Canadian real estate overvalued: The Economist

[Aerts]

http://www.thespec.com/news/business/article/270788--canadian-real-estate-overvalued-the-economist

I'm inclined to agree with this article. The rising average debt carried by canadians, coupled with the loss of middle class jobs (in the resource, manufacturing, forestry, etc), the increase in globalization and immigration, and inflation of university credentials all lead me to believe that Canada's economy is on a downward slope. I think that as more boomers retire/die, their houses will be for sale and there will be a huge surplus of real estate. That, coupled with the trend of using a house as a vehicle for investment and boomers pulling their money out of stocks as they retire (and the younger generation's skepticism of stock investing in favor of real estate), leads me to believe there will be some major "corrections" in the housing market down the road.

I already own 1 overpriced home. I've been thinking about buying a 2nd in the next few years, but I'm hesitant. Maybe wait for a big crash and then buy? Conversely, the article rates american real estate as undervalued by 2%.

Discuss.

 

[FloridaGuy]

What a nightmare! I am renting right now, having parked my home equity into GIC's 3 years ago now, on my last change of cities. The market was too volatile for my risk comfort, so I rented. I am still so hesitant to buy. Had I bought a home 3 years ago instead of renting, I would be about even right now - all things factored in and assuming no major home reno's required in that time. But.....I am so hesitant to buy. How long will the Canadian bubble last though, and how big will the drop be when it comes? Frigging frustrating not to have that crystal ball.

 

[Yman]

I believe there will always be high demand for Vancouver real estate as it's appeal has grown internationally for it's natural beauty and temperate weather. As there is limited land for development there will always be a limited supply of property to meet the demand. As for other parts of Canada...I can see a correction.

As far as Canada's economy; there seems to be a huge glowbal demand for many of our natural resources--especially minerals headed for Asia.

 

[somedude]

You gotta think that when you can open up a grow up producing $200k per year and get busted for it and serve 2 months in jail, it's quite the incentive to home ownership....yes/no? That and how many places do we visit that are rented out for SP's? Take that, add the fact that if you want citizenship you can open up your wallet and wallah, your a freakin Canadian?

Supply and invisible demand. Legalization of pot (not that it practically isn't already), legalization of SP's, or closing the buy your ticket into Canada will kick this city in the balls.

Don't get me wrong, Vancouver's great but so is Seattle, San Diego, etc. but you get two houses for the price of one crack shack here.

 

[FunSugarDaddy]

I too read this article and similar ones as well. In fact according to one of the Economists who invented the Case/Shiller index, which attempts to value real estate by dividing the price/net rents, said Vancouver is one of the most overpriced real esate markets in the world. And the reason this is important has nothing to do with immigration patterns or whether or not the boomers are going to downsize and/or move to smaller communities like Kelowna, rather it has more to do with what return you can expect on your investment, assuming house prices remain flat. Once people start realizing that the only justification for buying a place is based on the premises it has to raise in value to justify the purchase, and that you can get basically the same rate of return as a GIC in a flat real estate market without the hassle and risk then many investors will sell, especially those who have large unrealized gains and/or those who wish to use their proceeds as part of their retirement plan.

So in my opinion, if I had 1/2 million dollars or so to invest, buying Vancouver real estate would be pretty low on my list of investment options. Now mortgages, either first or second mortgages is another story.