Canadian real estate is that way right now, in cities like Vancouver and Toronto, people are swinging from the chandeliers, drunk on cheap money, or better known as low interest rates. But in Calgary it’s a different story, panic and fear are the order of the day. People are losing money, some are stuck holding two properties because they did what nobody should ever do, they bought one house before selling their current home. If I had never heard of this happening and someone asked me if I thought it could, I’d laugh at the thought. As if someone would put themself in that position. How wrong I would be.
Clearly most Canadians think the oil crisis could never come to their door, and thus they’re racking up mountains of debt with 5% down on mortgages they’ll end up willing to their children. The belief is that real estate never goes down, or at least that it will continue to go up long enough for them to make a tidy profit.
Well guess what, unless oil goes back to $100 quickly, Canadians have a very rude awakening coming in their not too distant future. The oil crisis will spread across the country, in fact it already is. Fly in and fly out jobs are disappearing rapidly, well over half are gone already. These are people who live in other cities, not Calgary or Fort Mac. Tens of thousands of them too, and they’re out of work now. Suppliers, service companies, banks, and even government workers will soon feel the pinch, as oil supports every industry in Canada, as well as tax revenues.
The federal government knows all too well the danger, which is why they unexpectedly dropped rates lately, and probably will again. Vancouverites and Torontonians think it’s just a gift to assist them in getting a larger house, thereby increasing the average debt load of Canadians even higher. We’re already a close 2nd to Greece, ahead of every other developed nation in the world. Imagine that, safe, conservative Canadians are 2nd only to Greece when it comes to their debt levels!
See why I called this article the Blow off Top? What goes up must come down, and our debt surely has gone up, and up, and up. It will come down, by our hand or by the market’s hand, forcing it down through bankruptcies, defaults, repossessions, etc. I don’t say this to be a downer, I say it to hopefully wake people from their stupor in hopes of saving them from what’s to come. How long could you pay your bills if you lost your job? If it isn’t at least 3 months, you’re in danger. And I’m not talking about racking up more debt either, I’m talking about funding your lifestyle with savings.
Real estate goes down, like every asset class. This is news to Vancouver I know, and Toronto, that’s how you know you’re in a bubble, and the fewer people who know this, the larger the bubble and later it is in that bubble. My experience is that the mere suggestion of real estate going down in these two cities is enough to get you mocked, shunned, or at least left off the dinner party list. Who wants a cashing bore like you around, who doesn’t believe in the magic of ever increasing house prices? Nobody.
It’s always like this, every bubble in history treated its naysayers as criminals and social outcasts, even after they’re proven right. People don’t learn, that’s a fact. They don’t study history, and they don’t care what lessons can be learned from the past, they care about how much their portfolio and house price went up this year, period. I care about those things too, but I temper them with a realization that it’s never different this time. We are not unique in history, we will make the same mistakes and pay for them with the same consequences.
I hope to help you avoid that, but I can’t do it unless you let me. The herd follows the guy in front of them, never looking up to see where they’re going, then one day the ground beneath their feet disappears and they’re in freefall. Over the cliff they go, with no remedy. That’s about the time when most people realize they need help and seek advice, but it’s too late.
The Blowoff Top in Canadian Real Estate
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