We’ve all seen the headlines (well, those of us who follow this sort of thing), is the Canadian housing bubble beginning to unwind? Prices of detached houses are substantially off from their peak in April in the GTA as well as other previously red-hot markets in Ontario. Worse still, sales volume is also considerably down. Economists from various real estate agencies (who some might label as shills) and many others who frankly have a ton of potential bias tell us that this is either an anomaly or the beginning of a soft landing.
So, is this the beginning of the end?
Here is the answer. And it’s very important: No one knows.
You will find no shortage of talking heads, economists, realtors, home-owners and other market participants who claim to have the answer. They don’t. You can track indicators that point to a downturn or an upturn, but you can’t predict human behavior in a mania. I can assure you that we are in a real estate bubble, but how and when it will unwind is anybody’s guess. This could be the moment where the mania inverts. Where the excessive greed that blew the bubble to the stratosphere becomes excessive fear that propels it downward.
If you’re using an instrument to try to profit from a housing downturn – such as shorting a stock – then you need to be financially prepared for a long wait. If you’re long on housing, by owning one or more properties in the red-hot markets of Canada, and hoping to profit from more gains, then you are nuts. You cannot predict when the market will turn and when it does, you can not easily unload an asset as illiquid as property in a recession.
I’ve seen numerous articles and infographics that compare this asset bubble to the real estate bubble in the United States. These are interesting, but if you think this bubble will play out exactly as it did south of the border, then you need to understand that every mania is different.
Caution is paramount here,