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The Housing Bubble & Human Resources

John brought home Toronto Life magazine the other day. The cover indicates that Toronto is now fully in a housing bubble. The article says it is going to burst. We need to be prepared for it.

Now I don’t mean to rub in the economic circumstances to my American friends, but I need to tell you that the last economic recession was MUCH milder here than south of the border. While we had a scary level of unemployment (which hasn’t dropped much), we did not experience a mortgage meltdown. There was a period where everyone tightened their belts and thought twice before doing certain things, but that’s about it. Housing prices here did not drop much during the thick of the recession. People continue to move to Toronto from other parts of the world, and therefore the demand for housing never ceased.

The housing bubble displays itself in the weirdest ways. For example, it has become normal practice for homes to be sold by bidding party in some neighbourhoods. Often as a result, homes go for significantly over asking price. The Toronto Life article reported that there were plenty of cases where homes have been selling for $100K over asking. The house on the cover of the magazine went for $1.05 million. Let me tell you that it reminds me of a very ordinary home in a very ordinary neighbourhood. Location, location, location? California here we come.

But this is where I don’t get it. John and I live in a very popular neighbourhood in Mississauga, the first suburb west of Toronto. Just today, our neighbourhood was listed in the Toronto Star as being one of the top five areas in Toronto for growth in prices–26.5% over 2009. Let me tell you what doesn’t happen in our neighbourhood however–bids over asking. There are no bidding parties. For sale signs generally don’t stay up long, like typically less than 21 days, and homes generally sell for at or just under asking price. They don’t go over. AND, the prices are not the same as they are in bidding party neighbourhoods. This makes me wonder if indeed we are as sensitive to the housing bubble here as in other parts of the city where this notion that you have to please the seller exists. I will admit to some jealousy when I see that house on the cover of Toronto Life and wonder where I can buy that lottery ticket but then again hope I never have to play that game myself the next time I am in the market.

My question though is why does this frenzied behaviour exist? Is it going to cause more heartache and pain than satisfaction? How would you even stop this behaviour if you wanted to?

I was thinking about their behaviour in the context of human resources and great workplace practices. Some thoughts:

1. How often do we over-price an employment offer just to get “someone special” in the door. What is the impact of that behaviour on the rest of the workforce? How does this impact productivity?

2. Do employers who don’t play this game lose out on specific talent? Should they run from candidates who have been cultured into this as an expected behaviour? (Or put another way, should I be telling my neighbours that it is time to start playing the bidding party game?)

3. It has been said that in Canada, employers don’t look nationally for candidates and in fact most stick to very local markets. Is this because the housing markets in which some candidates live make it virtually impossible for them to make a transition from one to the other? Has the concept of “pay until you bleed” for a home in some parts of Canada caused others to truly think twice about moving here in mid-stream?

4. I don’t remember the existence of bidding parties ten years ago. I also don’t remember that employers used to go to such lengths to please their people ten years ago. Is it possible that there are indicators of changes resulting from Gen Y in workplace?

Normally when I write a blog I try to come up with a grand conclusion, but this time I don’t have one. What a quandary!

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