Boom, Boom, Bust

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.

6 thoughts on “Boom, Boom, Bust”

  1. I totally agree with you. I live in Vancouver, one of the “hottest” cities in Canada. There is no way people can afford houses if the price is always going up. There should be time where price will pull-back because the supply is more than the demand. Let’s wait that time to come.

  2. Hi CD, Saskatoon has hit a peak and is already on the downward swing. Houses that were selling in less than two weeks in bidding wars are now on the market for two months plus with no offers. We are seeing increasing listings overall, many with price decreases.

    Personally, I would not mind a significant decrease (as much as 1/3) in housing values. With a growing family, we could use a house with an extra bedroom (or two) that we frankly can’t afford in today’s market. However, would prefer to see that as a national decrease, rather than a regional decrease that would limit the ability to relocate elsewhere and purchase a home.

    Thought about selling about six months ago and doing the rental thing, but did not want to time the market and get burnt on the off chance the mania continued. Hindsight is 20/20.

  3. I live in Edmonton and am currently in the process of selling my home for double what I bought it for 4 years ago. I am moving to Vancouver, so I will be leaving this real estate market entirely

    The markets are softening and prices are starting to decline, so I plan to take my equity, put it in the bank, and rent for a couple of years in Vancouver before I buy. Right now, with prices where they are, it makes much more economic sense to rent than to buy.

  4. The decline in U.S. real estate is only a little over halfway finished. There will still be more pain, so if Canada has anything in common with the U.S. real estate market, it could get bad.

  5. The market price of your home has doubled in two years?!?!? Wow! Ok, that’s why including PR in net worth statements can be so wacky imo.

    “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.”

    Well, that’s entirely possible but not the worst case scenario. A price drop to two years ago levels would be a pretty nice actually. Our American neighbours would be happy with that. Try price drops to 2000 and earlier levels….

    BTW, glad to be able to access your site again. I’ve got some catching up to do! 🙂

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