Bubble Watch: Real Estate
I live in the
Most analysts agree that low historical interest rates have been the primary driving force for the real estate bubble. Lenders also have a lot of influence on the perceived affordability of consumers. Creative financing arrangements have been pushed through by financial lenders in the United States. Here in Canada,
A side effect is that new home owners are having less equity in their home, putting them in a dangerous position if and when the bubble bursts. Another side effect is the windfall that the CMHC, a crown corporation of the government, is experiencing because of the high demand. The CMHC is making a killing due to high volumes of mortgage insurance being sold.
To avoid buying mandatory mortgage insurance, a home owner must be able to represent home equity of at least 25%. Most new buyers are already stretching their purchases due to the high prices and often elect to use whatever money left towards furnishings and renovations rather than equity.
My contrarian streak means that I will be looking for opportunities when the current seller’s market turns into a buyer’s market. Vacancy rates are rising as more renters keep buying to fuel the last phase of the bubble. As interest rates continue to rise, the supply and demand relationship will change. Those buyers who are ‘under water’ due to depreciating prices and low equity will also have the added burdern of mortgage insurance to worry about! The moral, what you think you can afford may not really be what you should be affording!
Canadian Business: ‘Mortgage Insurance: Homebuyer Beware’ by Peter Shawn Taylor
Related Posts:
- Bubble Watch: U.S. Real Estate
- Bubble Watch: $45M GTA Home
- Bubble Watch: Real Estate Waiting For A Catalyst
- Bubble Watch: $3000 per square foot!
2 Responses to “Bubble Watch: Real Estate”
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Investorial » Blog Archive » Bubble Watch: U.S. Real Estate Says:
November 10th, 2005 at 2:08 am[...] Continuing the bubble watch series on real estate, I just want to point out a recently published article by The Globe and Mail regarding the real-estate scene in the United States. The article does not single out any particular region but takes a national overview. The numbers mentioned in the article are significant and serve to remind everyone that housing prices are really getting out of hand! Considering the interest rate trends these days, it is becoming more than tempting to stay on the side-lines. Eventually, consumers will start thinking better of it. However, never underestimate the power of the American Dream - owning you own home! [...]
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VinceChan.net » Jenny’s House Warming Says:
February 12th, 2006 at 3:17 pm[...] I got to meet Jenny’s boyfriend, Stephane, for the first time. Stephane bought the house together with Jenny for approximately just over $400,000. It’s a steep price for a detached house, but with the current housing bubble in Toronto area, a house in the ‘Upper Beach’ area are certainly going for those prices! [...]
