In: Real Estate News1 Oct 2010
For the past 3 months (June, July, August), the real estate sales in Canada have dropped approximately 30% each month. This equals about 13,000 less sales per month or 40,000 less sales over the 3 months. What does 40,000 fewer home sales mean for the economy? Let’s examine the impact of this.
Many people make money off of each home sale. Real estate agents get commission, and then go out to dinner, lease a fancy car, and pay all their dues and fees. Lawyers also make money, and then go buy a nicer suit. Home sellers can take their equity and buy another property. Home buyers will likely paint, renovate, and re-furnish their new home. This means Rona, Leons, Canadian Tire all make money every time a home is sold. The Government also rakes in the Land Transfer Tax and taxes on the real estate commissions and lawyer fees. CMHC makes more money when buyer purchase with less than 20% down. Banks also make lots of money from mortgage renewals and cancellations.
According to CREA (https://www.crea.ca/public/news_stats/pdfs/clayton2009.pdf), each mls real estate transaction results in the following:
$2,025 General Household Purchases
$6,525 Furniture and Appliances
$1,900 Moving Costs
$17,400 Services: Agent, lawyer, bank, appraisal…
$46,400 Total Estimate Expenditures for each home sale
If you consider that each home sale results in $46,400 being spent, then when there are 40,000 less home sales, it means that there is approximately $1.8 billion dollars which was not spent in the last three months, compared with the same three months of 2009. This is a lot of money.
It’s easy to read the news headings of bubble’s bursting and home sales crashing, but it’s also useful to consider the other implications of this crash and it’s affect on the Canadian economy.
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