interested, did you not see my points earlier when I replied to Brian? Do you dispute any of those?
Well, those were all present in Ireland, USA, Spain, UK, Japan, etc-- oh one more thing, the "It's different here, if there is a correction it won't be that bad, there can never be a crash here!" mentality-- and look what happened. You don't think that a 30% correction (ie a 300k house goes back down to 200k) isn't in the cards when that 300k house cost 125k 7 years ago (in inflation adjusted dollars, at that). A 40% haircut is impossible when a house that's shot up 150% would still represent a 50% increase from baseline levels, despite salaries not having increased and so forth? IMO Some areas may crash a lot harder, especially when nobody buys, and desperate sellers are being forced to sell by their banks or bank-owned foreclosures.
What goes up, must come down. I know, it sucks. A lot of people who bought a place and worked hard to pay off their mortgage had their equity wiped out overnight and can't even sell their house if they wanted to because they'd be competing with foreclosures selling for 10 cents on the dollar.
So my advice, do as my Uncle recently did last year, and sell ASAP and rent until the crash is over. He sold his Brampton "mansion" for a $550k, and took his $$ and is renting now with his wife and two kids. He's doing great. Great timing too, because apparently Brampton is crashing REALLY hard already-- rumours are sales are down at least 70% and there's a lot of desperate people selling now (Brampton RE board hasn't published stats since August, lol... no data for Sept, Oct or Nov... Whoops!).
http://www.bramptonandarearealestate.com/2010_Residential.html
Also I checked Kijiji and those formerly $400k townhouses are going for 300k now.. that looks like a 25% reduction already in Brampton in what, 3 months?
I responded to the points you made to me. I felt it is up to Brian to answer first your points to him.
Of course a 40% haircut is possible. Even more is possible. The question we are addressing is what is probable. Clearly Paperchopper you feel it will be a crash the proportions of which will exceed the US national average of 30% down to date (which when the US resumes foreclosures may well go down another 10% which would mean about 33% from the top) or even 70% down as some of the hardest hit areas.
The point is again not that we disagree that there will be a correction. It is that there will be a reasonable retraction (15-20%), that we will revisit 2007 or 2008 (mini correction) levels possibly as I believe or will it crash totally like the hardest hit areas in a similar fashion.
Again with the greatest respect, I don't have a crystal ball but I am not so confident as to predict with certainty what will happen in the near term.
Unless you can account for every event in your prognistication, you are subject to error. I have been humbled in the past. Perhaps it is that I am older than you or maybe it is that I am not as smart. My point is, I know enough to know that I don't get it right all the time, not even close.
I remember when GM was the largest most successful company in the world in the 1970's and Roger Smith, the then Chairman and CEO of the company (a pretty smart guy) was asked "if he ever made a mistake?"
His response was first laughter and then: (and I paraphrase) "I consider it a good day when I make more than 51% correct decisions". I think you can see my point.
As Roy Biv said, maybe your Uncle is right and brilliant to have sold. Those buying today and in the last 2-3 years may well lose the paper equity. Will we go back to 2000 prices, I doubt it. And if we do, get ready for everything but cash and gold to go with it. It will mean that the petrocurrency/resource currency C$ will slide, implication is China and others no longer need resources: The US, our biggest market takes another hit like it did in 2008 and we have to believe the end of the financial world is upon us.
I believe with respect and I don't think this is the appropriate forum to continue this point that comparing us to Ireland or Spain is over the top and not valid, though some other countries you are correct may form some basis of comparison.
I agree with your statement that what goes up must come down and I have been a long preacher of the statement that frightens me most:
"It's different this time". However, not every excess price inflation need end in an absolute burst "pop" but may adjust over time especially given all the political meddling.
We both agree that things are overvalued but assets do not only have a 1 way "crash" scenario as the only result.
With respect to your uncle: Brampton is not necessarily the most desirable of suburbs, has had a huge housing boom, and is not limited like the core of the city. There is only 1 City of Toronto core for those who desire the City life. We can argue how limited the core of the city is but my point is there is lots of land in the suburbs and lots ofsuburbs: Mississauga, Oakville, Etobicoke, North York, Pickering, Ajax, Vaughn, Richmond Hill, Thornhill to name a few where you can buy/build a townhouse. I don't think this has any or little "international investor appeal" which is certainly a driving force presently. By the way, I view the international investor appeal as a significant risk to the Canadian market. That said, if I happen to wish the ammenities of the City, there are less possibilities.
I agree even more with you that a townhouse for $400K for a person with a young family is a crazy price in a suburb. Those suburbs (and the city fo TO for that matter has priced itself out of reasonable reach when looking at income ratios and house prices and rents) However, since locals can't buy anymore, there is no one left to buy those overpriced suburbs.
I also heard that Brampton was being spec'ed by people buying towns to flip and is overbuilt. So this will correct likely "in spite" of the overall picture.
One final point, eventually you will (and so will I) be correct that there will be some correction. Real estate is a cyclical asset. It became problematic when the world decided to buy and sell it like a commodity instead of shelter that it is. That said, I believe alot of people have said there will be a crash for 5 years now and we are still waiting. They are hoping that prices will 1/2 but even so, will they be better off than had they bought TO LIVE 5 years ago. Maybe but I suspect not. I agree again it should correct. But those who bought in 2005 aren't looking too bad now.
Let's hope that you are proven wrong because a correction like the US or the other countries means huge austerity, job loss, business collapses and alot of social unrest.
That said, would I be buying today as in 2011? NO. On that, we agree and I have been telling all who ask me that 2007-2008 was the last year/years in which one could barely justify investment real estate.
