Frankendata

|

A brief follow on yesterday’s post about datagate. When realtors are the gatekeepers of market information, they invite allegations of conflict-of-interest. Not only are consumers blinded to historic price data – a vital tool to help judge value – but current market conditions are shrouded in a fog of misinformation.

Advertisement

For example, right now the housing market is in the early but irrefutable stages of a decline. However, looking at real estate board stats, you’d think buyers are snapping up houses for damn near 100% of what sellers are asking – suggesting robust demand.

But the official MLS site, realtor.ca, won’t tell you if a property has been re-listed at a lower price, or even recently had the price reduced for lack of interest. This is crucial knowledge, since in times of a softening market (like now) a strategic buyer will wait, not pounce.

The last post mentioned Viewpoint.ca, currently the sole site in Canada which carries sales history data, and much more. (Sadly it’s only available, for now, in the Nova Scotia market.) In NS the real estate boards will tell you that over the past year sellers have scored, on average, an impressive 96.5% of their asking prices, clearly suggesting market momentum.

But the data, once you have access to it, says something else, as Viewpoint’s founder Bill McMullin points out:

Aggregate value of real estate listed in Nova Scotia in the last 12 months: $2.71 billion (at the original asking prices).
Aggregate value of list prices at the time a sale took place: $2.54 billion
Aggregate value of actual sale prices: $2.45 billion (90% of original list, but 96.5% of last list)
Aggregate value of price reductions: $263 million.
Number of price changes: 11,000

After fees, sellers received only 85% of original list price.  Ugly.

Another key factor: days on market. This basic piece of information is nowhere to be found on an MLS listing appearing on realtor.ca. So buyers have no idea if a listing has languished because of mispricing or other flaws, or is a new offering that merits immediate scrutiny.

For example, someone shopping for a $1-million spread on Nova Scotia’s desirable South Shore who has access only to MLS would never know the shocking story that Viewpoint.ca reveals. Of 15 showcase houses the average number of days on the market is a staggering 676, or almost two years. There is a dismal sales-to-list ratio of only 7.1%, and the average price reduction of listed but unsold properties is 18%. The conclusion: this is one momma of a buyer’s market in which high-end properties have gone illiquid.

So why are real estate boards in the country fighting the release of such vital market info?

For the same reason the biggest among them have rolled out the Frankenumber – the MLS Home Price Index. Instead of publishing average or median prices, many boards are spoon-feeding local media an index which dices, slices, chops and whips data until it’s an unrecognizable pabulum of meaninglessness. Now consumers have no clear idea if the market’s expanding or contracting, if prices are sticky or sliding, or sellers are bullish or capitulating. But the HPI does accomplish one vital goal – it effectively masks market declines. Like now.

Realtors, naturally, wish you did not come here. Or read news like this:

Builders in the GTA have just had the worst October since the great financial crisis. In fact, the second-worst October ever, capping off a three-month slide that has the industry back at 2008 levels. Housing starts – houses and condos – collapsed last month by 47% compared with the same period in 2010 and are 30% lower than last year. “In an attempt to cool down the market, the federal government has severely affected the building and development industry in the GTA,” says spokesman Bryan Tuckey. “The introduction of stricter mortgage regulations has triggered a decline in new home sales, and if this trend continues, it will affect job creation in the coming years, restricting economic growth.”

The Royal Bank says house prices are so high that to own a home with a fat 25% down takes 52.4% of the pre-tax income of the average Toronto family. That’s $54,500 a year, leaving just $20,300 for everything else. In Vancouver it’s 83.2%, leaving no money. The bank adds ‘a dangerous level’ will be reached if interest rates rise – which it expects to begin happening in the second half of 2013, ten months from now.

Advertisement

And the Globe had a big headline yesterday: “Drop in home prices spreads to Toronto.” Says TD’s chief economist, Craig Wright, “It’s no longer just about Vancouver.” Adds CIBC’s Benny Tal: “We are starting to see the beginning of a negative trend in the housing market in Canada.” That, of course, is what this pathetic blog has been moaning, gnashing and vexing about for some time – the inevitability of what’s now taking place.

As I told you a few days ago, the price of a detached home in 416 has tumbled 7% in the last six months. There is more to come. But what does the local real estate board report? “The average selling price during the first 14 days of November was $488,647 – up by 1.7 per cent in comparison to the first 14 days of November 2011.”

So, what do you need to know – that prices are slightly higher than a year ago, or are now on a downward trajectory?

Canadian housing is an inflated and dangerous asset class. But don’t expect to hear that from the local Re/Max guy. After all, it’s a great time to buy.

Advertisement
avatarGarth Turner - The Greater Fool posted Thursday, November 22nd, 2012.

Post a Comment

* Copy This Password *

* Type Or Paste Password Here *