Want to be popular? The most recently available statistics say 70% of Canadians are owners of real estate, so if you're looking to win friends talk bullish about the housing market...it'll be bull alright, but you'll be loved.
Who wants to hear that their most prized asset is going to drop in value by a quarter? If your home was recently valued at $400,000...how are you going to feel when someone says it'll only be worth $300,000 in another couple of years. Not too good I'd bet, and probably angry. Probably as angry as the guys who bought stocks like WorldCom and Nortel for $100 plus.
That's the psychology of the market at work, and it doesn't matter whether the market is stocks or real estate. People like to hear that they're financial dynamos, that they've made all the right moves. Smart money sellers looking for top dollar need eager buyers, and there's no shortage of industry 'experts' looking to validate even the dumbest decisions.
How could buying real estate be a dumb decision? Ask the thousands of Canadians who plunged into sub-prime mortgages over the past couple of years.
SUB PRIME?!?! That was in the U.S. not in good old risk averse Canada!!!
What should we call mortgages amortized over 35 or 40 years requiring no money down? If that's not sub prime then what is? Especially when interest rates are the lowest since...uhm, ever.
So who else is chiming in predicting a major correction for most people's most valued asset?
In today's Globe & Mail economist David Madani is saying that housing prices will decline over 'the next few years'. YOU CAN READ IT HERE
How popular is Mr. Madani? Not very I'm betting. Mortgage broker Gordon McCallum devotes about 10 paragraphs on his blog, explaining why this economist is (in his heavily biased opinion) out to lunch...Why David Madani is Wrong.
The mortgage broker might be more popular, but I think those who listen to the economist will be richer for it.
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2 comments:
Bang on.
FTTF
Hi GordieCanuk,
Thanks for the link and the comment over at our blog. Much appreciated.
While I share your sentiment that some markets, like Vancouver, are potentially over-valued, I do need to hammer home the point that "experts" who talk about the "Canadian Real Estate Market" are clearly thinking impaired.
Real Estate is local by nature because it is driven by LOCAL supply and demand forces. For example, if there are lots of jobs in Edmonton and none in Windsor, the demand for housing in Windsor will be low and it will be high in Edmonton. Prices in Edmonton might start to increase, and prices in Windsor decrease.
The media and ivory tower types like Madani can pontificate all they want about the averages, but that doesn't mean anything to the person who wants to buy or sell in the local market.
Likewise, predictions about 25% corrections and things of that ilk are wild-eyed and impossible to predict.
I'm not saying there won't be market corrections. In fact, I'm all for them! (Despite my evil, biased, self-serving interests, I actually am a reasonable person who believes in free markets).
If prices are too high, they should come down. If prices are too low, they'll eventually go up. It's nothing to worry about - in fact, it's the sign of a healthy economy when things like that happen.
Speaking for our local market, Edmonton, and Alberta as a whole, we've spent the last three years correcting and our values have adjusted quite a bit. In fact, our homes are more affordable now than they have been on average since 1985. A lot has to do with interest rates, sure, but our household incomes are quite a bit higher here than in most places in Canada.
While Toronto, Montreal, and Vancouver have all been going up in value the past few years, ours have gone the other way...so it's not unreasonable to suggest that, in Alberta, where there are already starting to be labour shortages and we have $100 oil, that demand will be strong and prices might go up. Elsewhere might be a different story. Just don't tell me about the Canadian Real Estate Market.
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