Posted by Tim Stobbs on June 27, 2008
Alright I’m not a real estate expert but at least someone points out the party in ever rising real estate is likely over. Now that the boom is over how long can we continue on a stable price plain before declining into a bust.
Now why on earth would I point that out? Well let’s look at a few facts about my situation as an example. The market price of my home has doubled in two years. My pay cheque certainly hasn’t doubled. So that means there are a lot of new buyers out there with huge debt loads compared to their income levels. So how are they paying for that huge mortgage? Well there is that fact you can get a no money down mortgages and 40 year mortgages. They are up to their eye balls in debt. Then we also have ‘investors’ from all over jumping onto the gravy train and driving up prices further due to pure speculation. Mmm, that sounds a lot like the US mess just without the words ‘sub prime’.
So what would happen if a bunch of baby boomers with big houses worth a lot of money and no retirement savings start to think about downsizing. Oh right, the baby boomer make up about 1/3 of our population in Canada. They would flood the market and drive down prices. Now we have a bunch of newer buyers who owe more than their house is worth.
Now just toss in a little panic and you will see bust on real estate prices that could drive prices down over a several years back to where I bought my place at two years ago. We have all the potential for a huge mess just like the US.
So if this is possible what should you do? Well if your are like me and don’t have a huge debt on your home and you don’t need to move anytime soon. Just sit back and watch the show. Otherwise the other more extreme option is to sell now and sit on the cash while renting for a while. One more option is this, start building up a cash pile and wait for the crash to hit towards bottom and then go pick the bones of those ‘investors’ who lose their shirts in the deal. Vulture investing isn’t always nice to do, but it can be a good way to pick up a good rental down the road.
So do you think I’m mad or crazy? Let me hear your thoughts.