Home Owner blogger Romana King addresses conflict of interest concerns

Does holding a Realtor’s license mean I’m biased? I think not.

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RomanaKing_322
There was quite a bit of outcry over my last blog post, There’s not going to be a housing crash. I’m here to clarify a few points.

First: I am a licensed Realtor. We state this upfront in my bio. There’s no hiding this fact, as we, at MoneySense, believe it’s very important to address potential conflicts of interest. But the fact that I hold a real estate license and write/blog about housing does not inherently produce a conflict of interest.

In the past, I have candidly written articles and blogs on ways to save money on real estate, as well as problems inherent with the profession—often angering real estate agents in the process.

Here’s a sampling:

How to Pay Your Realtor Less

Find the Perfect Real Estate Agent

Perfect Home and Still No Offer

RBC, erosion of housing affordability

Fixer Upper or Money Pit

Delicate Art of Negotiation

As such, I do not believe my decision to become educated about real estate prevents me from objectively writing about the industry, the profession, or on real estate as an investment product.

To clarify, I was compelled to become a licensed Realtor in order to complete my two years of articling—the “on-the-job” educational component for the profession. Hence, I am a licensed Realtor through a Century 21 office. I believe this part of my training makes me a stronger writer and advocate for the MoneySense philosophy.  (I would also like to clarify: my Realtor education did not take four weeks as one reader has suggested. I know my family certainly wishes it had!)

The fact that I’ve been a journalist for almost 15 years and a financial journalist for more than a third of that time, means that my primary job is to provide advice that is best for our readers. I chose real estate because it’s an area I am passionate about and an area where I believe our readers can learn to save money and derive value. I believe I have done a part in that—both as a blogger, columnist and writer, but also as the magazine’s behind the scenes expert (fielding question after question from other writers and pointing them to sources that will provide key information to our readers).

As my former editor once said, “We at MoneySense should never offer advice we wouldn’t give our own mothers.” As a real estate investor, I definitely eat my own cooking.

Now, as for TD’s research report. Does it have the potential for bias? Of course. TD is a big player in the mortgage market. But unless you believe the housing market will experience a crash similar to the U.S. housing and credit crunch in 2007/2008—and I don’t—then the debt currently held by TD will not be impacted by a correction in housing prices. For that reason (and because economists are sensitive to being wrong…which happens often) I don’t believe TD, or Scotiabank for that matter, has inherently tainted their research.  For that reason, alone, the report was worth mentioning.

But there are other reasons. In the last five years we’ve been inundated with reports and declarations from international economists, organizations and media outlets that have crunched their own numbers and predicted massive upheaval in the Canadian housing market.

Personally, I believe these reports—often with a 20% to 25% decline in housing prices across the country—are inflated. Housing is a regional market indicator and large-scale predication of doom and gloom have done little more than fuel paranoia and, ironically, induced inflated sales. I think reporting on more moderate housing correction predictions and the reality of housing appreciation helps homeowners and investors understand that there’s no reason to panic—and thus no reason to temporarily inflate sales, which keeps housing prices artificially high.

The fact is my blog is a catch-all for anything homeowner related (hence the blog title Home Owner). My intent is not to re-crunch the numbers (for a great blog on stats see: www.economicanalyst.ca), but to provide information on how to make smarter financial decisions when it comes to homeowner issues. If that means highlighting a report that offered something other than the “sky-is-falling” housing crash predictions we’ve read as of late then so be it. And I’m not the only one. MoneySense Senior Editor, David Hodges, wrote an excellent and unbiased piece on the lack of a housing bubble (much in the same tone as my blog, might I add). To read this excellent piece go to: No Bubble, No Trouble.

9 comments on “Home Owner blogger Romana King addresses conflict of interest concerns

  1. I think this article is great, it's good to address controversy up front.

    The central issue that I had with the precious articles is ultimately that I think both of your are downplaying the current risks in the Canadian real estate market and ultimately recommending that people should feel OK about buying a house right now which has the potential to financially ruin people. The reason there are many people who are 'housing bears' is not that we are pessimistic or are jealous of those who made a lot of money on residential real estate (many of us id make a lot of money off real estate but we know when a market is fully valued) it's because we look at historical data, compare price/rent ratios, and simply do the math.

    To put it bluntly, if house prices in Canada stay at the levels that they are now, it is something that has never occurred, anywhere, at anytime since financial records have been maintained about residential real estate. Further, if you do the math, the only way you can justify purchasing home right now is if you are speculating that real estate prices will appreciate further, something that is highly improbably considering demographics, a sputtering economy, stalled incomes, and this is even in consideration of the current extremely low interest rates. Will this bubble pop? Of course, one can't justify these prices from a financial standpoint or a even personal one (a half million for a 3 bedroom in Edmonton?? yeesh!).

    What would be a useful article would be for you to did an honest full cost accounting of the costs of home ownership under a variety of scenarios. 1) Prices falling to the historical rent cost / cost of ownership levels; 2) The TD scenario of a 20% drop then an increase in inflation; 3) detailing from an economic standpoint which is a better financial decision: rent + equities, a blend, or putting all your money into a house (which undoubtedly was the luckiest financial decision any Canadian made during the last 10 years). At the very list, currently you'll undoubtedly determine that buying a house at current prices is an extremely risky proposition that has: 1) a small probability of much appreciation, 2) a low probability of losing an amount acceptable to justify the 'home ownership premium; and 3) a high probability of losing enough money that your financial future will be seriously impacted.

    I have no issue with you being a realtor, it's an honest profession and I don't think you are trying to drum up clients and intentionally giving what I consider to be poor advice. I see little motivation as I think a significant decline in RE won't affect the industry much, houses will still be bought and sold, just at much lower prices.

    I don't think I am being overly dramatic when I say that you are giving advice that can potentially ruin peoples. I think you would be doing a great service to your readers if you helped explain the current risks in buying a house and the consequences of the 'what-if' scenario of the consequences of a significant housing correction. For example, I know no-one who would say that there isn't at least a 10% chance of a 40% across the board decline in RE. If someone actually knew that there was a 10% chance that they would lose 40% of the purchase price of their house in the next 5 years, would they still buy it?? Of course not, no one would take that level of risk and I think you are inadvertently encouraging people to do so.

    My advice? See above and call up some banks and get a probability out of them for a 40% correction within 3 years and some other probabilities. That would be a fantastic article.

    All the best and thank you for the opportunity to comment on this article.

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    • Fantastic answer…. I totaly agree with you….

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    • Housing bears have ruined far more people financially over the last 17 years than any article consenting to home purchases. There are literally thousands of people who have been permanently price out of the housing market, thanks to waiting for the crash that never came. If you want to talk about real math, you need to look at specific markets a lot deeper than comparing two variables over history. Because such a simplistic, naive approach fails to capture many of the key economic changes (low inflation rate, decreasing interest rates, changes in income distribution) and social trends (urbanization, more varied compensation packages, wealth transfers, and equity accumulation from previous houses) is bound to be a worthless predictor of future home prices, which the last 17 years have demonstrated.

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  2. From Garth Turner's blog: "The median price of houses in upscale hoods of Richmond (a Van suburb) have crashed as much as 50% in a year, from $1.388 million to $688,000. "

    This is a 50% median price decline in one year. So much for your 20 – 25% decline being over-rated. I will admit that this is just one location, however, these things like this tend to spread (much like the house run up of house prices).

    If you are wrong about your belief that there will be a little, to no, housing correction and someone buys a house based on your, and your Senior Editors advice, I personally don't know how you would be able to sleep at night knowing that you played a pivotal role in a family's financial ruin.

    I know it seems a little melodramatic but we are now talking about such large sums of money (relative to incomes) that extreme caution needs to be taken when giving advice such as you have been doing.

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    • Way to miss the point None. The 20-25% decline was predicted (in those sources she cited) as being across the board / nationwide. The fact that one neighbourhood had a huge decline is hardly proof that the nationwide decline has happened or will happen. There's been a bump UP in more neighbourhoods than a decline, which also doesn't prove anything. That's the point: real estate prices are regional, not nationwide. A huge correction in Vancouver doesn't predict anything for the market in Barrie, or Winnipeg, or anywhere else and vice versa.

      And really, you think if she predicts the future incorrectly, she shouldn't be able to sleep at night? I assume you're being so melodramatic because your ability to predict the future is bang on every time?

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    • I manly live in Phoenix, but I have a home in White Rock, BC. When we were looking for places to buy in British Columbia, I was astonished at how much real estate in Richmond was going for. In my opinion, Richmond doesn’t even come close to White Rock or West Van, but the homes are damn near priced the same (within reason). If any of you are like me, and tend to fly some where for the cold months I recommend using Servicegems.com. I use them for all my exterior maintenance upkeep, (gutters, landscaping, winterizing. etc). Since I don’t have any family that live near by, I had to find a site where I could find honest, reliable contractors to take care of my home. Anyways, I just found your comment interesting, and wanted to share my thoughts on the pricing of Richmond. Plus I heard it’s build on a landfill, and when the big earthquake hits it will just sink? But then again, i’m sure half of Vancouver will be in trouble when that happens.

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  3. I am not sure whether it is exactly "conflict of interest" or not, but a realtor, by definition of their very job, does not want to see a bubble pop. That scenario would mean a massive lack of sales and commissions. So (consciously or subconsciously) I think a realtor would naturally attempt to convince others to along lines of what's in their industry's best interest and not necessarily in the best interest of the masses.

    You may be completely honest and fair, but in the last two years we've seen realtors posing as foreign buyers, standing in line at their own condo sales, and (yes, sadly) writing lots of articles disguised as news that extoll how housing prices will keep going up and now is the best time to get in on the action.

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  4. Hi Romana, I just read your piece "Tax profit as income or capital gains?" in the June 2013 issue. I'm thoroughly disgusted to find out revenue Canada made a decision to tax Sylvie Giguere's profits on home flipping as "income" vice capital gains. Was this a Revenue Canada Appeals decisions? a Tax Court Decision? Supreme Court?

    It's absolutely ridiculous if this goes unchallenged. What's next, daytraders will have their profits taxed as income as well, since they trade for a living? What a crock!

    Reply

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