cheaprealty net

Let's go back to the watercooler for an exploration of the arguments for and against Victoria reaching a pricing peak this year. This poll at Cheaprelty was convincingly in favour of the top being in; another poll on a more developer friendly web-site is not so one-sided, but still also shows some uncertainty about future real estate appreciation.

To summarize some of the arguments that are being heard against imminent price declines or collapses, consider the following:

1. Housing prices have climbed for decades without significant interruptions.
2. The current boom is not as big as the one that led to the big crash in the early 80s, it is more sustainable, and there are no economic problems on the horizon that could knock the market down.
3. What happened in the 80s was a long time ago and is irrelevant to what is happening now. The market is just not the same.
4. Demographics - the Baby Boomers are migrating to Victoria and also purchasing secondary homes here.
5. Victoria's real estate market is no longer contained - it is driven by out of town purchasers. As a corrolary of this, whatever is happening elsewhere is not likely to effect Victoria much, since people will still be wanting to come here, no matter what.
6. The tight rental market supports home sales.
7. The legalization of suites in single family homes will allow owners to subsidize high prices with rental income if necessary.
8. Affordability is not as important, becasue more purchasers are affluent.
9. People have been making the same claims about astronomical real estate overvaluations for years while prices didn't reverse. Waiting for prices to fall is like Chicken Little waiting for the sky to fall, its not happening.
10. Interest rates just don't matter anymore.

Well, of course these views are often a matter of perspective. Developers building and selling, or at least pre-selling, hundreds of units have been living the best of times for the last few years. Prices have never been higher and sales have continued at a reasonable pace. But like all parties, eventually the music stops, the food runs out and the booze is gone. Then it's time to go home and sleep off the after effects of over indulgences, wake-up, and start over. Using a house party as a metaphor for the current boom, where are we?

The hangover hasn't hit yet, but the music is getting turned down.

Now rather than go through all the reasons housing bulls typically provide to support the endless continuation of real estate booms, I really only want to focus on two things.

Interest rates, and internationalization.

For people in the know to argue that interest rates going up won't affect prices is wishful thinking. In fact, there should be little surprise shown that the last two drops in prices were preceded by significant spikes in interest rates.

Additonally, for people to argue that, on the one hand, out of town and international buyers will set the standard for housing prices, which locals must meet, and on the other hand that Victoria will ride out economic recessions or problems elsewhere, is a contradiction in search of an explanation. Peter Schiff, a bearish US money manager, has recently argued that the US sub-prime mortgage mess is not contained, and will take a terrible toll on the US economy.

IF American baby boomers cashed out equity to buy property all over the place, even in places like Victoria, the need to repatriate some of that equity could become a drag for the local hosuing market, if the US real estate market blows up big time.

Here is a post from about a year ago, which pretty much sums up the way these scenarios unfold: What We Know, by Charles Hugh Smith. With the benefit of hindsight, it seems that Charles had figured things out pretty well.

Now I'd like to turn it over to the knowledgeable readers of this blog. Is this the top or not? If you have seen signs that the top is in, please let us know via the comments. If you are reading this from farther afield, in the midst of a full-blown housing downturn, feel free to supply the anecdotal evidence that should have clearly marked the top in your market, even though the mainstream media ignored it at the time.

Happy Canada Day!

*not investment advice on when to sell or buy a particular house, of course - draw your own conclusions on that matter!