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Real-estate bubbles and your investment plans.


Question: I see that house prices jumped up a lot last year. Are we going to have another housing bubble?

You are probably well aware of the bursting of the U.S. housing “bubble” in recent years. Here in Canada, our home prices fell by only a fraction compared to the U.S. decline. But now our housing prices are steadily rising again. While we don’t know if we will experience a bubble, you should be prepared for the possible impact of a housing downturn – especially if you have invested in real estate or your portfolio is not well diversified.

But the big question for now is this: “Will we have a bubble?” Typically, three conditions must exist for a bubble to develop:

1. Prices are rising sharply and are too high based on historical relationships;

2. Credit is easy to obtain; and

3. Lax regulation or innovations make regulation less effective.

Currently, it appears the first two of these conditions are present in the Canadian housing market. The average resale price of a home rose 19.3 per cent in 2009, according to the Canadian Real Estate Association, and house prices have risen faster than incomes and rents.


You can find the Residential/Commercial/multiplexes/investment listings on webs sites as under


Learn more:
The next Bank of Canada interest rate meeting is September 8 ,2010.

Also, the Bank of Canada’s Financial Conditions index shows that credit is currently more available than it was before the recent recession. However, the third bubble condition – ineffective regulation – does not seem to apply, as the government is taking steps to tighten mortgage availability, and regulation remains relatively tight.

Although we may be meeting two of the three conditions necessary for a bubble, it does not follow that a bubble is inevitable.

However, a full-blown bubble does not have to develop for a housing downturn to occur – and we are seeing definite signs of increasing risks of just such a downturn.

Specifically, we are experiencing tighter lending standards and rising interest rates and mortgage costs.

We have seen an accelerating pace of housing starts over the past year; if coupled with a slack in demand, this increase in supply could put downward pressure on home prices.

If housing prices do drop substantially, how will it affect your investment plans? If you regularly buy real estate with the intent of reselling it for a short-term profit, you may want to be especially careful in weighing your actions over the next several months, possibly even reducing your housing investment exposure, if necessary or plan for long term hold.

Also, any housing downturn may have a negative effect on mortgage-related businesses – specifically, banks and financial services companies.

Consequently, if you and your financial adviser determine that you may own too many banking and financial services stocks, you may need to reduce your holdings in these areas like REITs.

And such a move will give you a chance to further diversify your investment dollars among a wide range of assets and real estate investments.

While diversification, by itself, cannot guarantee a profit or protect against loss, it can help reduce the effects of volatility on your portfolio.

Clearly, a housing slump can have ripple effects throughout the investment world – and on your own investment strategy. But by being aware of the possibility of a drop in housing prices, and by being prepared to take the appropriate steps, you can help ensure that a downturn in the housing market does not result in a detour on your road to achieving your financial goals.


You can find the Residential/Commercial/multiplexes/investment listings on webs sites as under


Learn more:
The next Bank of Canada interest rate meeting is September 8,2010.

This information is provided for the best interest in mind for the clients and customers to better understand the whole real estate transaction and realtor’s role

(The comments contained on this site are for information purposes only and do not constitute legal advice.) 

If you have any questions/suggestion or require more information, please do not hesitate to contact me for buying or selling and also I will be happy to assist you negotiating your investment needs.

You can find the Residential/commercial/multiplexes/investment listings on webs sites as under



Vijay Gandhi,
Sales Representative- REALTOR®,
RE/MAX Dynasty Realty Inc. Brokerage*
C: 647. 267. 6338 (Direct-Leave message or text)
P: 416.335.4335 | 905.471-0002 (page me-Have me)
F: 905.471.7441
E: vtgandhi@yahoo.com , vgandhi@remax.net
W:  www.vijaygandhi.com , www.gtarealtyagent.com , www.icxforsale.com 

Please call me TODAY for a No Obligation Buyer Consultation or Pre-Listing appointment!