Why Is The Housing Market So Important?
If you follow the money, you'll see why it's a big deal.
Did you know we have a federal election coming up in a few weeks? It's so crazy to see how different the political space is in Canada versus the US. South of the border, it seems like campaigning for a federal election literally takes years. Like, the president basically spends half their presidential term on the campaign trail. In Canada? Oh, there's an election next month. And boom, it's done.
I obviously won't get into anything political on this post, but if you know me at all and talk to me one-on-one, you know I'm not shy about voicing my opinions about how stupid every party seems to be when it comes to dealing with the real estate market. But I've always been so curious as to why economists and governments were so insistent in making sure no matter what happens in the economy, real estate was always top of mind. I mean, it's not like governments really care if your house goes up in value every year, right? Looking at the way these politicians talk about real estate, it's almost as if they want prices to continually come down - I won't get into why that's just a fundamentally flawed political promise and against every free market economic principle that exists (not to mention how it would actually be catastrophic for the economy). But I digress. And I promised not to get political.
So why is the housing market so darn important to the economy?
Wifey and I recently bought a new condo. We upgraded to a larger space not because of the pandemic necessarily, but we've had our eye out for a larger space for some time so when the opportunity came up a few months ago, we jumped on it. Side note - if you haven't read my post from a couple years back about how it probably makes sense to buy the most expensive home you can afford right off the bat, check it out here. Wifey and I lived through that personally and I find sharing these stories with clients helps them understand why I give a lot of the advice that I do. I've been through it all myself.
This was our first move in 7 years and it was the first time I really started to see the economic impact that buying a new place has on the economy. I tracked everything and everyone who benefitted from our move, because my brain is basically a spreadsheet. Here's how many people are impacted in a positive way just when someone like us buys a new house or condo:
1 - The City of Toronto and the Province of Ontario - Land Transfer Tax. I'm not going to get into why this is the absolute stupidest tax ever created but we basically paid tens of thousands of dollars to Toronto and Ontario just for the privilege of being allowed to buy a new place. You're welcome government. I'd really like to see where my money gets wasted...I mean, spent.
2 - Lawyers - You can't close on a property in Ontario without a lawyer. So there's a couple thousand bucks that lawyers made on the transaction, on each side of the deal.
3 - Mortgage broker - We went with the same mortgage broker who I refer all my clients to and since I only recommend the best to my clients, we used him as well, obviously. He makes a commission on every deal directly from the bank, so he got paid by our bank.
4 - Appraiser - We had an appraisal done on our new place, at the request of the bank, so the appraiser got paid.
5 - Painters and contractors - Wifey wanted the new place freshly painted, so we hired a painter who works in the neighbourhood. We also got our closets redone, had some custom cabinets built, etc. Gotta make the place our own, right?
6 - Plumbers - We swapped out our kitchen faucet, so our plumber got paid.
7 - Ikea, Structube, EQ3, Wayfair, CB2, etc - I don't know a single person who buys a new place and doesn't buy at least some (or all) new furniture, new light fixtures, etc. We spent thousands, and we're not fancy. Furniture is just expensive!
8 - HomeSense, Winners, etc. - You don't buy a new place without decorating. I mean, I probably would try to get away with it but I'm also still using the same Ikea desk I bought 10 years ago. So I'm probably not the frame of reference you should use. Plus, people will get you housewarming gifts and they usually end up being something from a place like HomeSense, or a gift card.
9 - Home Depot, Canadian Tire, Amazon, Walmart - Buy a new house or condo, and you'll find endless things that need to be fixed or replaced. I'm the least handy person I know and I absolutely hate walking into a Home Depot because it makes me feel like less of a man, but we've made more trips there in the past couple months than I've made in the past few years, all to fix or replace stuff in our new place. Or I'll just buy random parts on Amazon after watching a bunch of YouTube videos on how to fix things. Whatever keeps me out of Home Depot!
10 - Movers - Luckily we moved in the same building and had enough overlap between our places that we were able to move ourselves, with a little help from a couple family members. But if we moved anywhere else, you better believe we'd get movers. When we moved into our previous place, we did the whole move ourselves with a U-Haul and it was the longest, most exhausting day of our lives. Never again.
11 - Cleaners - Before you move in, you clean.
12 - Rogers/Bell, etc - If you're moving into a new place out of mom and dad's basement, you're gonna need Internet (and maybe cable, if people still do that). That's another new account for the big players, because all internet providers ultimately pay the big guys for their networks. We just transferred our existing account but our new tenants in our previous place had to setup a new account after moving from their mom and dad's place. So one way or another, Rogers or Bell got a new customer.
13 - Local restaurants and coffee shops - We stayed in the same neighbourhood, so this doesn't really apply for us but whenever you move to a new hood, you're going to check out the nearby coffee shops, restaurants, bars, etc.
14 - The bank - How could I forget the bank, who were so kind enough to lend us a boat load of money and will be making interest off wifey and I for decades ;)
15 - Real estate agents - OMG, I almost forgot about real estate agents! Wifey and I did a private deal so there were no agents involved but I represented ourselves on the deal and I would be remiss to forget about real estate agents who would normally make a commission on a sale.
I think you get the picture. It's basically impossible to move without sending thousands and thousands of additional dollars above and beyond your purchase price directly into the economy around you, bringing an immediate positive impact to the local economy and beyond.
If we didn't buy a new place (and if the sellers decided not to sell to anyone and stay put), there would be literally tens of thousands of dollars that wouldn't have been spent. So from an economic standpoint, it's not so much the value of real estate that has an immediate affect on the economy, but it's how many transactions that occur that's most important. That being said, real estate prices do impact how often people move in a very real way. If a starter house or condo is too expensive for an average person, they won't buy. They may live at home longer, choose to live with roommates, stay in their current rental for longer, etc. The economy needs first-time buyers in steady supply because those buyers allow sellers to move up to their next (likely larger more expensive) home, and allows those sellers to either move up to an even larger home, or downsize and retire (and spend that windfall from their sale back into the economy). The real estate cycle is so important to the Canadian economy that nobody wants to mess with it. And to be honest, governments have messed with it, time and time again, but the demand has just been too darn strong to cause any serious or long term negative impact. But you have to be careful - if you tinker with a market too much, you could break it. Seems like politicians don't really care or understand that part (that's not political, right?)
Have you checked out my previous blog posts?
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Your Toronto condo lover,
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)