to back it up. 

That's usually not the case though. A good marketing plan costs money. And more and more, the marketing is just not about putting a property on the MLS. You are competing with other homes that are for sale at the same time in your neighbourhood. So, you have to have the most appealing property in your area to attract the most buyers away from your competition. Because buyers are going to gravitate to the house that has the most appeal, and leave the one with the less-than-stellar photos and the agents who do not return phone calls, you want to have the most appealing property that was marketed and staged better than any other in the area. If there are 9 serious buyers in your neighbourhood and 3 houses for sale, it is very unlikely that  each house will receive a fair amount of 3 offers each. One house will take in most of the buyers, the next will get one or two, and one will likely receive no buyers.

On some level, it's basic capitalism. You invest more in commission, and you take a risk that it will lead to 5 to 10% sale price above market value, a better return than if you cut commission for a reduced or non-existent marketing plan that does not lead to an outcome as lucrative.

I think real estate is going to see a lot of new models of selling and buying properties in the years to come, and undergo some big and needed changes. On the downside, many outside companies like Fee Duck or Zoocasa will try to reduce commissions for the consumer and take a piece of the cut on commission as well. Some will last longer than others. Some will have more viable business models than others. I would be very interested, though, in seeing the data on sold properties from discount companies/brokerages compared to brokerages that sell at full or close to full commission. 

On the upside of this changing real estate landscape, there are some good things that I think will benefit the consumer. First, I think there will be more transparency for the consumer on knowing what the sold prices are in a given neighbourhood. So, I believe a consumer can soon look up prices and see comparable homes without a real estate salesperson. The real estate salesperson will no longer be the gatekeeper of information. He or she will be the person who will maximize the selling price of your home by knowing how to price, stage, and market your home for the top price. I think many people don't think highly of agents because they think agents make too much money on commission and have access to all the info. I say give the info to everyone, and make the agent work hard to sell your house and earn their commission.