“Canada’s long housing boom has drawn thousands into the sector, from realtors and home stagers to construction workers, and a looming slowdown threatens to trigger an exodus that could wipe out many of those jobs and force the economy to shift down.
While housing has long been the main engine of Canadian growth, economists say a drop in home sales has already started to weigh on the economy and if price declines follow, consumer spending and jobs will suffer.
“To a lot of people, it is a get-rich-quick scheme,” Toronto realtor David Fleming said about the real estate market. “But history shows when the market turns, half of the agents leave.”
Realtors’ ranks in Canada’s largest city and hottest housing market have surged 77 percent since 2008 to more than 48,000 – nearly 10 times the pace of Canadian job growth. Nationwide, that number has risen 26.9 percent.
By comparison, there are over 13,500 realtors in Chicago, according to the Chicago Association of Realtors.
With Canadian home construction jobs rising at nearly the same pace as real estate jobs, housing has become the top driver of employment and economic growth, accounting for the bulk of Canada’s economic growth last year.
As the nearly one million housing sector jobs now far outstrip those in oil and gas extraction and mining combined and approach the size of the manufacturing sector, economists brace for a painful reckoning if the housing slowdown turns into a long correction.
More than half of the analysts polled by Reuters in May said a sharp housing correction was somewhat or very likely in Toronto and Vancouver, but unlikely nationally.
Recent data showed nation-wide home resales fell 6.7 percent in June, the largest monthly drop since 2010 and the third straight monthly decline as sales in Toronto tumbled, and sales are expected to slow further as interest rates rise.
While most housing bears have been focusing on how much home prices could drop, economists are also trying to work out how badly a resulting decline in consumer spending and housing jobs could hurt the broad economy. …
Veteran realtors who have seen the industry swell with inexperienced agents have no doubts that a slowdown will decimate their ranks.
“It is definitely overpopulated,” said Shawn Zigelstein, a realtor in the York Region, north of Toronto. “A downturn will weed out of some of those agents who got into the business for the wrong reasons.”
Already, many realtors are struggling in the crowded market. Nearly half of Toronto’s licensed realtors did fewer than two deals last year, according to Brian Torry, general manager at Bosley Real Estate in Toronto. Less than a third did five or more transactions.
“It is a tough industry to break into,” said Jared Gardner, 38, who got his real estate license last year and works in the Toronto area.
Fleming believes many agents are already making less than minimum wage once license, membership and brokerage fees are paid, and it can only get tougher if sales continue to dry up.”
Mispricing of risk (too cheap money) has caused severe misallocation of resources, with speculators chasing hot sectors and being rewarded for risky behaviour. This has resulted in a ballooning of RE and related activities. Our economy has become overdependent on a concentration of activity, in an unsustainable fashion.
This phenomenon has been clear to some people for many years, yet it has been allowed to continue, encouraged even, because those with any control over monetary policy, the importing of money, or mortgage rates suffer conflicts of interest. The herd has been encouraged to run faster and faster, in one direction, and the imbalance has become more and more extreme.
This will all end. Laws of physics apply here as much as laws of economics – Canada can’t become a giant perpetual motion machine, with most of us doing nothing but selling houses to each other. Once the superficially ‘virtuous’ cycle, fueled by speculation, turns in the opposite direction, and becomes ‘vicious’, this sector collapse, and there will be all sorts of knock-on effects.
There will be great damage, but there will be good consequences, too:
The seemingly intractable housing ‘crisis’, that we now hear about constantly, will greatly benefit from a crash in prices. Housing that is priced close to those prices determined by fundamentals (the actual utility of the property) is healthy for an economy and a society.