Below is what one of posters at Garth Turner's blog said
WHY THE HOUSING BUBBLE IS ABOUT TO BURST… AGAIN
#1 Rising interest rates. The current low rates are the product of monetary policy which will eventually cave, as it always does, to the free market forces. Long term rates are a product of that free market… the bond market. As bond rates increase they will put pressure on governments to raise the BOC rate. NOTHING impacts real estate values like interest rates.
#2 A rising Canadian Dollar. This is a function of a falling US dollar. Unfortunately, as proud as we might be of our dollars newfound strength, our manufacturers loose as their products become unaffordable in their number one market… the US of A.
#3 Continued unemployment stresses. Rising interest rates are not going to stimulate employment. Rising interest rates are an economic damper not stimulant.
#4 Inflation in everything we NEED and deflation in everything we WANT. Food is going up in cost, fuel is going up in cost. The cost of that which we NEED is rising at such an alarming rate it is denying many of the opportunity to buy what they want. Consequently the cost of that which we WANT is falling due to the lack of demand. Most houses built in the past 10 years are not of what we NEED but what we WANT. McMansions are dropping in value and modest post war homes will hold, relatively, in value.
#5 Rising Taxes. If you are lucky enough to be gainfully employed your happiness will be dampened by the mountain of debt governments seek to repay and you’re forced participation through increased taxes in the retirement of that debt. The HST is but one small current example of this. Yes it will impact the cost of housing on all fronts, from the taxing of strata fees to the taxing of the labour in building that home which was not before taxable. Net effect, the core cost of housing MUST fall to compensate and bring back to market equilibrium the price increased due to tax. Net effect higher taxes and less margin in new construction. Not good.
#6 Mortgage defaults. Employment has been reported to have increased this past such that unemployment is reported to be 8.4%… reported. Even if this were true there are many who are on the verge of foreclosure for whom it is too late. There is gluttony of homes working their way into the foreclosure marketplace.
#7 Historical price trends. When housing prices break from the historical price trend to such a degree as they have it is a pretty clear indication something is going to give. Even if the economy warrants it there is a consumer aversion to such rampant price increases in such essentials as housing. If we earn more we want to feel like we are getting ahead not just treading water. The discord in current market values against the historical price trend is greater than 25%. A discord of 5 to 10% is manageable, but anything over 20% puts undue financial and emotional pressure on median families such that they begin to rebel through withdraw from the market reducing demand. This is beginning to happen and prices will fall as demand falls.
#8. Political Change. Jack Layton, believe it or not, might stand a very good chance of forming the next federal government – NDP. As Boomers begin to retire they are not so interested in business as they are their personal well being. Mr, Layton has proposed such things as “insured retirement plansâ€. The NDP is the workers party, the party of the common man and the unemployed. People vote where their pocketbook is and if the NDP is looking after the pocketbook of the unemployed, which retirees are, they will vote for NDP. At the very least those parties to the right of the NDP will have to take note of this demographic change and adjust to it by definition becoming more…. Socialist if not Fascist. This can not be good for condo flippers.
#9 Demographics. As stated in #8 Boomers are going to have significant impact on the direction the economy takes over the next few years just as they have for the last 40. These people are not spending like they used to. They are no longer priming the pumps of the economy. In fact they are beginning to siphon the economic flow backward. Take those dollars out of the economy and their multiplying effect and you have a failing economy. Failing economies do not sustain real estate bubbles.
#10 The myth of inherited wealth. The children of Boomers do not stand to inherit as much wealth as you are led to believe. And of that wealth that stands to be inherited the vast majority (the 80/20 rule) is held in the pockets of a significant few. Those who believe this easy money inherited wealth will flow freely into the economy with the passing of the Boomers are in for a sad surprise. It just ain’t gonna happen like you are told if will unfold.
I invite anyone to give good logical argument against these just 10 of the many reasons the housing bubble is about to burst.
Don’t be alarmed it won’t be a real bad POP… well hopefully… and provided it doesn’t continue to inflate much more before it does pop. We should anticipate a 15% correction in housing values across the nation with quite easily double that (30% or more) in those higher inflated select areas and pockets of bedlam in the market… Condos in Kelowna… Dilapidated shacks in Hankouver and TO. Still… it won’t be pretty for anyone.