Will the housing crash be a self fulfilling prophesy?

crash

Tension is high in the media. The housing crash is coming. There are newspapers to sell. We all know that bad news is better than good news at selling the news. “The market is going to crash”, “Just look at what happened in the states”, the pundit cry. We all have a lot at stake. If we have a house, we will lose equity. If we don’t have a house, if we wait, we might get a deal.

Our finance minister’s tinkering with the rules around getting a mortgage seems to have finally done the trick. The housing market slowed down quite considerable in August and September. But what’s next? Should you sell your home now and rent for a few years? Should the first-time homebuyer continue renting and wait for the prices to drop by 5% or 20%?

I don’t think so.

First of all, we have a balanced market in Kitchener Waterloo. Balance is good. After years of stronger demand than supply, real estate agents and home sellers are going to have to relearn the rules. We are not going to have bidding wars. Houses have to be priced correctly and marketed effectively. Home sellers are going to have to be realistic and make it easy to buy.

Secondly, I know that over the long run house prices always rise. If prices dip by 5% in the short run, then they are at the level that they were in 2009. People seem to think they will be able to buy a home at 2000 level prices. That’s just not going to happen.

Third, it’s interest rates not the negative talk about the housing market that really drives the housing market. We’ve all lived through uncertainty and the ups and downs in the economy. We’re used to it. Talk is cheap.

Finally, people are often looking for an excuse not to do something. People are afraid of making a mistake. It’s easier to do nothing than to do something.

Of course, the worst thing to do would be to panic. Nothing creates a crowd like a crowd. Don’t yell “fire” and run for the door. Panic actually could lead to a housing crash. But that’s not going to happen either. For the past four or five years there has been so much talk and speculation about where the market may be headed but no one has changed their behavior.

 

There was a good article in the Financial Post on Saturday called “Are we worrying ourselves into a housing crash?”. Many predict that prices will fall but by a moderate level that does not resemble the U.S. crash.

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