Woolwich & Wellesley Township's Local Community Newspaper | Elmira, Ontario, Canada

You want a little more local in your inbox.

The last seven days of local community news delivered to your inbox. Stay caught up on the latest local reporting with The Observer This Week. Every Thursday.

Enter your email to subscribe. Unsubscribe anytime. We may send promotional messages. Please read our privacy policy.

Warnings abound about potential housing bubble

Real estate having become something of a sport – buying, selling, trend-watching – and the basis of excessive consumer borrowing, it’s no surprise that the sector is under a constant state of analysis. The big issue, of course, is whether we’ve got a housing bubble … and will it pop.

The latest study comes from the International Monetary Fund (IMF) that puts Canada at the top of the list for overvalued housing prices among OECD countries. The IMF estimates that on average across the country, Canada’s housing market is overvalued by about five to 10 per cent. That’s actually an improvement over the five to 15 per cent range it estimated last year.

Rather than the bubble bursting, the IMF sees a gradual decrease in house prices over the next few years, rather than a sudden pop and drop.

For now, prices continue to rise, both here and in many other countries. Among Organisation for Economic Co-operation and Development members, increases and declines are more evenly balanced. But in many OECD countries, the ratio of house prices to rents – a typical measure of house price valuation – remains above historical averages, leaving room for price corrections down the road. In Canada, the ratio is 85 percent above the average.

To help cool the market here, the federal government has been tightening up borrowing rules that reduce the risk of people defaulting on their mortgages and help ease the unsustainable upward pressure on home prices. A series of reports has raised doubts about the sustainability of a decade-long upward trend that slowed only marginally during the worst of the 2008 recession.

Even with some easing in Vancouver and Toronto, average home prices remain far out of reach of many residents.

None of that sounds sustainable. Some economists and market watchers are waiting on a correction. Still, there are plenty of us who see housing as a safe investment, unlike, for instance, the stock market, which remains volatile. Both markets are a gamble, however, and both were and continue to be heavily manipulated by the financial sector, the very industry responsible for the systemic corruption at the root of our economic woes.

Speculation, of course, is another word for gambling.

When you buy stocks, you’re betting they’ll go up in price (or down, if you’re shorting). Other than securities, there are a host of speculative investments for those willing to take the risk. Speculation also extends to the housing market. This applies not only to people who buy homes to flip them, or farmland in the hope of a future subdivision, but to many who’ve entered the housing market in recent years.

There’s a simple reality, however: housing prices do not always go up.

Price decreases could help those looking to get into the market down the road, but that upside could be offset by the fact credit is harder to come by. Lenders are hanging on to their money, and tightening requirements when they do part with it.

If there is a take-away lesson to be learned when it comes to real estate, it’s don’t take any undue risks. And gambling, which is how we’ve been viewing the housing market, is risky to the core. If we keep betting on ever-increasing prices – with equity loans to match – and allowing too many people to over-leverage themselves, there’s going to be a great deal of pain if the market sees a correction or if interest rates start rising to historical levels. Don’t wager the farm on the boom times to last forever.

A little more local for your inbox.

Seven days. One newsletter. Local reporting about people and places you
won't find anywhere else. Stay caught up with The Observer This Week.

Enter your email to subscribe. Unsubscribe anytime. We may send you promotional messages.
Please read our privacy policy.


Related Posts