End blind bidding to put a stop to real estate wildfire

While everyone knows there’s a crisis in Canadian housing prices, almost no one is doing anything even remotely meaningful to end it. And for the good of the entire nation — not only all those who feel shut out of the market — that needs to change.

As the costs of a single detached home, semi or townhouse have hit stratospheric heights, the home ownership hopes long cherished by millions of Canadians have turned into unattainable fantasies.

According to the WOWA.ca real estate platform, the national average sold price for a home hit a record high of $716,828 in March, a staggering 32per-cent increase in just 12 months. Prices in southern Ontario were even more eye-watering. In March, the average price of a Toronto home broke $1 million for the first time.

Meanwhile, the average price of a Hamilton home sold over the past four weeks was $824,000, up nearly 42 per cent in just one year. And in Kitchener and Waterloo, the average sale price for all residential properties in March was $765,393 — up 30.8 per cent from the year before.

Sellers and real estate agents might be breaking out the champagne at these trends. For almost everyone else, it’s disastrous, part of a real estate explosion rocking the nation. Young families priced out of the market are feeling a mixture of despair and resentfulness. Buyers mortgaged to the hilt worry what might happen if interest rates rise. Exacerbating the situation further are the legitimate fears we’re floating in a real estate bubble that would seriously damage the economy if it ever pops.

It is in the national interest that someone turns a hose on this house-price wildfire. Yet because there are so many factors driving up prices, including bargain-basement interest rates, limited supply and soaring demand, there’s no quick fix that will set everything right overnight.

That said, there is one meaningful change that could be made easily and expeditiously. That involves ending the unfair and secretive practice known as “blind bidding.”

Blind bidding takes place when multiple bidders make offers for the same home without knowing what anyone else has indicated they’re willing to pay. At a time when dozens of prospective buyers can be bidding on the same property, this inflates prices to ridiculous levels. Reports of bidding war winners paying hundreds of thousands over the asking price — or the second-highest offer — are now commonplace.

Not only is this driving house prices even higher and making them more out of reach, it’s misleading individual buyers into financially overextending themselves, leaving them vulnerable to rate hikes or an economic downturn. Given all this, no one should be surprised that when Bank of Montreal economists recently called on policy-makers to rein in housing market exuberance, they recommended an end to blind bidding.

One alternative would be an open auction where interested buyers and their agents could meet together in one room. Everyone would come with a maximum budget and the ability to bid up to that amount. They would know exactly what the competing bids were. They would have a chance to go over that bid or withdraw. And while buyers could still exceed the asking price, they’d know exactly how high they had to go.

To be sure, an end to blind bidding won’t correct the lack of supply or dissuade buyers from borrowing huge amounts at low interest rates. It is, however, a change that governments could make without too much fuss. We can see no good reason the blindfolds on home buyers should not come off as soon as possible.