Oliver Foote

Why Are So Many Realtors Broke?

Newsletter 30– Jan 29, 2025

Who’s Making All the Money?

This idea came back to my mind because I heard in the news that the Toronto Real Estate Board saw a decrease in membership for the first time in 20 years. The real estate business was becoming a lot harder for a lot more people. The number of sales from the peak crazy year 2021 has been cut in half, which means literally half as much to go around. So this post is going to be a bit of an analysis about this problem, as well as talking about which realtors are able to continue doing this over the long term compared to those who are leaving the business. I also want to throw in a bit of my own story here, because I’m learning that being a Realtor is much harder than the successful people make it look.

The Famous # of Sales Chart:

This is a topic that if you’ve ever looked into the real estate industry you’ll know comes up time and time again. I’m going to use the area I work in, Toronto, as the case study, but I’m almost certain if you look anywhere else in Canada or the US you’ll find the exact same thing. Here’s a chart talking about the number of home sales each Realtor made in the Greater Toronto Area in 2021.

In 2021 it was a record year for home sales in Toronto with the Covid vaccine being distributed and the interest rates so low to stimulate the economy. 121,000 sales were recorded, which we can assume for simplicity that each had 2 agents on either side. This means a total of 242,000 transactions were completed.

As the chart helpfully points out 32.5% of realtors made ZERO sales. Which is a TON of Realtors. I’ll get into the numbers a bit later, but doing ZERO sales means that the decision to be a realtor is costing people. From my own lived experience, I’ve averaged around $7,000 in random licensing fees, desk fees at my brokerage, and misc fees, just to stay licensed and run my business. Which quite honestly I do very cheaply compared to the marketing spend of some other Realtors. I know there are cheaper ways to stay licensed than what I’m doing, for example going with discount brokerages. But it would still run me probably around $3,000 a year bare minimum to stay licensed. Which isn’t an insignificant amount of money.

Looking at some more stats. The average home price in the GTA at the time was around 1.2 million dollars. Assuming an average commission of 2% after brokerage splits, fees, and expenses for listing a home and sharing a commission with another agent. The net income on a sale per side would have been around $24,000. In my opinion, this means that you’d need to be making around 3+ sales per year in order to survive in the business, considering all the other fees and targeting the median income of around $60,000. Doing 3 sales and having a net income of $60,000, is a pretty nice deal, but I’ve also learned that it’s not something everyone is capable of doing. As evidenced by the chart, the competition is stiff, and the few winners really take the lions share in this business. The top 10% of realtors do almost all of the business while the other 90% are picking up scraps by comparison. So what makes these top 10% or top 1% so special?

Visibility Trumps Ability:

Going back to the chart for a second, you’ll see that based on my rough math on 3 sales, about 50% of realtors are making barely enough to get by or not getting by at all. So what are they doing? Are half of realtors working part-time? Are they delusional? What’s going on? I think it’s a bit of everything above. Many people who are doing less than 3 sales per year are probably doing it part time, maybe they only sell their own properties, or they just aren’t cut out for the competition. They my also just be unwilling to spend money to market themselves, which as you’ll see below. Is quite an important thing to do.

I think there should be a big disclaimer before people enter the real estate industry that they need to budget around $10,000-20,000/year or more just to dedicate towards a marketing campaign. This might seem like a lot of money to someone just starting out. But I can tell you from what I’ve seen working on a team the amount of time, money, and effort it takes to really take this career seriously. If you aren’t willing to invest either an enormous amount of time or money in marketing, you will likely die a slow painful death in this industry along with the 90% of agents who do less than 10 sales a year.

Most Sellers Sell With The First Agent They Call:

Real estate is an industry of visibility. There have been stats and datapoints showing that most people only know the names of 2 or 3 realtors off the top of their head. When they go to sell their home, most homeowners only interview 1 realtor (per National Association of Realtors in the US). What this means is that you have to be the first Realtor who comes to mind for a homeowner. But most homeowners only sell once per 7 years. So if you want to be doing lots of business, you need to be the first that comes to mind in hundreds, if not thousands of people’s minds. If you are able to accomplish this you’ll likely be one of, if not the only one potential sellers will call to list their house. You can be a complete dunce, an arsehole, rude, etc. BUT, as long as people know your name, and you’re the first one they call. You’ll likely do more than ok in the real estate business.

Selling Agents Rule The Business:

Another important thing to note is that most if not all of the Realtors who are in the top 1% bubble, are primarily selling agents. Listing homes also happens to be one of the only ways that this business is sustainable long-term. The reason is simple to see. In most markets, but especially hot markets, being a listing agent trumps being a buying agent any day of the week. In a market where there is a ton of competition, and say for example there are 15 offers on a property and the sale numbers are going insane. Only 1 of the buyer agents will earn a commission, and the other 14 agents will have to continue to show their clients properties. It may take them 10-20 or more listings until they earn a commission. If the buyers agent is really unlucky or the buyers aren’t very motivated, they might have spent months or years with clients and never make a sale. However, as the selling agent, you’re almost guaranteed to earn a commission from your listing in a hot market. Obviously, some sellers have unrealistic expectations, may be unmotivated, or the house might not sell for various other reasons.

Even in a cold market, as the selling agent, you still have the advantage. You aren’t worried about scheduling appointments, or doing x number of showings per week in order to try and find something your clients like. You make sure to present the property well, take good photos, set a good price, work with your sellers, and wait for other agents to bring you offers and you negotiate for your clients. As a listing agent it’s feasible to have 20 listings up at a time. Buyers agents will show your listings to their buyers, that’s like having an army of people working for you to get the house sold. But once you’ve staged, listed, and marketed the property on all the usual channels, as a Listing Agent it becomes a waiting game, rather than a chasing game, and you can spend your time seeking other listings. Meanwhile, as a buying agent it is almost impossible to show 20 properties in a day and even if your clients do find one that they like, you may get beat out by other buyers or the seller may be unwilling to sell, and you have to keep on keeping on. Being a buying agent simply does not scale beyond a certain point.

What’s holding Agents back?

I’m sure you’ve heard stories of people who enter the business and immediately are making tons of money and tons of sales. How are they doing it? The simple answer is that they are probably much more willing to spend money and take risks than your average realtor. They probably have a pre-existing network of people that already know and trust them and have good relationships with. They’re also probably a competitive person. Lastly, they understand that the name of the game in real estate is selling and put their time and energy into becoming a selling agent not a buying agent. Which is why almost every single real estate billboard you see talks about how “I’ll sell your home in x days!”, or “Our listings sell x% above market average”, or one I really like, “top 10 things to do when selling your home. 1. Call me. I’ll handle the other 9.” All of these Realtors with these big marketing campaigns know that selling is the way to go. Side benefit, you might get a few buyers calling you as well. No reason to turn down business.

Concluding Thoughts:

I think we can surmise that the 50% of agents who aren’t surviving are likely missing one of the key components I mentioned. Likely, they aren’t willing to put in the time or the money that is required to become the top agent that people will think to call when they sell their homes. They probably aren’t thinking long term about the business model and what is sustainable. I think a lot of agents may also be scared of trying to list a home. From experience I know that it can seem like a daunting task to get a home picture ready and staged properly, you’ll likely have to put in some money up front to do it the right way as well, with the possibility you don’t see a penny of that money ever again. But it’s important to realize that if you’re unwilling to learn how to be a listing agent, you should probably exit stage left before you go broke. You’re competing for peanuts with the 90%, not the big prizes with the top 10%.

That’s going to do it for now, this post is a bit more brief than usual. I originally wanted to discuss a bit more about my own finances. TL;DR: I’ve discovered that between owning a car and being a realtor I’m burning around $14,500 per year. I’m not sure how relevant the discussion about my personal life goals and finances would be to this blog. But I’ll just leave you with this thought. Owning a car is not a good financial decision, unless it makes you much more money than it costs you. Being a realtor who does less than 3 sales a year and doesn’t have a business plan that leads to being a listing agent is also not a good financial decision. In order to be a Realtor you almost certainly need a car. Meaning that owning a car solely to be a Realtor, can be a VERY bad financial decision if you’re not serious. Thanks for reading, hope you found it interesting or useful. As always.

Keep Investing,

Oliver Foote

Subheading: The blog this week is discussing: “Why are most Realtors broke?” You may have heard about why some Realtors perform better than others. There are some fundamental reasons, and I discuss what those are in the post. Also BoC cut rates by 0.25bps! Will this help buyers? Certainly should.

This Weeks Blog Post:

Why Are Most Realtors Broke?:

The question, should you list homes or should you help buyers?
Why some Realtors do better and outcompete others.
The crazy cost of Realtor fees, just for the privilege of being an agent.
And more…

Read the full article here: https://oliverfoote.ca/why-are-so-many-realtors-broke/

Market News:

The Bank of Canada cut interest rates on Wednesday Jan 29th. This means that the overnight lending rate now sits at 3%. For us normies, that means that the prime lending rate at banks is now at 5.2%. With some banks offering prime – 0.3% on 5 year variable rate mortgages. That puts the mortgage at 4.9%. The 5 year bond yield, which determines fixed rate mortgages, is sitting at 2.8%, which is nearing a 52-week low. You’ll likely start to see 5-year fixed rate mortgage below 4.5%, with some as low as 4.2%. If yields drop enough to the point where we start to see a leading 3 on mortgage interest rates, I believe this will be a psychological breaking point and people will return to the market in droves. Potentially just in time for the seasonally hotter Spring market. If yields continue to fluctuate the way they have been, or the tariff war heats up with the US. It is possible that yields go up, the BoC has suggested they may even have to raise rates again. This would mean that the market would be unlikely to see a significant rebound this year.
A new AI model just hit the Interweb, DeepSeek AI. This AI large language model (LLM) came out of nowhere from a Chinese company. They were able to train the model for a fraction of the cost of ChatGPT, while delivering comparable performance, and also being Open Source (free). This news caused the market to fall somewhat on Monday. NVIDIA, the leading chip maker supplying OpenAI (and all the other big tech firms) with very expensive AI hardware to run their learning models on, saw a dip that caused NVIDIA to lose $600 Billion dollars in market valuation in one day. The following day it recovered around half that loss. Another model built by this firm was able to compete and outperform with one of the best image generation models currently available.

Stock Market Performance as of Wednesday Jan 29, 2025:

S&P 500: 6,039.31 (+2.91% YTD)

NASDAQ: 19,632.32 (+1.82% YTD)

S&P/TSX Composite: 25,473.30 (+2.31% YTD)

Macroeconomics Statistics:

Canada’s CPI Inflation Dec 2024: 1.8% (0.1% Decrease from Nov 2024)

Current BoC Benchmark Interest Rate: 3.00% (0.25% Decrease on Jan 29, 2025)

Unemployment Rate Dec 2024: 6.7% (0.1% Decrease from Nov 2024)

Greater Toronto Area (GTA) Real Estate Stats – December 2024:

November 2024 Average Selling Price All Home Types: $1,067,186

Y-o-Y (comparing Decembers) % Change in Average Selling Price: -1.6%

YTD Number of MLS Sales: 67,610

YTD % Change in MLS Sales (compared to this time last year): +2.5%

Y-o-Y (comparing Decembers) % Change in MLS Sales: -1.8%

Number of MLS Sales in December: 3,359

Y-o-Y (comparing Decembers) % Change in Active Listings: +48.5%

Number of Active Listings in December: 15,393

Inventory Available: 4.58 Months (Increase from 3.71 Months in November 2024)

Market Type: Buyers Market

Investing $100,000 in Stocks vs. Real Estate 25 Years Ago

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

This thought experiment has been floating around in my big ol’ brain for a little while now, and I was curious what the results would be. So this post is going to be a bit of a back-test of investing in stocks (index fund) vs. real estate (homeownership as an investment). I’m going to have to make a few assumptions, but I’m going to try and make them as realistic as possible for the sake of this post. Before jumping into the thought experiment I want to point out and outline a principle that is sometimes lost in the numbers when people are comparing real estate to other investments like stocks.

Real estate is an insanely leveraged investment. Why? What does that mean? I didn’t know we’d be talking about Physics? Allow me to explain. Leverage in it’s most basic form is borrowing money from one person, to then turn around and invest. For example you might leverage 2x the money you have available to you. In stock terms this means that if your investment goes up 100% (doubles), you’ve made a 300% return (2x leverage + 2x return – 1x original investment). Let’s use real numbers to make this make more sense. Let’s say you have $100,000, you then go to the bank and say “hey, I have a great investment idea, my credit is great, will you lend me $100,000?” They say, “sure, no problem, but we’ll charge you interest.” So you take your now $200,000 and invest it (really it’s just $100,000 + $100,000 loaned against that). Your investment doubles. You now have $400,000 in a bank account. If you had only invested your $100,000, unleveraged, and your investment doubled, you’d have $200,000. Instead you used leverage and now you’ve made $200,000 instead of $100,000 by using 2 to 1 leverage (minus fees and interest). Let’s say for the sake of argument your fees and interest came out to $50,000 over the course of the investment, you pay back $150,000 to the bank. You still come out ahead with $150,000 profit + your original $100,000. More than double the initial amount, that’s the power of leverage.

HOWEVER, if your investment falls by 50%, you lose everything. How? Well you need to have a way to repay the bank, so the money you have is collateral for their loan. If your investment in stocks drops by 50% you’ll have $100,000 in your account, which is exactly enough to repay the bank. So you’ll get “margin called” which is when the bank sells stocks on your behalf and will pay back their loan. Just like that you go from $100,000 to nothing. So leverage has 2 sides, and the downside risk can be quite large and scary which is why most people should never play with leverage. Yes you can make astronomical returns, but you can go broke just as quickly. So… Real Estate, the thing we all live in, is leveraged 5 to 1… Let’s talk about it.

After what I’ve just told you about how leverage can destroy you’re investment, you’re probably thinking to yourself, “surely, no bank would be crazy enough to lend more than 2x or 3x to a VERY smart investor,” well do I have news for you. Every day, people are going out there, going to their banks and being provided a loan for 5x-20x the money they plan to spend on their home. How does that make any sense? Well, apparently, we’ve all decided that the most stable asset in existence is land, and homes. Every bank and government has decided collectively that homeownership is a right of sorts and it has resulting in lending policies that allow for this type of leverage. If you get into “low down payment” mortgages it gets even more crazy.

So lets take a look at an example. You have $100,000 that you want to spend on a home. About $10,000 of that will go to land transfer tax, lawyer fees, home inspections etc. So your investment after cost of doing business is closer to $90,000. Lets create 2 scenarios, both will factor in a renter investing in stocks vs. equivalent homeowner. I’ll try to provide actual examples of houses and rents too. A point that I think is important to make here is that past performance is never an indicator of future results, that goes for stocks and the housing market and there are a lot of things that influence both these markets in a big way, this is a historical example, and may not pan out exactly the same way in the future. But I hope it is illustrative.

Scenario 1: 20% Down Payment (5 to 1 leverage)

In 1999 $90,000 as a 20% down payment means that you can buy $450,000 worth of home. What does that get you?

In one of Mississauga’s nicer neighborhoods Lorne Park, that would get you a 4 bed, 3-4 bath, 2000-2500 sq. ft. home, 2 car garage, possibly with a pool.

A 5-year fixed mortgage rate would have been around 7.5% at the time.

Your monthly mortgage payment would be approximately $2600 per month, add in your other home expenses and let’s say $3000 per month.

Now, how much would a similar home cost to rent at the time?

I’m seeing around $2300-2500/month, so let’s call it $2500 after expenses again.

$500 less per month to rent.

Now that the stage is set, let’s do some math shall we.

Let’s assume the renter family’s put their initial $100,000 into an S&P 500 index fund and the $500 per month in savings goes into this same fund, so $6000 per year extra. Meanwhile, the other family’s savings gets dumped completely into home and mortgage we’ll also say that both families start in January of 1999 and the extra $6000 is added at the start of each year. We’ll just say that both families succumb to lifestyle inflation with the extra income over the years so their numbers don’t change. What happens?

Renter family:

Year	S&P 500 ROI	Added dollars ($)	Portfolio Value ($)
1999	19.53%	6,000	126,701
2000	-10.14%	6,000	119,245
2001	-13.04%	6,000	108,913
2002	-23.37%	6,000	88,058
2003	26.38%	6,000	118,871
2004	8.99%	6,000	136,096
2005	3.00%	6,000	146,359
2006	13.62%	6,000	173,111
2007	3.53%	6,000	185,433
2008	-38.49%	6,000	117,750
2009	23.45%	6,000	152,770
2010	12.78%	6,000	179,061
2011	0.00%	6,000	185,061
2012	13.41%	6,000	216,682
2013	29.60%	6,000	288,596
2014	11.39%	6,000	328,151
2015	-0.37%	6,000	332,915
2016	9.54%	6,000	371,247
2017	19.42%	6,000	450,509
2018	-6.24%	6,000	428,023
2019	28.88%	6,000	559,368
2020	16.62%	6,000	659,333
2021	26.89%	6,000	844,241
2022	-19.44%	6,000	684,954
2023	24.23%	6,000	858,372

Owner family by 2023: Home value $1,650,000-$1,750,000, mortgage paid off.

The average housing price growth in this time period was around 10% per year for detached homes. I tried to find actual houses on the market that have recently sold as a more true indicator of value rather than just computing the average. As you can see, due to the leverage that mortgages allowed you are now twice as wealthy as the person who invested in stocks, you own the home rent free, and you can accelerate your own savings on top of owning this now expensive home and outpace the stock investor even more. Meanwhile, the other family’s rent and expenses will have gone up and they may have had to move a few times because of owners selling homes. Stability is not quite the same, and while $800,000 is an impressive sum of money, it’s still half as much as the homeowner, even with historically higher growth in stocks than average.

What about the future of housing?

People are predicting that the next decade will not see the same returns on housing as the last two decades, but having a home even as an investment rather than leaving money in stocks can mean that while a tenant is paying down your mortgage for you, there will be money left over for you to continue investing in stocks, rinse and repeat, buy more homes get more tenants. Yes it is somewhat clinical, but the more people you have building your home equity, the more “streams” of income you will eventually have when all those homes are paid off, or you just sell them for a ton of money. Every home is a vehicle to 5x or more leverage, you’re controlling a $450,000 asset in our example with only $90,000. Yes you do have to pay interest and you’re “burning” a lot of money in interest every year, but even after all those fees, you’ve done well! I’m again stressing that past does not equal future. Who knows what the future holds! But historically, real estate has been the way to go, and every wealthy person I’ve ever met has some amount of holdings in real estate or land. Because they aren’t making any more of it!

Now there are a million ways to invest in real estate and make a return on investment much quicker than this believe it or not. One of those ways would be purchasing a home in need of some repair and then selling it, what people call “sweat equity” or “forced appreciation”, making it worth more to the market. This is more risk, but in theory more reward. But I’m more of a believer in the long game and just trying to acquire as many beans as possible so my pile of beans can be huge.

Let’s move onto scenario 2.

Scenario 2: 5% Down Payment (20 to 1 leverage)

Here’s a bit of a history lesson for you. The 5% down payment rule came into effect around 1995, and we proceeded to see two decades of the highest appreciation rates in the history of the GTA Real Estate Market. I’m not going to talk too much about government policies and what could have been different, maybe some other time, for now we’ll just accept this as it is. So in the grand year of 1999 before the dot com bubble, we can now leverage our money 20x! Woohoo! (probably).

The rules at the time were 5% up to 500,000 then 10% down up to $1 million. So if you buy a $999,999 house, your down payment is 7.5%, so not quite 20x leverage. Let’s say that you buy a $999,999 house in this scenario with 7.5% down, or $74,999 and you burn the other $25,000 on fees and mortgage insurance.

This budget, allows us to buy a home under $1,000,000 on the prestigious Mississauga Rd. north of the QEW. 4-5 Bed 8 Bath, over 5000 sq ft. Probably what we’d call a McMansion nowadays. In 2023 this caliber of home sold for $3.8 Million to $4.0 Million. Your monthly mortgage payments on this at 7.5% interest would be around $7,000 a month with property tax and everything else lets call it $9,000 a month. From what I can see online to rent a similar property would have been around $5000 a month call it $6000 after other expenses. Which is $3000 savings per month, or $36,000 per year. So lets take a look at this $100,000 stock investment, this time with $36,000 getting added per year.

Year	S&P 500 ROI	Added dollars ($)	Portfolio Value ($)
1999	19.53%	36,000	162,560
2000	-10.14%	36,000	178,426
2001	-13.04%	36,000	186,465
2002	-23.37%	36,000	170,475
2003	26.38%	36,000	260,943
2004	8.99%	36,000	323,638
2005	3.00%	36,000	370,427
2006	13.62%	36,000	461,783
2007	3.53%	36,000	515,355
2008	-38.49%	36,000	339,138
2009	23.45%	36,000	463,108
2010	12.78%	36,000	562,894
2011	0.00%	36,000	598,894
2012	13.41%	36,000	720,033
2013	29.60%	36,000	979,819
2014	11.39%	36,000	1,131,521
2015	-0.37%	36,000	1,163,202
2016	9.54%	36,000	1,313,605
2017	19.42%	36,000	1,611,699
2018	-6.24%	36,000	1,544,882
2019	28.88%	36,000	2,037,441
2020	16.62%	36,000	2,418,047
2021	26.89%	36,000	3,113,941
2022	-19.44%	36,000	2,537,592
2023	24.23%	36,000	3,197,174

Decided to use excel this time. In this second scenario, because you’re dumping so much money per year into stocks you end up within about $600,000 of the purchasing couple, but they STILL end up ahead. Another reminder that this time frame saw the most appreciation in stocks and real estate in known history. But again, even with the higher interest rate and extra mortgage insurance fees, the purchasing couple still ended up ahead of the renter couple, even with their prudent savings and investing plan. Many people also don’t know how to buy and hold when it comes to stocks and most retail investors underperform the market, as well as many professional investors, so this is an extremely optimistic ROI in the stock portfolio. Meanwhile getting someone to move their home is a much more arduous process and a more illiquid asset, but this is a benefit in a way because it means that you give the asset the proper amount of time it needs to appreciate in value.

So now we’ve seen both scenarios, and both point to the fact that purchasing a home has been the better way to build wealth in Canada in the past 2 decades. Will this be the same in the future? As mentioned many economist are predicting that the real estate market will not see the same returns as the past. But I still believe that due to the ability to leverage your money so highly, with the asset class being relatively stable (for now), makes it a great way to build wealth, and the ability to repeat the process with multiple properties provides growth that you simply won’t be able to duplicate in the stock market. You’re fundamentally limited by one income, but by being a landlord you are dumping many incomes into this investment idea.

Now there is an amount of stress to having that much leverage on your shoulders, if your home value drops 20% and you need to sell you won’t be able to get your down payment out. But just writing those words down unless you buy at the absolute peak and overextend yourself like crazy and lose your job at the same time, a 20% drop is an EXTREMELY uncommon occurrence in our real estate market, in stocks however, there were multiple 20% drops in that 25 year time frame, again psychologically, can be a hard time to sit there and watch your returns on paper take a nosedive. But no one really knows the day to day value of their house and even if the markets having a bad year most people aren’t going to jump to the conclusion that they need to sell.

There is one small dent in this math, and that’s condominiums. Condos have seen much more muted appreciation over the past 25 years compared to freehold housing types, the shift has been very pronounced in the post-covid years with a condo oversupply on the market and a lot of new condo inventory coming online at this moment in time. The price recovery in condos is going to be much slower than freehold but they did still appreciate at about 5-6% per year. So if we assumed a condo buyer vs. a condo renter, the numbers might be somewhat different. But if a condo is solely an investment property for you, it’s still likely that you’ll see good returns in the long run.

Newsletter #26: Thought Experiment of Real Estate Investing vs. Stocks, US Market News

This Weeks Blog Post:

Investing $100,000 in stocks vs. Real Estate 25 years ago:

This post is a discussion about leverage and how real estate is a somewhat unmatched way to leverage your money.
Two scenarios leveraging money to purchase real estate vs. stocks
Remember, past performance doesn’t predict future results

Read the full article here: https://oliverfoote.ca/investing-100000-in-stocks-vs-real-estate-25-years-ago/

Market Talk:

In case you missed it and wanted to hear my discussion with mortgage broker Deren Hasip I would highly recommend watching the video or listening to the podcast. We discuss the upcoming mortgage rule changes on Dec 15, 2024. How the US election may effect Canada. Some professional tips and tricks with mortgages. Examples of new rule changes on purchasing power for first time buyers.
YouTube: https://youtu.be/8XyHEV1c7R4
Spotify: https://open.spotify.com/episode/4vzu7YYs4SUBTTg1dILL22

The Canadian Dollar has been suffering a bit thanks to comments that Trump has made about tariffs on Canada. If that does happen there is the possibility that the Bank of Canada will be hesitant to drop mortgage rates and we may see inflation return. These are worst case scenarios and we can hope that not everything will come to pass from the new administration, but one this is for sure that there will be changes, likely economically.

Stock Market Performance as of Tuesday Nov 26, 2024:

S&P 500: 6,013.13 (+26.79% YTD)
NASDAQ: 19,136.73 (+29.60% YTD)
S&P/TSX Composite: 25,383.73 (+21.62% YTD)

Macroeconomics Statistics:

Canada’s CPI Inflation Sep 2024: 2.0% (0.4% Increase from Sept 2024)
Current BoC Benchmark Interest Rate: 3.75% (0.5% Decrease on Oct 23, 2024)
Unemployment Rate October 2024: 6.5% (0.1% Decrease from Sept 2024)

Greater Toronto Area (GTA) Real Estate Stats – October 2024:

YTD Average Selling Price: $1,121,871
YTD % Change in Average Selling Price: -1.0%
Y-o-Y (comparing Octobers) % Change in Average Selling Price: +1.1%

YTD Number of MLS Sales: 58,435
YTD % Change in MLS Sales: +0.1%

Y-o-Y (comparing Octobers) % Change in MLS Sales: +44.4%
Number of MLS Sales in October: 6,658
Y-o-Y (comparing Octobers) % Change in Active Listings: +25.3%
Number of Active Listings in October: 24,481

Inventory Available: 3.5 Months (Decrease from 5.0 Months in Sept 2024)

Subscribe to our newsletter!

Can You Time The Market(s)?

Update Dec 14, 2024: Added Newsletter Email Archive at End of Post.

This is an interesting question. In the current day as of November 2024 the Toronto Real Estate Market looks like it’s in of the best times to buy in decades. It’s been a buyers market for a few months and with rates coming down I don’t expect this to last much longer with signs pointing towards Spring 2025 being a sellers market again. But this begs the question, are you able to time the market? Many people say you shouldn’t bother trying, and honestly I mostly agree with that sentiment, especially with something like real estate that is an illiquid asset. If you plan a purchase or sale of real estate down to the day or week, your plan will likely fall apart pretty quickly. Real estate is unlike the stock market; where you can sell and find a buyer same day. You need to build in some timeline flexibility and think about an investment in real estate on the scale of decades and not just months or years.

However, even though we should be using long time horizons when thinking about any type of investing, is there a way to time the market? Now you know that since I’m writing a post about timing the market, my goal is likely to tell you that there is a way to do so. But that it’s not the only thing you should be considering when investing. Most people move and purchase new homes simply because their lives are changing in some significant way, maybe a child is on the way, a divorce is happening, aging (comes for everyone), or some other big shift has caused a homeowner to have to change their living situation. If this is you, and life is forcing you to make a change, there’s really not a lot to be gained from trying to time the market in search of a profit. But there is something to be lost with bad timing. I would suggest trying to time your move in such a way where you are buying and selling into similar market economics.

Essentially, try to time your move when things are relatively stable and there aren’t likely to be huge rate cuts or rate increases like we are seeing now. Many people sold in April 2020 after being laid off, simply to find that if they had decided to hold on just a few more months they may have been able to get much more money for their home. Of course sometimes a crisis is a crisis and there’s not much you can do. But selling during high volatility and then hoping to repurchase in a few months could lead to some nasty surprises. A real estate market can change very quickly. For example April 2020 was a buyers market and prices were plummeting while April 2021 was a sellers market and prices were going to the moon, just 1 year apart. People often forget that a house, while often their biggest asset, is also a place to live which can lead to different priorities than investors. The story if you’re a real estate investor can be quite different.

Investing in real estate for the purposes of turning a profit (as with any business venture) relies a bit more on timing than my discussion about a primary residence. For example, this past year was an absolute generational time to invest in real estate, so much inventory to choose from, many sellers willing to negotiate, if you throw in enough lowball offers some sellers were actually willing to bite, not a chance of doing that even a year ago. With rates coming down people will begin returning to the market relatively quickly, but there will still be a short period of time maybe a couple months with lots of supply available while people who have been waiting on the sidelines begin to realize that their buying power has improved significantly.

From a strategy point of view, I’ve been telling people to take open or variable rate mortgages for the past year or so because with inflation coming down steadily and the Bank of Canada making it clear that they will be cutting interest rates, taking a variable or open mortgage can allow an investor to get into a house, albeit maybe a bit heavy on the monthly payments when your first buy. But as rates come down you can lock in a much lower fixed rate, or even break your variable mortgage and pay the penalty when you think the time is right in order to get a significant discount on your monthly payment. It’s a bit of short-term pain that could pay off hugely.

I’m certain that there are investors out there who have been doing this exact strategy, and you’ll hear a lot about them in a year or two once they’ve locked in a lower rate and had their home equity increase like crazy with the return of the sellers market I’m expecting in 2025. This type of principle of buying when rates are high but anticipated to come down is not anything crazy fancy or sophisticated, you just need to have a plan of action, confidence that your projections will be correct (it helps if you read up on these things and know a bit about how markets and economies work) and have the means and people available to you in order to execute this kind of plan.

The layers of complication of real estate investing can go very deep and I’ve written some posts on the topic before, but I think that a lot of people overcomplicate things for themselves and get in their own way maybe due to uncertainty, or lack of education, or an information overload. Talk to investors, learn from them, and try doing it yourself. Learn, ask questions, do it yourself. Repeat. As with anything in life it is important to take calculated risks if you want to earn some kind of reward. If you think about it, spending 4 years (or more) of your life at a university is also a calculated risk, it costs lots of money and lots of time where you could have been working instead. But the thinking is that once you exit your university degree you will be more employable and be able to get a higher paying job than if you had the equivalent 4 year experience learning a trade or some other skill.

Real estate works the same way, the risk will likely have some kind of future pay off in 5+ years when you go to sell. Generally Canadian real estate purchased in good, growing areas has been worth the risk. In investing time is your best friend. The longer your time horizon, generally, the higher the likelihood that your investment will work out. Same goes for education, following the same example as before. In todays era everyone has a Bachelors Degree. So often you can’t do much with it and you’ll have to dedicate a further 2 years and more money in order to get your masters, at which point you may learn enough practical skills to be employable. Some people may even choose to do a PhD. So really the time commitment is quite a bit longer than it originally seemed, but the longer you commit to the concept of schooling, or holding your investment, the bigger the payoff tends to be. Real estate investing nowadays works in a similar way, the “arbitrage” opportunities of the market are much harder to find these days with the flow of information out there, and getting a positively cash flowing asset from the day you buy real estate just doesn’t happen anymore, so you have to build that into your plan and find a way to make the asset work for you. Not sure how I managed to draw a comparison between education and being a real estate investor, but I guess apples and oranges can in-fact be compared.

A general rule of thumb when you are buying an investment is buying with a 5+ year time horizon. If you’re buying something because you think that some event in the next week will make your penny stock take off and go to the moon, you’ve been sadly misled and will likely have to learn some lessons the hard way (like I did). Real estate works similarly; there have been times in the Toronto real estate market if you bought and then sold 2 or 3 years later you would have lost money. But if you take almost any 10-year time period in the history of the Toronto real estate market. Even if you bought at what was thought to be the absolute highest peak in history and you feel like an absolute idiot for doing so, 10 years later, without fail, you will have made a positive return on investment (the US stock market tells a similar story).

The elephant in the room is inflation, so even if you “made money” it’s possible that on inflation adjusted terms you still lost money, but even that scenario is EXTREMELY unlikely in a 10-year time horizon. BUY AND HOLD. The most important 3 words in investing. Do whatever you possibly can to avoid selling an asset that is expected to make you money. Especially if you’re trading it for something (like a car) that will cost you money. Obviously there are times where selling an investment is a good idea. Such as if you find another, better investing opportunity.

As mentioned a bit earlier, this post isn’t going to have any earth shattering, super secret, never heard before method of investing. This post is more about the philosophy that I believe in when it comes to investing. One of the most important principles that people often forget about when investing and budgeting is “pay yourself first”. The first line in your budget MUST be savings. If you are not saving a penny from your work, no matter how prestigious or not the work is, one day you’ll get old and maybe want to, at the very least, work a bit less. The only way that I’m aware of maintaining a lifestyle without working is by very diligently saving and investing, you must be selfish for the good of your future self. I am genuinely scared for people who spend everything they make, especially when it’s just “stuff”. Who cares about the car you drive, or what brands of clothes you wear. If you’re spending all your money to keep up an image you can’t afford, you may have slightly nicer things for a while, but you’ll end up in the same place as the next guy, broke.

I think sometimes my views on this savings thing are a bit extreme and there is something to an abundance mindset and viewing money as something fluid and obtainable. But there’s also truth to a dollar saved is a dollar earned and being prudent while you have the ability to work and save money, to ensure that saving is something you’re prioritizing, the time when you’ll probably be spending the most money is when you’re old, getting old is expensive. That being said, you don’t have to completely deprive yourself of fun and joy, just find ways to do it cheaply, honestly camping, hiking, and backpacking have been some of the best experiences of my life. This summer I finally took a bit of money and went on a vacation, which I’ll remember forever, it was absolutely incredible. But I still did it without breaking the bank. Hostels, discount airlines, grocery stores, no buying souvenirs that end up desolate in a box somewhere a year later. Took lots of pictures on the phone I already own (free!), went to free attractions, used and abused student discounts. You can have amazing experiences, without breaking the bank and still save aggressively. As another example, lets say you’re going out somewhere downtown, why not pick up some drinks from the liquor store beforehand, drink at home then go out so you don’t have to buy out the whole bar when you get there. Then wake up the next morning regretting your choices and come home with a $100 on top of it. Naturally, the best way to save money on alcohol is to not drink alcohol, but I’m not here to ruin your fun.

My last bit of investing advice is the classic, buy when other people are selling and sell when times are good, that is the wisdom of the markets. When times are good it’s easy to think they’ll last forever, if you plan to hold on for decades the best advice is to not touch your investments at all. If you are slightly more active and want to be smart about when to allocate funds it’s not a bad idea to increase cash (sell) as markets are going up so you can take advantage of those opportunities in a down market. Another method to have gain access to more opportunities is to simply keep your expenses very low, and find a way to make a (comparatively) high income so that you have good “cash flow”. I’m not a fan of ever selling investments, so if you’re able to keep buying in any market, you’ll generally be a net winner. However, as I’m learning, anything that results in a good income also comes with a lot of stress and hard work. Being successful is not easy, don’t let the internet and stories of people hitting it big make you think it’s easy. There’s always a component of luck, but there’s also a much bigger component of being opportunistic and taking full advantage of an opportunity when maybe an average person would let it slip. 95% execution 5% luck, getting that much luck is a great ratio. Anyway, that’s all I have time for this week hope you found this insight into how I think interesting or useful. As always thank you for reading and remember.

Keep Investing,

-Oliver

Newsletter #25: Real Estate Returns, Should You Time Markets?

This Weeks Blog Post:

Can You Time the Markets?:

Should you bother timing the market? The answer is: it depends.
My philosophy on saving money and investing and why you should always be saving.
Talk about market wisdom and how time is your best friend in investing.

Read the full article here: https://oliverfoote.ca/can-you-time-the-markets/

Real Estate Market Talk:

Greater Toronto Area home sales have picked-up this past October with a strong year-over year increase. There were 6,658 home sales through TRREB’s System in October 2024, up by 44.4% per cent compared to 4,611 sales reported in October 2023. The pace of which homes are selling also increased with inventory levels of available homes for sale of all types dropping to 3.5 months from just over 5. This is a significant drop as the market is now trending back towards a sellers market.

Even with the pace at which homes are selling, prices remained relatively flat, up only 1.1% compared to October of last year to $1,135,215 and up slightly compared to this past September. The numbers tell us that it appears more buyers have moved off the sidelines and back into the marketplace in October. The positive affordability brought about by lower borrowing costs and relatively flat home prices, prompted an improvement in market activity.

Chief Market Analyst for the Toronto Regional Real Estate Board, Jason Mercer, reported that market conditions did tighten in October but there is still a lot of inventory, over 24,400 of available homes of all types, and therefore providing choice for home buyers. This choice will keep home price growth moderate over the next few months. However, as inventory is absorbed, selling price growth will accelerate, most likely as we move through the spring of 2025.

The condominium market also saw a rebound in October with sales up 33% across the GTA compared to October 2023. Prices, however, still softened slightly, down 2% respectively. With the completion of a large number of new construction units over the next couple of years, prices are expected to stay relatively flat for the time being.

Please never hesitate to reach out to me with any of your real estate related questions, I am here to help. Enjoy the fall season and I look forward to connecting with you soon.

Stock Market Performance as of Friday November 8, 2024:

S&P 500: 5,995.54 (+26.41% YTD)
NASDAQ: 19,286.78 (+30.62% YTD)
S&P/TSX Composite: 24,759.40 (+18.62% YTD)

Macroeconomics Statistics:

Canada’s CPI Inflation Sep 2024: 1.6% (0.4% Decrease from August 2024)
Current BoC Benchmark Interest Rate: 3.75% (0.5% Decrease on Oct 23, 2024)
Unemployment Rate August 2024: 6.6% (0.2% Increase from July 2024)

Greater Toronto Area (GTA) Real Estate Stats – October 2024:

YTD Average Selling Price: $1,121,871
YTD % Change in Average Selling Price: -1.0%
Y-o-Y (comparing Octobers) % Change in Average Selling Price: +1.1%

YTD Number of MLS Sales: 58,435
YTD % Change in MLS Sales: +0.1%
Number of MLS Sales in October: 6,658

Y-o-Y (comparing Octobers) % Change in MLS Sales: +44.4%
Number of Active Listings in October: 24,481
Y-o-Y (comparing Octobers) % Change in Active Listings: +25.3%

Inventory Available: 3.5 Months (Decrease from 5.0 Months in Sept 2024)

Hope you have an amazing week! Chat soon!

Keep Investing,
Oliver Foote

Subscribe to our newsletter!