Housing bubble is coming… again?

You’ve seen them before.. but they went silent for a few years.  I’m talking about the housing bears.  The pessimists that say house prices are too high and will crash.  A housing bubble.

Are they right?  Maybe.  But here’s the thing.  We’ve been hearing that house prices are too high for over a decade.  One of the more vocal pessimists is David Madani, Economist for Capital Economics.

HOUSING BUBBLE?

Madani was on BNN this past week saying we are in a ‘Full blown housing bubble’.   Hmmm, that sounds familiar.  Let me think… when did I hear that before?  Oh, that’s right, 2011.   He said, we could see house prices drop by 25% in 2011.  And he was completely wrong. (hope you didn’t listen to him).

There was another housing bubble call in 2015.   Let me think.. yup, Madani again.  He said he was sticking by his 2015 statement that house prices would fall by 25%.  (You gotta give him credit for consistency.  Consistently wrong).

It’s kinda funny.   Media keeps quoting people like Madani.  If we listened to him and sold and maybe rented, where would we be?   I think house values have increased by 75% to 200% (depending where you live) since 2011 in many parts of Canada.. But for sure, they’ve increased by more than 25%. What does Madani have to say to those Canadians that listened to him and sold and rented?  How much have they given up if they sold 6 years ago?

RENTING HAS RISKS 

Oh, in case you haven’t heard, there’s a shortage of rental housing in Urban markets. Rent control rules do not apply to many properties.  And rents are way up. Rents can increase faster and higher than mortgage payments.  Rents almost always go up.  Rental houses can be sold and, your tenancy terminated if new homeowners want to move in.  By comparison, mortgage payments remain the same for long periods of time and your balance ALWAYS goes down, not up.

YES, THERE WILL BE A CORRECTION

Look, I think a price correction will happen.  I don’t know when (who really does?). But we can learn from the last real estate crash.  1990.  Back then, house values dropped between 25% and 50% in just 6 months.  However, house values went up between 125% and 175% during the housing boom just before the crash, from 1984 to 1989.

If house values go down by 25%, most homeowners will still have realized considerable gains.

If you are a first time home buyer that purchased after 2015, here’s my advice and comments.  You bought a home.  It should have been bought with the intention of holding for at least 7 years.  Seven years is the required time it takes to amortize the acquisition and disposal costs (realty fees, land transfer tax, lawyer fees, etc).

IT’S STILL A GOOD TIME TO BUY

Planning to buy and hold for seven years is the key.  Real Estate should be a long term investment. Forget about flipping and making a quick buck.  That’s risky business.  I’ve never advocated this type of real estate investing.   In seven years, you will have paid down your mortgage by 20%.  So, how much are you really down?  Probably nothing.

Let’s not forget.  Real Estate always go up in the long term.   And you won’t always have a mortgage.  By the way, your principal residence can appreciate tax free.  Unlike our US neighbors that must pay tax on any appreciation.  If and when you sell, you won’t have to pay any tax on the profit.

Housing bubble?  Maybe, but I think but there’s a lot be said for buying and owning.  Even in this market.  Buy smart.  Don’t panic buy.  Buy for the long term and you’ll be fine.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca