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Real estate bubble not likely to last forever T here are small signs the real estate market might cool. This should be a gentle reminder to those who think the real estate bubble will last forever. We have written about our government's attempt to cool excess consumer spending and Canada's hot real estate market. Both our federal Finance Minister and the Governor of the Bank of Canada have repeated warnings over the past year. They are concerned Canadians have been lured into excess debt levels by the historically low interest rates. We are living beyond our means. This could cause economic harm to our country if we reduce economic activity because of our oppressive debt levels. Toronto's booming condo market has heated up since the year 2005 with an increase in prices of about 50 per cent. We have become a world leader for new condominium apartment construction. Now there are some small cracks in the foundation of the real estate market. During the past few weeks Toronto condo pricing has softened. Some developers are re-thinking their plans for new projects. What is even more significant is that some of the Canadian banks have become a little more defensive. Banks have been financing large projects and have competed fiercely for mortgage and other consumer debt. The Minister of Finance has criticized the banks for encouraging the 21 · Thursday, June 21, 2012 OAKVILLE BEAVER · www.insideHALTON.com 20 20 20 OFF OFF OFF 25 25 25 OFF OFF OFF %% % * ** TUBS TUBS TUBS TILE TILE TILE & & & TOLIETS TOLIETS TOLIETS & & & STONE STONE STONE %% % %% % * ** SALE SALE * ** a sure thing. Many borrowed to invest to the point that the regulators introduced measures to help monitor and control the number of investment loans offered to investors. Many thought the markets could By Peter Watson only increase in value. The U.S. real estate meltdown, partly caused by excesconsumer to continue to take on additional sive and irresponsible lending debt. practices, resulted in a worldSeveral banks are now tightening their wide economic collapse in lending practices on mortgages. Could this be a case of musical chairs where no one wants to be left standing if the real estate market cools? If the Toronto condo market values decline, there could be a ripple effect. Single family homes will likely decline in value as well. Then that ripple effect would be felt in surrounding areas, which would most likely include Oakville. Is that a real estate market prediction? No. But it is a strong warning to many who think real estate values can only increase. Many Oakville residents think real estate is not prone to normal market risks. Real estate is no different from everything else you own. It can increase or decrease in value. The same excitement that real estate investors have enjoyed recently was prevalent in the equities market during the 1990s. Investors were convinced that equities were Dollars & Sense 2008. Now Europe is the big concern. Markets evolve. Our recommendation is for you to be equally respectful towards all of your different asset classes. Real estate, stocks and bonds all can change in value. Perfect vision unfortunately only comes when looking at the past. Regardless of your affinity for an asset class, you cannot predict the future. As stated above, this is not a real estate prediction. When one asset seems invincible that is often the time of greatest danger. Real estate is the investment of choice for many of us and that is why it is important to dampen our enthusiasm. Gravity, as it applies to everything else also applies to real estate values. -- Submitted by Peter Watson, MBA, CFP, R.F.P., CIM, FCSI. 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