Canada’s housing market didn’t collapse and your agent will work for food

Every couple of days I come across articles that I’d like to comment about but never seem to get to.

Here are two.

First, here’s a very good article about Canada and its housing market. The question is raised: Canada is close to the United States (only Russia is closer) and the United States is its biggest trading partner (and, vice versa) and its banking systems are somewhat similar, etc., etc., etc., so why hasn’t the Canadian housing market crashed like it has in the United States?

The conclusion drawn by the author of the article, James MacGee, an associate professor at the University of Western Ontario and a research associate at the Federal Reserve Bank of Cleveland?

Why Didn’t Canada’s Housing Market Go Bust?

The Canada-U.S. comparison suggests the low interest rate policy of the central banks in both countries contributed to the housing boom over 2001–2006 and that a relaxation of lending standards in the U.S. was the critical factor in setting the stage for the housing bust. A caveat worth emphasizing, however, is that the Canada-U.S. comparison tells us little about what would have happened if U.S. monetary policy had been tighter earlier. Tighter monetary policy in the early part of the decade may have helped to limit the subprime boom by slowing the rate of house price appreciation over 2002–2006 …

But, the article covers much more ground than that, so I recommend you read it. Now.

Second story is about real estate broker commissions. The Los Angeles Times ran a story entitled, “Shaving real estate commissions can save sellers thousands.” If you want to save some money on the sale of your home, try asking your real estate agent / broker to lower his/her commission. News flash: this is unlikely to work if your agent works for one of the big companies. They frown on this sort of thing.

Truth is, it’s a risky move. The five percent commission typically paid is split 50-50 between buyer’s agent and seller’s agent. So, your sales agent is getting 2.5%. You might be able to get him/her to drop to 2.0% but it’s not a wise move to lower the buyer’s agent’s side because it is a disincentive to the agent. However, since many buyers’ agents are desperate for deals, it might work.

The best deal to be made is to suggest that, if your sales agent brings in his/her own buyer, the five percent commission would be reduced to some agreed-upon amount, say 4.5 or 4.0 percent.

Related posts:

1. What caused the housing boom / bust? Ed Glaeser chimes in
2. Housing is cheap
3. Canada does it better
4. Is Greater Boston real estate market in for “double dip”? Um, no.
5. Tough times to be a Boston real estate agent (p. 1)