The Canadian real estate boom has produced a gold rush, and now everyone is trying to sell you a home. It’s a country-wide phenomenon, as people see a low barrier of entry and large commissions. However, nowhere has taken to the trend like Toronto, which now has more Realtors than teachers. A lot more.
Not even global real estate hubs like NYC and LA come close to the concentration of Realtors in Toronto. It might seem harmless, but experts say this is typical of a bubble. The same experts also found the surge in Realtors also amplifies housing corrections.
Toronto Real Estate Board Has Seen Growth of New Realtors Double
Greater Toronto has seen a mind-blowing jump in the number of members at its local real estate board. TRREB reported 62,867 members in 2021, up 10% from last year. This works out to roughly 5,877 new members over the one-year period, ending in June. The rate of growth is usually high, but this is more than double the rate seen since 2017. Number dense blocks of text tend to lose all meaning, so let’s give it some context so you can visualize this.
Toronto Real Estate Agent Annual Growth
The annual percent growth of members at the Toronto Regional Real Estate Board (TRREB).
Source: TRREB; Scott Ingram, REALTOR; Better Dwelling.
Roughly 1 In 59 Workers In Toronto Are Realtors
First, let’s look at how this compares to Greater Toronto’s labor force. The labor force is the number of people in a region that are employed or looking for work. It excludes people that are retired, unable to work for various reasons, or don’t want to work. Statistics agencies use this number when calculating the unemployment rate.
In 2021, about 1 in 59 members of Greater Toronto’s labor force were members of TRREB. This is up from 1 in 70 people, back in 2017 during the initial Toronto real estate boom. The number of people trying to sell you a home increased over 15% faster than the region’s workforce.
Not visual enough? How many public schools can you think of in Toronto? Multiple are in every neighborhood. The local school board employs one teacher for every 226 people in the region’s labor force. You’re almost four times as likely to meet a Realtor than a public school teacher in Toronto. Schools are everywhere you look, and even more people are trying to sell you a home. There can even be a Realtor behind YOU RIGHT NOW.
You were supposed to read that last sentence in a spooky voice, btw.
Toronto Has 1 Realtor Per 2 Homes Sold
Toronto real estate is very high volume, but even so — this is a lot of Realtors. TRREB reported 115,716 home sales in 2021, year to date as of November. The ratio of Realtors to home sales is roughly 1 to 1.8, and if December sales are mind blowing it might get to 1 in 2. This year was also an exceptional year, with next year expected to see fewer sales.
Most deals are also done by a relatively small group of elite Realtors. If you thought buying a home was competitive, wait until you see how hard it is to find and sell a home. Competition is very high for the size of market, meaning it might not be as lucrative as many assume. Unless you’re a super agent. But if you’re good enough to be a super agent, why not become a Rockstar or Astronaut? Your odds are similar.
Toronto Has One of The Highest Concentration of Agents In The World
Canada has a high concentration of Realtors in general, but nowhere is like Toronto. In real estate-crazed Vancouver, the board has one member per 116 people in the labor force. CREA, the national registry for Realtors, has one member per 146 workers across Canada. All three of these numbers are very high concentrations. Vancouver is still only half the rate, though.
Workers Per Real Estate Agent
The number of workers in the labor force per registered real estate agents in each region. i.e. Toronto has 59 workers per registered real estate agent.
Source: TRREB; REBGV; CREA; REBNY; GLAR; Better Dwelling.
Looking south of the border at global real estate hubs like New York City and Los Angeles is sobering. In New York City, 1 in 164 labor force members is registered to sell you a home. Los Angeles, a notorious real estate hub, has 1 in 257 labor force members working as agents or brokers. Global real estate Meccas have fewer agents per worker than Canada.
High Growth of Real Estate Agents Is Typical of A Bubble, and It Makes A Crash Worse
An economy with such a high concentration of Realtors is subject to a few issues, such as seeing an agent’s face on every bus. Kidding. A misallocation of capital is a genuine concern, though. New research also shows a surge in new real estate agents is typical of a bubble, and can worsen a crash. Not kidding this time.
Whenever there’s a gold rush, an economy sees a disproportionate share of people chase it. Just like a real gold rush, only a tiny share of people ever make a fortune. Most people are just left with pans of dirt, and a few leftover flakes if they’re lucky. Those that don’t make the cut become a social liability, even without taking handouts.
Employees not earning their maximum potential produce less tax revenue, and spend less. The excess labor attracted to real estate is also diverted from other areas of the economy as well. This produces a labor squeeze in those areas, increasing costs for certain segments. Inefficient labor squeezes are often inflationary, driving the costs and of goods higher. Society gets less than optimum tax revenue AND inflation.
More important are recent findings from a US Federal Reserve economist and CUNY prof. In a paper called Heterogeneous Real Estate Agents and the Housing Cycle, the duo explores the agent boom at the housing cycle’s peak. They found a sharp increase in real estate agents is typical of the cyclical peak of a market (a.k.a. the bubble phase). Strong perceived incentives attract a rush of new, inexperienced agents. These agents amplify a correction.
During a booming market, there is a whack of people that can’t pay their bills and are forced to sell. Liquidity is the reason defaults don’t make a sharp increase. A motivated seller can unload fairly fast, and sometimes for a profit. They often don’t even need to disclose they’re motivated in order to sell.
The researchers found new agents tend to take longer to sell, and make less profit. This reduces the liquidity, amplifying the downturn. Sellers see increased odds of being unable to sell before an adverse event. They’ll often see reduced profits as well, since new agents have yet to hone their skills. In general, losses increase as more new agents capture the market.
The takeaway? Canada has a high share of its labor selling homes, but it’s comically large in Toronto. Also, if you’re in a tight spot during a downturn, spend more time vetting your agent’s experience.