Unconventional Ways To Get More Listings

Home sales have been surging the last few years and as expected it has drawn a huge amount of interest in the real estate industry with agents trying to get more listings. In the last four years membership in the National Association of Realtors has increased from just over 1 million members to 1.4 million members a whopping 40% increase.

Before realtors get too excited they must first know that while the number of real estate agents is growing the actual housing supply is shrinking. The number of homes that sold in 2018 is 3% below the number that sold in 2017 marking the fourth year in a low housing supplyrow where there has been a decline in sales. Combining the slim amount of homes to sell with the drastic increase in number of agents has caused some serious competition amongst realtors.

Only the strong can survive in today’s real estate market with the scary lack of potential clients out there. There are still huge opportunities in the real estate market but it takes creativity, hard work and persistence to find those home sellers. The only way to get that competitive edge is for real estate agents to start experimenting with some unconventional ways that could get more listings.

Unconventional Ways To Get More Listings

  • Examine Property Taxes. The county clerk is responsible for maintaining a database of all the homes in the area that delinquent on their property taxes. This information can be a discovered gold mine since about 25% of all homes sold have some amount of property tax that is past due. It is clear that being behind on property taxes is a strong motivator to get homeowners to sell their home. Sending out mail to homeowners that are behind on property taxes are sure to get you some listings. Finding buyers that look to take advantage of this trend is actually quite easy:
    • Marketing for Behind Tax Listings. Start SEO campaigns to rank for keywords related to selling homes because of taxes in the city or county. Use online paid advertisements for long-tail terms related to selling and taxes since there is a lot less competition and they are cheaper than the more common home selling keywords.
  • Vacant Homes. There are about 137.5 million homes in the U.S. and 2% of them were vacant in the 1st quarter of 2018. By the end of the 2nd quarter only 1.1% of them were vacant and by the end of the 3rd quarter the number was back up to 1.6% vacant. That is a lot of buying and selling happening in the vacant home market and should be targeted. Using the county clerk’s data or other research methods to find vacant homes will provide a huge opportunity to get more listings.
  • Find Divorcees. It is way too common for judges to mandate that divorced couples must sell their shared home. In fact one third of all couples will list their home within 6 months of filing for divorce. Just like the property tax angle this opportunity provides real estate agents with a buyer and a seller. Advertise online for both sellers going through a divorce and buyers that know the opportunity of getting a quick low-priced sale from divorcees.
  • Inherited Homes. Each year there are millions of homes that change owners due to inheritance. Since these transactions are usually unplanned there is an extremely high chance that the new owner will end up selling the property. This is a creative and unconventional way a real estate agent could get a ton of listings that are sure to sell fast.
    • Finding Inherited Homes. Simply searching the county clerk records with the word inheritance should provide some names of people involved in these type of court cases. It shouldn’t be hard to find the name of the previous inherited home listinghomeowner of the property with this method. Now simply searching the previously homeowners name in the yellow pages will provide the address of the recently inherited property. Now the real estate agent has an address of a home that is very likely to hit the market in the near future.

One thing that is consistent with all of these techniques is to stay ahead of the competition. The type of homes listed are sure to hit the market eventually but the trick is to be the first one reaching out. Obviously these unconventional ways to get more listings can be time consuming but with hard work, creativity and persistence they will more than make up for it.

Please leave comments about other unconventional ways to get more listings:

Streamline Airbnb Management Processes Through Outsourcing

Your property is perfectly furnished and your Airbnb page is awesome with super attractive amenities and pictures. If you have been using Airbnb for sometime then you know that getting all that stuff setup is actually the easiest part about renting out your home. Others will not realize the massive amounts of time and energy that go into just managing the Airbnb account. Growing a steady, passive income is just not possible unless you are outsourcing most of the property management and customer service stuff that comes with running an Airbnb listing.

Contrary to popular belief, managing an Airbnb property can consume as much time as a full-time job once the bookings really start rolling in. Obviously this is not going to quite mesh with your plan of getting passive income. You should have a primary goal of streamlining as many property management tasks as possible to free up your time for more productive things like growing your Airbnb portfolio.

Streamline These Airbnb Management Tasks

  • Listings Management. Outsourcing your listing work not only saves time but will also increase revenue. Getting professional pictures posted along with an accurate description and a precise calendar will result in your property being continuously booked. Adjusting prices depending on the season, number of inquiries, popularity and other factors will maximize earnings.
  • Cleaning Service. This may sound easy and straightforward but it is actually very time consuming. I am not only talking airbnb managementabout the physical act of cleaning but more importantly managing the arrangement of when cleaning should be conducted. Having a fully booked Airbnb profile with multiple short-term stays can have managing the cleaning schedule a full-time job in itself. Outsourcing the entire cleaning process prevents missed cleanings that will no doubt lead to bad reviews and booking cancellations.
  • Guest Turnover. Your entire check-in and check-out process could easily be streamlined to support as many tenants as possible. To maximize your Airbnb ratings you need to allow guests the ability to check-in/check-out whenever they prefer. Imagine the number of hours that could be wasted by waiting around all night for an uncontactable guest. An outsourcing company will be the one responsible for handling these nightmare scenarios, managing the keys and ensuring all the amenities are readily available for your guests.
  • Customer Service. One of the quickest ways to lose a potential guest and get a bad rating is by not being available around the clock. I know it sounds unfair but this why it is essential to outsource some of these tasks if you are looking to start earning passive income. It is inevitable that middle of the night inquiries, bookings or emergency maintenance requirements will occur regularly with a popular Airbnb listing. Customer service requires a full time commitment that only by outsourcing can you accomplish.
  • Property Management. Staying on the same page as outsourcing customer service is outsourcing your property maintenance management as well. A lot of the needed repairs are going to be first reported by your guests so this only makes sense. Unplanned repairs are one thing but there are also many items around the home that need have scheduled maintenance at regular intervals to operate properly. All maintenance related responsibilities should be put in the hands of a reliable property management outsourcing company.

The easiest way to streamline all of this is to hire one specific outsourcing company to take care of all of your Airbnb processes. You literally just hand them the keys then sit back and watch your passive income roll in. Another option to streamline your Airbnb management tasks is to build your own team of individuals to handle each process. This will require some time initially to put everything in place but after that should run on auto-pilot. If you are managing multiple Airbnb listings than I highly suggest you outsource your Airbnb management tasks.

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Can Crystal City Housing Market Support Amazon HQ2?

Amazon’s decision to open up an east coast headquarters in Crystal City (known as HQ2) has homeowners and investors taking a close look at the host cities housing market. Being home to the world’s biggest e-commerce business is certain to cause an increase in demand for housing in the small city that has a population of just over 22,000. Amazon is expected to have more than 25,000 full-time employees within the next seven years working out of office buildings located in Crystal City.

This huge influx of well-paid workers will definitely cause home prices to go up for both purchasing and renting. Arlington County residents are fearing the area will undergo the same housing market changes that were experienced in Seattle since Amazon moved there 10 years ago. Housing prices have doubled in the last 6 years for Seattle which has forced many residents out of the area due to the unaffordability. A recent study by Zillow shows that rising rents equals a larger homeless population.

Amazon now has over 45,000 employees in Seattle while the company only expected to have a total of 9,000 before locating there. This is a significant point since there is only an expectation of having 25,000 employees for Crystal City. Growth is expected to be a lot slower than what occurred in Seattle by planning to have just 400 employees next year and less than 1,000 in 2020. This should limit the stress on the housing market and give time to build housing units for the newcomers.

How Crystal City Housing Market Will Survive With Amazon HQ2

  • Preserve Affordable Housing. Low-rent housing needs to be purchased by the government and protected from the extreme price increases that may be coming. The rental market will be the first hit by the increase in demand for housing. Newcomers are expected to take a year or two to feel out the area before looking to make a purchase. Amazon promises all of their 25,000 employees will have six-figure salaries. Aims by the government to preserve affordable housing must be taken in Arlington County to avoid the market out pricing the low to moderate income renters.
  • Increase Housing Supply. Mixing a limited supply with an increase in demand is the perfect recipe for a housing crisis. There are about 9,000 apartment and condo units currently set to hit the market within the next three years. That should be enough to support the initial demand from Amazon will bring but building can’t stop. It is estimated that around 60,000 new residences will be needed by 2030 to support the housing demand that HQ2 will bring to Crystal City.

Crystal City is one of the very few places in the country that could take on 25,000 Amazon jobs with little stress on the real estate market. The prime located city just south of Washington D.C. has had just as many jobs leave the area in the last 15 years as Amazon plans to bring in. The area still has large neighborhoods of vacant and outdated office buildings that Amazon will surely be able to put to use.

With an occupancy rate of just 94% there should be no problem supporting Amazon’s new headquarters for at least the next few years. Even as the housing demands increase the available transit systems for neighboring areas will give access to more than 200,000 homes for future employees to choose from. Crystal City housing market can support Amazon HQ2.

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California’s Wildfires Raise Home Values

Homes being destroyed by a wildfire has become an all-too familiar story throughout all areas of California. In 2017 alone there were more than 11,000 structures in the state damaged from wildfires, according to California Department of Fire Protection (Cal Fire). Every year the state is devastated by fires burning out-of-control which impacts homeowners both in the path of the blaze as well as those in the clear.

It goes without saying that the housing market in and around a recent wildfire is a lot different than it was before the natural disaster hit. Houses that were burned or in view of burned land will obviously plummet initially but actually will see an increase in value in as little as one year. Those houses located just outside the burned area will surprisingly see an immediate increase in home value.

Supply and Demand Perspective Raise Home Value

Often times there are thousands of people left with no place to stay during and after a wildfire. This causes an immediate increase in demand for housing in and around the cities that were destroyed since most people will prefer to continue living in the local area. Housing supply in the area will be down from the loss of houses which will cause others to soar. Real estate prices will rise as much as 25 percent for those homes located just outside the burned cities.

Home values that were increased primarily because of a nearby wildfire should last for a minimum of two years before getting back to normal. An average of two years is how long it takes for a community to rebuild after a wildfire and gets the housing supply back up. It is not a coincidence that wildfires frequently occur in highly desirable living locations since most fires are unintentionally started by local residents.

Wildfires Raise Home Values

When a city is destroyed by a wildfire it introduces opportunity to rebuild and do things better. Opportunity-seekers and real estate investors will look to purchase properties at discounted rates and developers will see opportunities to put their crafts to work. After a wildfire has burned through a community it is extremely unlikely another one would strike for years to come. A lot of investors understand once all of the trees and vegetation has been burned there is no fuel left to support a wildfire in the future.

When a house gets rebuilt after a wildfire it is going to be a lot larger and more modern than it was previously. Big homes with modern amenities that are located in highly desirable locations will always do well in the real estate market. House hunters specifically look to invest in the new supply of homes located in rebuilt areas. Regardless of the risk or past history of wildfires there will always be a demand for houses located in mountain landscape areas near large cities. Overall housing values might initially drop some for the first few months after a wildfire but will quickly raise to pre-fire prices and beyond.

Homeowners negatively affected by a wildfire have the option to either surge in the housing market or purge their real estate investment. Houses that were burned or located in a burned area will present an excellent opportunity to perform home renovations with the assurance that California’s wildfires raise home values.

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Home Marketing Strategies That Target Millennials

For years and years millennials were reluctant to purchasing homes after witnessing the housing crash of 2008. This generation has finally got the recession out of their minds and are now swooping up houses at historic rates. Take this into account with the fact that millennials are now the largest generation by population and it becomes obvious that they are the group real estate agents need to be targeting.

connecting with millennialsCreating home marketing strategies that target millennials can be a bit challenging. This generation does not generally respond well to traditional marketing since they think and buy differently than baby boomers. Connecting with this audience will require some restructuring of business strategies and focus more on individualism, brand experience and authenticity. This should put companies more inline with the general characteristics that come with millennials.

Communicating With Millennials

  • Internet Experts. Millennials were born into the world wide web and rely heavily on internet content for information. They are super quick to turn to the internet to get answers to their questions and more importantly to read reviews about products and businesses. Almost 90% of consumers today will do some type of online research before dishing out money for a product or service.
  • Wanderlust. Giving the option to connect remotely and on a flexible schedule will go a long way with millennials. They tend to put a very high value on the characteristics of flexibility and mobility. It is common for consumers in this generation to prefer doing all of their business remotely on mobile devices. Interacting with people through Skype, email, text and social media are everyday tasks when targeting millennial consumers.

Using these digital concepts in home marketing strategies have proven to be key for real estate agents connecting to millennials. They are glued to their smartphones conducting research and interacting with professionals as they go through the process of purchasing or selling real estate. It is important to note that this generation values convenience higher than they do cost. They will be flexible on the price if it makes for a quick close that gets them in or out of the home sooner.

Home Marketing Strategies That Target Millennials

  • Social Media. Millennials obviously use these platforms for socializing but they also use them to search for homes for sale and real estate services. This a great place to advertise and meet potential customers. Sharing pictures and videos of homes, neighborhoods and local attractions will get people interested. Capitalize on this interest by reaching out to followers and start building relationships.millennial marketing
  • Valuable Content. While they may be looking to buy they are at the sametime looking to educate themselves. A millennial looking to be a homeowner will have a goal of becoming an expert in the real estate industry before they even considering making a purchase. Creating online content that gives value and insight to the industry will be more popular than a company that just posts listings. Providing tips for maintaining a home or some remodeling ideas will go a long way in connecting with potential buyers and sellers.
  • Straightforward Pitch. The traditional hard selling techniques are not going to be successful in the real estate market with millennials. They tend to be very suspicious to this approach and can discover the truth to false advertising within seconds on their smartphones. Having two-way honest conversations and quickly responding to their queries will gain their business along with future referrals and positive reviews on social media.

The millennial generation thinks and acts differently than baby boomers and now that they are the majority of homebuyers it requires adaptation for home marketing strategies. Putting these concepts to work now and attracting millennials before they dominate the market puts real estate agents ahead of the competition.

New Startups Transforming The Real Estate Industry

Innovation in the real estate market has really started to take off. Technology investors and venture capitalist are now pouring money into all kinds of different startups that are transforming the real estate industry. Tech innovations have transformed all aspects of the industry so it is important for everyone to know and understand what the up and coming trends are.

Real Estate StartupWhether you are involved in sourcing deals, managing properties, fundraising or just a tenant, there is something new out there that makes your life easier. Even the language in the real estate industry has changed with terms like coliving, smart homes, coworking and microunits. It is clear that innovation in the real estate market is only going to continue to grow.

Most new startups in real estate are built to optimize operations. Following suit with other industries they focus on performance improvements, cost savings and increased revenue from their optimized operations. Below is just a small fraction of startups that are already transforming the real estate industry.

Four Startups Transforming The Real Estate Industry

  • Faira – This startup removes the need of hiring a real estate agent and dishing out that 5-6% commission. The company claims to save the average seller using their free service about $20,000. After a seller signs up on their website the startup will conduct inspections, take photos, create a listing and hold open houses for no charge. Interested buyers then go to the website to place bids on the property and the highest bidder wins the deal. Once the deal is done the seller pays 3% commission to the buyer’s agent and Faira collects 0.5% from the buyer. Everyone wins with this new startup idea and there are a lot more just like this that take advantage of technology to save people money.
  • Meridio – This new idea has completely revolutionized the investment portion of the real estate industry. Using the company’s app or website somebody could invest as little as $20 into a property. Staying up-to-date with the latest technology currency, all transactions are done with blockchain technology to keep costs down. Investors get to benefit from low transaction costs and liquid real estate assets. Owners get to benefit from more capital, more investors and streamlined transactions.
  • WeSmartPark – This app/website is basically Airbnb to rent parking spots at people’s houses. People living near areas with commercial businesses or limited parking can open up their driveway for public use and earn money. Some drivers even use this option over public parking for the increase in security they get by parking at somebody’s residence.
  • Rhino – Getting rid of the move-in security deposits required from renters is the idea behind this startup. Instead of forking over a deposit the renter will pay a premium to Rhino for insurance incase of damage during their lease agreement. A typical house renting for $2000 will cost about $15 for monthly insurance. Landlords also benefit from this company by having free advertisements on their website and enticing tenants to move-in to their deposit-free properties.

Transforming Real Estate IndustryFuture Real Estate Technology

More and more companies are introducing technologies to the real estate industry that benefit property owners, potential buyers and even renters. Since everyone involved in the housing market will start to use these new services it is expected that newer and better ones will emerge.

The real estate industry is transforming. While the changes might not be as obvious right now on the ground, transformative changes are happening in the background. New real estate solutions will be developed, uncovered and monetized using blockchain, virtualization and artificial intelligence. Real estate professionals must stay ahead of the market and take advantage of these emerging technologies in order to remain relevant.

What Are Some Startups You Feel Are Transforming The Real Estate Industry?

 

Costly Renovations That Decrease Property Value

There comes a point in everyone’s life where they at least think about doing some type of renovation to their home. Your house could be outdated and badly needed upgrades or maybe you are just tired of the same o’l look. Whatever your reason is behind doing upgrades you must always keep resale value in mind. Renovations that decrease property value should always be avoided regardless of how much you fancy it.

A good strategy to successfully upgrade your home is to personalize it to your liking without making it so unusual that it detracts other potential owners. Customizing rooms to your aesthetic satisfaction should be safe since these decisions can normally be reversed with just some paint or minor changes. Now remodeling a garage into a bedroom is irreversible so you must take into account the effect it will have on property value.

home renovationBefore undergoing any renovation project you need to do conduct some research on the real estate market in your area. Basically you want to get a feel for how much houses are selling for and what is a typical size house.  Use this information to get an idea of how much you should be spending on renovations. In general you should not be spending more than 10% of the houses value for any upgrade. This means you can forget about kitchen and bedroom remodeling unless the average house in your area is selling for more than $400,000.

Costly Renovations That Decrease Property Value

  • Home Offices – While each year the percentage of people that work from home is increasing it is still only 2.9% of the workforce. Turning that spare bedroom into office space could be an expensive mistake. Decreasing the number of bedrooms in your home is always a bad decision and will cost you about 10% of your property’s value.
  • Combining Rooms – I say again, the more rooms the better. It may seem like one large room is better than two small rooms but it will really hurt your property value. On the flip side you can expect a 15% increase in value if you can turn a large room into two.
  • Garage Conversions – Looking to add an additional room and gain that 15% increase in home value? Converting your garage is not an option. 75% of people that buy houses say that a garage is a must have for a home. Potential buyers will definitely need that extra storage space and place to park their vehicles.
  • costly renovationBuilt-In Devices – Who wouldn’t want a home movie theater or an aquarium built in the wall? These things take up space, use energy and require maintenance and that will worry the majority of buyers. These things are also very costly to remove so potential owners will want nothing to do with them.
  • New Carpeting – While this upgrade will look great right after installation it is not going to last long. Carpet is a risky renovation because it shows sign of use quickly and widely differs in personal preference. 54% of people are willing to pay more for hardwood floors so let’s skip the carpeting upgrade.

There are plenty of small renovations that can be done to fulfill your urge to upgrade your home. The simpler and cheaper costing projects are a lot safer in protecting your investment. Not only do they save you cash but they are also easy reversible. In closing, just remember that your home is an investment and all renovations should be increasing market value to your asset.

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Selling Real Estate In Flood Zones

Rainy season is upon us and as each storm passes those homeowners in flood zones fear the worst. According to National Geographic, floods are one of the most common and most destructive natural disasters on Earth. The good news is that even houses located in high flood zone areas have just a 1 percent chance of ever being flooded.

Even with the extremely low chance of ever having a problem with flooding, homeowners often still feel discouraged. They are under the impression they would never get fair value for their home if they ever decided to sell. Most are thinking it is easier to just stay where they are at and avoid the agony. However, it is a common misconception that real estate in flood zones are losing investments.

Almost a third of all homes in the United States are located in a designated flood zone. Now there are some higher risk areas but the fact is that the number of real estate that are at risk of flooding is exceptionally high. To accept the delusion that all of those houses are losing investments would be ludicrous.

Flood Zones and Florida’s Housing Market

flood zoneLet’s take a look at the state of Florida and see how the flooding risk affects the housing market. I am sure you agree that every house in the state is at some risk of flooding but did you know more than 66 percent of homes are labeled as HIGH risk? Keep that in mind as we go over how the real estate industry is doing in Florida.

August 2018 was the 80th month in a row that the median price of homes sold in Florida has risen.  Compared to the same month last year houses were up 6 percent and condo/townhouses were up almost 8.8 percent. Nationwide the median price of homes rose 4.6 percent in that same timeframe. Obviously the flood zone scare is not as frightening to potential buyers as most would assume it would be.

4 Tips to Selling Real Estate in Flood Zones

  1. Simple Upgrades. There are plenty of easy things you can do in and around your house to make it less vulnerable to flood damage. Elevate your air conditioning units and gas tanks above the possible flood level. Install some precautionary backflow or gate valves to prevent drainage systems from backing up. Make sure all of these additions/modifications are revealed and explained to your potential buyers.
  2. Modify Landscape. The outside appearance of your property can make a huge difference of how a potential buyer asses the flood hazard. Adjust the slopes of your yard so water would flow downhill into the street. While this won’t be much help during a real disaster it will make your property look less flood prone.
  3. Flood Insurance Offsets. Your prospects are most likely aware of the requirement to have flood insurance in high-risk zones and the fact that normal homeowners insurance WILL NOT cover floods. You as the current homeowner should volunteer this information without worry. Rather than viewing flood insurance as a negative it should no doubt be viewed as a way to put your mind at ease. While this insurance does add to the cost of owning the property it would more than pay for itself if a flood was ever to occur. One trick to overcome the flood insurance objection is to offer discounts that offset the flood insurance for the first couple of years. There are also numerous different national and local programs that support flood victims that should give potential buyers that nice sense of security.
  4. Verify Flood Zone. If your home has never been flooded then you should make sure your house is still in a designated flood area. Contact the Federal Emergency Management Agency (FEMA) to see if you could get the designation removed. This process is actually very easy and only takes about a month to get a final response.

selling real estateIn closing you should focus on the positives that come with buying in a flood prone area. You obviously had your reasons for purchasing that real estate and potential buyers could have those same ideas. Maybe you were enticed my the low price or like the idea of getting away from overpopulated areas. Whatever it is it should be able to give you the confidence you need to selling your real estate in a flood zone.

Managing Your Real Estate Investments With a Virtual Assistant

Virtual assistants have become a much needed commodity for real estate professionals at all levels. People relatively new to the real estate industry usually do not have the necessary cash to hire a full time property manager. Real estate investors that have multiple properties in multiple locations just do not have enough time in the day to handle everything. Regardless of how big your real estate portfolio is a virtual assistant can definitely benefit you.

One of the first things that should come to your mind about hiring a virtual assistant is the savings. Besides the fact that virtual assistants have cheaper salaries than on-site staff you also don’t need to provide them a space to work out of. Saving you time from managing an employee or doing the mundane tasks yourself is priceless. You should being focusing all of your time on growing your real estate portfolio and leave the property management responsibilities to an outsourcing company like RealtyOutsourcing.

real estate virtual assistantBy taken advantage of today’s technology there is literally no limit to what types of processes you can outsource to a virtual assistant. Obviously they can not physically open the door to your property but that is not something YOU need to worry about. Outsourcing property management to a virtual assistant relieves you from worrying about the little things but still gives you the confidence your investments are in good hands. Still unsure of how beneficial a virtual assistant could be for you? Here are some ideas on how you can utilize a virtual assistant:

Common Tasks for a Real Estate Virtual Assistant

  • Managing Tenant Relationships. We have all experienced those “needy” tenants that are constantly calling needing help for something. When you hire a virtual assistant you no longer have to worry about your phone ringing a million times in the middle of the night. Virtual assistants have excellent customer service skills and are available to provide assistance to your tenants 24 hours a day.
  • Marketing Campaigns. Get your listings and buying packets created by a virtual assistant. They can also write blog posts to advertise your properties as well as perform email campaigns. In addition to lead creation virtual assistants can manage all of your social media platforms for your real estate company.
  • Property Management. Real estate properties are constantly needing maintenance and repairs. Virtual assistants will schedule everything needed and maintain a database for each of your properties. In fact, virtual assistants are perfect for data entry tasks like tenant background checks and MLS inputs. Gone are the days of losing track of tenants payments and all other information needed to file your taxes.
  • Personal Secretary. I am sure you have a ton of emails that your virtual assistant can filter through and respond when necessary. Scheduling meetings and managing your different calendars will come as second nature to them. All of your different bookkeeping needs can be handled by your virtual assistant. Everybody needs someone to help stay on budget and provide feedback on operating costs and overhead expenses.

virtual assistantManaging Your Real Estate Investments With a Virtual Assistant

There is no doubt that hiring a real estate virtual assistant will provide you tremendous benefits. As your real estate portfolio starts to grow you will at some point not have enough time to do everything. If you have any intention of hiring help I highly suggest you look into virtual assistants before searching locally.

 

Is the Canadian Real Estate Market Poised for a Crash in 2019?

The Canadian real estate market has been on a positive roll over the last several years. Low-interest rates, a strong economy, increasing immigration, lots of foreign investments along with the attractive capital gain tax exemptions for homeowners has really worked wonders for the housing market. All these factors combined has created a housing bubble that somewhat rivals that of the United States in 2006, especially in the cities of Toronto and Vancouver.

The government has been reluctant to let the bubble bust, since a real estate crash would have severe consequences on the whole economy and letdown multiple types of stakeholders including homeowners that have been licking their chops over their rising profits, even if it is just a number on paper that has the estimated value of their home. Real estate agents have no concern on what happens after they sell a house and could care less about the negative effects on the economy or society as a whole of them getting the most out of their sell. This group is represented by Canadian Real Estate Association (CREA).

Canadian real estate market figures for sales this April showed a 2.9% drop compared to the previous month and sales were down 13.9% lower than in April of 2017. A high percentage of this decrease in sales came from the real estate markets in Toronto and Vancouver, where everyone knew a market correction was imminent.

Canada is a big country though so all regions need to be taken into account to assess the overall housing market. As mentioned earlier, prices might have finally dropped from the astronomical numbers seen Toronto but the housing market is as a strong as ever in other places of the country like Montreal and Ottawa for example.

Interest rates have risen 5 points already this year and are expected to raise again in the summer. The higher interest rates have definitely been a factor to the decrease in home sales during the first quarter but the CREA places most of the blame on the negative impacts of the new mortgage stress tests imposed this year by the Superintendent of Financial Institutions.

Canadian Real Estate New Mortgage Stress Test Rules 

The new measures are designed to make sure buyers with uninsured mortgages could handle a significant increase in interest rates without defaulting. This logical move from the Canadian government was put in place to protect the financial system from over borrowing and ensure the people to don’t overindulge on debt.

Last year the ratio of household debt to disposable income for Canada stood at 170% which is just below the record high. This is believed to be from Canadians overextending themselves when it comes to home loans. While the ratio has started to come down some the Bank of Canada is still bothered by the size of that potential debt burden.

Under the new mortgage stress test rules, homeowners will not be able to afford to borrow as much. If they are not able to pass the stress test they will need to either search for a cheaper home or hold off from purchasing. This may sound like a reasonable solution but it is terrible for real estate brokers. The CREA claims that the new stress test is destabilizing markets in other parts of the country where the real estate industry is still booming.

Saving the Housing Market

Canadian Real Estate Price ReducedThe truth is that it is not OK for anybody anywhere to purchase a home that they can not afford. Prices either need to come down or people need to be more realistic on how much they can afford. Some of this is already starting to happen in some areas.

The easy credit and low interest rates in the property market is finally starting show its bad side. Adding more taxes to foreign investments and tightening mortgage requirements were long overdue but will be able to save the market. Housing prices are still too high and additional measures will be needed to address the housing affordability. There will be no crash in Canada. The slowing of the market is bad for builders and real estate agents but great for the economy.

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