Definition of a Housing Bubble: Rapid increases in real property valuation until unsustainable levels are reached relative to income and affordability. This is followed by decreases in home prices resulting in owners finding themselves in a position of negative equity. Bubbles can be measured only in hindsight, after a market correction.
"Dream your dreams with open eyes and make them come true."
~ T. E. Lawrence
I hear it all the time “home prices will peak and eventually decline” and “I will only purchase once prices hit rock bottom”. I could not agree more. It is true, housing markets do take full cycles no different than economic cycles. People should observe these cycles to know when to invest and when to hold on to their money; however they should not watch them only to be left out in the cold. There are wise investors who know how to pick their time and others for whom “the bottom” is never reached, and as pictured above, will sit there waiting forever. Why?
Who is the wiser in this real estate market? Depends on who you ask. Many invested and others decided to ignore the fiscal stimulus and rock-bottom interest rates and point to them as dangerous bubble creators. I do want to point out however that the effects from the hot housing sector did help solidify the Canada’s rebound from recession. Thanks to these same rock-bottom interest rates, sales of existing homes are surging. The buying spree is helping fuel broader domestic spending needed to power the economy until foreign demand picks up. This stimulus provides a reason for optimism...yet others will always look to the doom and gloom of things. Again why?
Fear plays a part and it’s only natural. In order to grow, move to a new level of success, make dreams come true and build confidence, one must overcome these apprehensions. Buying that first home is intimidating, but taking it one step at a time makes it less so. The pros outweigh the cons any day, keeping that focus is key in an agent’s agenda for his/her clients. The Alternative is the more dangerous housing bubble that is worth bursting.
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