The BC Government announced it is looking at several cooling measures for the housing market in 2022. They have highlighted two measures. The first is an end to the blind bidding process, and the other is a mandatory “cooling off period” which will allow any buyer a 7 day recession period to back out of an offer, similar to what is standard in the pre-sale construction market. Let’s discuss.
First, an end to the blind bidding system is welcomed, and to be honest, much needed. The existing system relies purely on trust, and let’s be honest, there are a lot of bad actors out there who might occasionally exaggerate on the number of offers on the table. However, what does an end to the blind bidding system look like? It is not a simple change, for if it were, it would have been done a long time ago. My guess is BC will implement something similar to what Ontario has. In Ontario, all bids are registered on the Real Estate Boards back-end system. Buyers agents are able to see how many offers are registered on the property, and from which brokerages. This provides much needed transparency.
Second is a mandatory “cooling off period” which the Government suggests will allow buyers to perform necessary due diligence and give them time to reconsider their offer after the fact. However, any prudent buyer who is working with an experienced Realtor is already provided time to perform due diligence. If you know you are competing in multiple offers, which is largely the case today, savvy buyers are doing the same amount of due diligence as they normally would, just in reverse order. In other words, you confirm with your lender you are able to get financing, you review building strata documents or property info, and you perform an inspection PRIOR to making an offer.
The proposed cooling off period is littered with unintended consequences. If you remove subject free offers from the market buyers are now only competing strictly on price. How will that make housing any more affordable? What you are likely to see is buyers bidding up prices even higher, tying properties up during a cooling-off period, and then trying to renegotiate prices – ultimately creating a cascade of deals that end up falling apart. This is a nightmare for buyers, sellers, and Realtors alike.
The BC Government remains well intentioned, but many of these policies, including previous policies, have ultimately failed to deliver any meaningful level of affordability or change to the housing crisis. At the end of the day, there are larger variables at play that no fringe policy tweak can overcome. Here’s what matters:
On a 2 year rolling basis, Canada’s M2 money supply growth is running north of 30%. That’s the fastest pace of growth since the 1980’s. It’s no surprise that house prices are “up” nearly the equivalent of that. Meanwhile, REAL mortgage rates are still running at about negative 2%, in other words you’re being paid to take on debt, which is why more investors continue to flood the housing market and absorbing all the supply developers are frantically trying to build. And immigration, despite a pandemic pause, continues to run at very high levels.
Some day we will figure it out.