Real Talk!

Bubble, Bubble, Toil & Trouble...

I had two phone calls, today, in which the callers mentioned a burst in the real estate bubble...

Okay... so today's headlines in Canadian Real Estate are filled with gloomy stuff like....”Report Warns of Housing Bubble Threat”.... “HOUSING PRICES in the hottest Canadian markets a concern”.... “All the hallmarks of an accident waiting to happen” .... “Threat of housing bubble has resurfaced” and most of the articles refer to a "new report"....

Yes... “the report” say that prices in six of the country's largest housing market have hit 30 year highs... okay... and? & the report warns: bubbles occur when housing prices increase more rapidly than inflation, household incomes and economic growth.

let's not get too uppity... if one actually reads the articles... the accident that is “waiting to happen” has a big IF... and that IF, is if mortgage rates rise too sharply... said report also states that there have been 3 burst bubbles in Canadian history- one in Vancouver in 1981, another in Vancouver in 1994 and one in Toronto in 1989.

and further... that the concern exists in 6 residential markets. Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal...

and, in some articles, the author of “the report” is quoted saying these markets COULD be in for a correction in those markets (at best) and a bubble burst (at worst)... using the '06 U.S. housing collapse as a model, the publishers of “the report” cite Edmonton and Montreal as markets that MIGHT see a 34%-38% reduction in the value of their property in less than 3 years.... although Vancouver is supposed to be the worst hit- well, supposedly, in terms of dollar value.

Now, let’s examine the source of these headlines....

According to their website: www.policyalternatives.ca (an Ottawa based group) : The Canadian Centre for Policy Alternatives is an independent, non-partisan research institute concerned with issues of social, economic environmental justice. Founded in 1980, the CCPA is one of Canada’s leading progressive voices in public policy debates.

We have a National Office in Ottawa, and provincial offices in British Columbia, Saskatchewan, Manitoba, Ontario, and Nova Scotia.

The CCPA is a registered non-profit charity that depends on membership fees and donations. Their website says they have more than 12,000 members across Canada.

One website I visited describes the CCPA as left-leaning & often gloomy (at least when they're speaking about government policies)

On the other hand, another group “the C.D. Howe Institute” says that national housing policies should help mitigate the risk of future defaults and that that Canada will not experience the kind of dramatic housing bust that occurred in the U.S.

The C.D. Howe institute was noted as “right-leaning, market-oriented” in that article that labelled the CCPA as left-leaning and gloomy.

Meantime, recent CMHC report suggests "Existing home market conditions will remain balanced over the next two years as (multiple listings service) sales ease and inventory levels remain elevated."

An August 26, 2010 article written by L. Ian Macdonald, Postmedia News for The Vancouver Sun entitled “Economic storm clouds threaten to rain on Harper” - in which the author clearly states “We're not in bubble territory...”

David Larock (an independent mortgage planner and industry insider specializing in helping clients purchase, refinance or renew their mortgages)who regularly writes for (movesmartly.com) and on his own blog (integratedmortgageplanners.com/blog) recently wrote “ [in the] Spring Mortgage Market Update, we tried to talk people off the ledge, predicting that interest rates would not go to the moon despite the ominous forecasts of most bank economists. Since that time, these same economists have revised their predictions of interest-rate increases downwards, citing the same factors that we used to refute their original predictions. Being wrong didn’t hurt the banks at all mind you. Far from it in fact, since the customers that heeded the bank’s dire warnings converted to their much more profitable fixed-rate mortgages (I guess having the bully pulpit has its advantages). What a shame for customers who locked in at 4.4% when five-year fixed-rate mortgages have come down to 3.9% since that time.”

And Larock also says “I Think Fixed-Rates…Will go lower before they go higher.”

I have to admit, I really liked the image of talking people off the ledge! 'Cuz, these kinds of headlines can cause panic!

Okay... let's cut to the chase. Generally, the idea of a bursting housing bubble suggests certain potential for mass foreclosure and other forms of property seizure.... AND, we can't avoid seeing and hearing news from our neighbours south of the border, where these images are more of a reality... so... it's downright scary!

But, to be honest... back in the mid-90s, I did have to tell some people that the cottage they'd bought the previous year had lost a significant amount of value... it is true... but the most recent boom was nothing compared to the late 80s and I have spent a great deal of time, since then, explaining to prospective cottage buyers that cottages aren't usually a good short-term investment. USUALLY. Of course, there are exceptions.

A cottage, or secondary property, is something that should be purchased with great care and consideration. It is both a luxury and an investment. To be sure, a cottage builds sentimental equity... but as a commodity, when placed on the market, a cottage has to be seen quite differently...

which is why a real estate professional provides a prospective seller with information about current market conditions before they establish a listing price... and why they provide a prospective buyer with information about current market conditions before they make an offer. Well-informed buyers and sellers can come to a fair and reasonable meeting of the minds... and so far, I haven't had anyone purchase something that they are in danger of losing... nor have I heard of anyone who has...

& as for all this talk about bubbles... I haven't seen any real indication (at least not in these here parts) of any bubble... BUY and SELL smart, people!

I'm Forever Blowing Bubbles
written 1918 by James Kendis, James Brockman and Nat Vincent

I'm dreaming dreams,
I'm scheming schemes,
I'm building castles high.
They're born anew,
Their days are few,
Just like a sweet butterfly.
And as the daylight is dawning,
They come again in the morning.

Chorus
I'm forever blowing bubbles,
Pretty bubbles in the air.
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.

Verse 2
When cattle creep,
When I'm asleep,
To lands of hope I stray.
Then at daybreak,
When I awake,
My bluebird flutters away.
Happiness new seemed so near me,
Happiness come forth and heal me.

Chorus
I'm forever blowing bubbles,
Pretty bubbles in the air.
They fly so high,
Nearly reach the sky,
Then like my dreams,
They fade and die.
Fortune's always hiding,
I've looked everywhere,
I'm forever blowing bubbles,
Pretty bubbles in the air.