Real Estate Agent Bubble in Canada Poses Startling Problem

agentCanada currently has a real estate agent bubble. Data from the Canadian Real Estate Association shows that there is one real estate agent for every 245 Canadian above the age of 19. In fact, there are so many realtors that there’s almost as many people selling homes as there are laborers constructing them. According to Statistics Canada’s survey for the year 2013, the country had 131,000 carpenters, while the Canadian Real Estate Association had the number of realtors in the country at 108,706 during 2014’s first quarter.

This influx of real estate agents appears to be caused by skyrocketing house prices, which in turn are being caused by what some analysts believe to be a distortion in Canada’s economy.

Some time during the country’s last economic crisis, capital started being diverted from manufacturing and into real estate. Exports to the United States, whose own economy was in a slump, weren’t expected to be very profitable revenue streams. At the same time, mortgages become more affordable thanks to record-low interest rates. Demand increased, and prices skyrocketed as a result. In such an economic situation, it was only natural that investors stopped bothering with manufacturing and other suffering industries and turned their attention to real estate.

The problem is that Canada’s economy is now reliant on real estate, so when a slump inevitably comes, countless people will lose their jobs.

The banks aren’t helping the situation, either. The International Monetary Fund declared that last year the banks opted to lend to mortgages instead of smaller enterprises, which could help explain how manufacturing got into such a slump.

“Through the last economic downturn, Canada’s real estate market was not as affected by the misfortune as the United States’ was” says Jeff Thibodeau, Sales Representation at Brantford Homes Team. “I am confident that Canada will remain mostly stable throughout economic trials.”

Bank of Canada Governor Stephen Poloz believes that there’s exports will turnaround soon. He’s optimistic that the United States will start purchasing goods from Canada soon, which will help investments return to the manufacturing industry.

Hopefully he’s right, as it currently appears that too many of Canada’s eggs are in one basket.