As early as 2005 some market analysts and economists in the U.S. came to the realization that the explosive growth in residential real estate prices stateside represented a bubble. After the dot com melt down anyone around the age of 30 and above knew the risks. Bubble markets happen when everyone and their uncle rushes in to buy a hot commodity...
Its musical chairs with real $$$ on the line. People fall all over each other to grab a particular asset, with the expectation that there will be a never ending stream of new players entering the game pushing prices even higher. That's what the dot com paper tycoons thought, as did the guys buying oil at $140...there will always be more people coming along.
Then the music stops and many get caught selling at prices well below what they paid. "Next time I'll be smarter", they say. "Next time I'll get out when the herd is excited".
I think we're already at the tipping point myself. According to what I'm reading 70% of Canadians own their home....here's a National Post reference from back in October saying home ownership was at 68% and heading for 70.
If you've ever read a stock chart THIS MIGHT LOOK FAMILIAR. Remember the Nortels, Worldcoms and Enrons, to name just a few of the bubble market high flyers of the late 90s? Prices surged on heavy volume, they pulled back...then came the "Judas" or sucker rally, and then the inevitable collapse.
It can't happen in with residential homes can it? I mean, you don't HAVE to have a stock portfolio, but everyone needs a place to live. That is true, but it doesn't mean you have to own a piece of paper representing hundreds of thousands of dollars in debt to a bank either....people can and have lived in rental accommodation for years.
I will grant that many, (indeed most) Canadians prefer to own a home instead of renting. But does that mean that there will always be a steady stream of buyers, especially when our population is rapidly aging and our economy is struggling? I don't think so, and others are sounding the alarm bells as well.
Sure, tons of buyers have stampeded into the market to avoid the HST and to cash in on all the cheap money banks are tossing around. But as we move into the spring market of 2011, how many buyers will be left for people who've held off putting up a For Sale sign during what traditionally is the best time of the year for sellers?
In an earlier post I cited a few sources warning Canadians of a housing bubble in this country:
Who says Canada has a housing bubble? Lots of people
I'll add this blog to the list, as it was the inspiration for this blog entry:
Financial Insights
Like our neighbours to the south, Canadians have been getting ample warning about the storm clouds that are gathering. Sadly, just like the U.S. we have plenty of naysayers trying to keep the herd calm, confident and continuing to borrow at record levels to spur the economy.
Here's Ben Bernanke, chair of the U.S. Federal Reserve pooh poohing concerns about a weakening US economy and the prospects of American houses representing a bubble. We've got our share of fiddle playing Nero's here too, just pick up any newspaper with lots of real estate advertising.
Its musical chairs with real $$$ on the line. People fall all over each other to grab a particular asset, with the expectation that there will be a never ending stream of new players entering the game pushing prices even higher. That's what the dot com paper tycoons thought, as did the guys buying oil at $140...there will always be more people coming along.
Then the music stops and many get caught selling at prices well below what they paid. "Next time I'll be smarter", they say. "Next time I'll get out when the herd is excited".
I think we're already at the tipping point myself. According to what I'm reading 70% of Canadians own their home....here's a National Post reference from back in October saying home ownership was at 68% and heading for 70.
If you've ever read a stock chart THIS MIGHT LOOK FAMILIAR. Remember the Nortels, Worldcoms and Enrons, to name just a few of the bubble market high flyers of the late 90s? Prices surged on heavy volume, they pulled back...then came the "Judas" or sucker rally, and then the inevitable collapse.
It can't happen in with residential homes can it? I mean, you don't HAVE to have a stock portfolio, but everyone needs a place to live. That is true, but it doesn't mean you have to own a piece of paper representing hundreds of thousands of dollars in debt to a bank either....people can and have lived in rental accommodation for years.
I will grant that many, (indeed most) Canadians prefer to own a home instead of renting. But does that mean that there will always be a steady stream of buyers, especially when our population is rapidly aging and our economy is struggling? I don't think so, and others are sounding the alarm bells as well.
Sure, tons of buyers have stampeded into the market to avoid the HST and to cash in on all the cheap money banks are tossing around. But as we move into the spring market of 2011, how many buyers will be left for people who've held off putting up a For Sale sign during what traditionally is the best time of the year for sellers?
In an earlier post I cited a few sources warning Canadians of a housing bubble in this country:
Who says Canada has a housing bubble? Lots of people
I'll add this blog to the list, as it was the inspiration for this blog entry:
Financial Insights
Like our neighbours to the south, Canadians have been getting ample warning about the storm clouds that are gathering. Sadly, just like the U.S. we have plenty of naysayers trying to keep the herd calm, confident and continuing to borrow at record levels to spur the economy.
Here's Ben Bernanke, chair of the U.S. Federal Reserve pooh poohing concerns about a weakening US economy and the prospects of American houses representing a bubble. We've got our share of fiddle playing Nero's here too, just pick up any newspaper with lots of real estate advertising.
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