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Fallout from a Housing Bubble

Archived in Investing, Real Estate, Discussions | No Comments

Brad posted the following comment in response to one of my earlier posts:

Worry? As a homeOWNER, you’re right, maybe not so much. Hope you can keep your job, just don’t move, remember to pay your bills, and weather out the storm. But if you’re not in the market you’re completely boned, and if you’ve been flipping houses, it’s TIME to look for a better line of work.

Personally, I agree, I think the local market has played a couple years of catch-up and is now on par with many other major urban centers in Canada. The question is, if oil completely flopped tomorrow, would we still call Edmonton and Calgary major urban centers? Far-fetched hypothetical, I know, but we have put a lot of eggs in one basket, so to speak. Fact is, we’re land-locked and don’t have a water port. We only have a couple piddly little airports. And the railway here would never cut it for any significant manufacturing culture. Infrastructure is pressed to keep up with population, in Calgary in particular, and the only thing driving the economy in any significant way is the wake of oil and CONSTRUCTION. We’re not a self-sustaining society by ANY STRETCH of the imagination. We have a public transportation system that would barely receive a passing grade for a small town in Europe or Asia. Agriculture and food processing is heavily subsidized in dire need of a labour injection. And the bulk of the population is in (bad) debt up to their ears from depreciable, consumer goods.

Take a drive around any new neighborhood and there are $600K homes packed full of cheap IKEA furniture and using bedsheets for drapery, and a brand new BMW in the driveway. I’d wager the majority of those people have less than $25K in the bank — and a significant chunk have nothing or even OWE. Paycheck to paycheck, I think is the term.

Sure, people flocked here from all over to get work, drove a CONSTRUCTION boom, but then take their money and head back East. Many of those “amazing gains” are cashing out and going back to the Maritimes. Good on ‘em for a smart investment, but that money doesn’t come from nowhere: the next guy is paying that, and more and more the next guy is a young Albertan who has a six-figure salary at 21 but barely graduated high school. Watch the market pull back and that’s who’s holding the bag: young families who were lured out of a long term career by the siren call of a steaming hot economy. Then what do you do when someone won’t pay you a hundred grand to drive a truck? What do you do when people want college degrees again?

And big BUSINESS is even more vulnerable. Just because large companies are building processing facilities, plants, factories, and showrooms does not make us a long-term strategic society. Corporations have less to loose: shut the door, walk away, and let the governments and banks fight over who pays the tab.

I suppose if you’re on the right side of the rich-poor gap, you can think there is nothing to worry about. I suppose if you’ve got a stable income and you haven’t squandered you’ll be fine. But then I’ve never lived in a society where a large chunk of the population suddenly goes broke, loses their homes, and gets desperate, so I probably don’t have a clue what the impact on my life will really be.

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Housing Market News, Links

Archived in Investing, Links, Real Estate | No Comments

I wanted to let the readers know that I found a great site with lots of information about what’s going on in the USA regarding the housing market. The site is run exclusively to provide information on REAL ESTATE news and related information.

There is a whole section devoted to Housing Bubble News, that I know we cover only superficially here.

We have compiled expert opinions, data sets, and newsworthy topics to provide unbiased information for you to form your own ideas about the housing market. Our articles are updated daily with fresh breaking news, so please check back often.

The article that specifically caught my eye on this particular site was a detailed comparison and analysis of the American housing market to that in Japan in the 1980s — and specifically the disconnect between REAL ESTATE and the rest of the economy.

Jul 09, 2007 — Today’s home prices can best be described as a recession in the making, but are most often referred to as a bubble. Prices have grown so much in the last decade that they are now completely disconnected from the fundamentals that have historically ruled the REAL ESTATE market. Today’s prices are not sustainable and the graphs and analysis below demonstrate why.

Click here to check out the full article. It’s fairly clear and easy to read, and has lots of graphs with details on trends and predictions.

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