« New site lets home owners charge drivers to park on their property | Main | Some people waiting for the iPad 3 Friday were hired shoppers »

March 19, 2022

Can real estate values really go that much higher?

Could Garth Turner be right?

Long branded as a fearmonger, especially by people whose livelihoods require that home prices keep rising, he's been calling for a major correction in housing prices for some time now.

Actually, for about five years now, it seems. But at least he's consistent.

"So here’s the crayons version," he wrote recently. "Houses in Canada are absurdly overvalued and risky. Financial assets are largely unloved and undervalued. Seventy per cent homeownership should terrify you, given the financial track record of your friends. And the best defence in a stormy world is liquidity. But you can ignore me. Most will. Perfect."

Still, after all the bluster and infomercials in the past, it's easy to ignore his prediction that real estate is not the asset you want to depend upon -- at least not in this decade.

But, here's a more rational take for your consideration from Vancouver investment manager Tom Bradley:

When I pull together the economic fundamentals, valuation and sentiment, real estate, as an investment, doesn’t look very attractive. The distribution of potential outcomes looks asymmetrical to me – limited upside and plenty of possible downside.

But what really screams out at me is how many important factors are at extremes … bad extremes. One or two off-trend numbers can be explained away, but too many are jumping off the charts – price increases, mortgage rates, loan growth, consumer debt and home ownership levels.

To invest in an asset class that is illiquid, has high holding and transaction costs and involves large amounts of leverage, I want a significant margin of safety. Right now, there are more warning signs than guardrails.

Should you be in a rush to sell you house so you can rent and wait to pounce on post-meltdown bargains? Probably not, but it is worth thinking about if you're on the outside looking in.

Do local real estate values worry you? What, if anything, are you doing about it?

By Gordon Powers, MSN Money



Post a comment


Gordon PowersGordon Powers

A long-time fund company executive, Gordon Powers now heads up the Affinity Group, a financial services consulting firm. Gordon was a personal finance columnist for the Globe & Mail for many years, has taught retirement planning...

Jason BucklandJason Buckland

The modern-day MC Hammer of money, Jason can often be seen spending cash that isn’t his with the efficiency of a Wilt Chamberlain first date. After cutting his teeth as a reporter for the Toronto Sun, he joined the MSN Money team with...