Tiny Bubbles Made Him Happy

If tiny bubbles make you happy than it could be said that GIGANTIC bubbles would leave you in mind numbing bliss.

There is plenty being said about the real estate bubble these days. With the intrusion of the US media in our lives it is hard not to ignore their problems and sometimes shoulder them as our own.

Fact is our housing markets are very different. The issues that have been plaguing their bank and mortgage industry are not ours. We were protected from smart government and ethical bank executives (yes there is such a thing).

Do we have a "housing bubble"? When you examine the market across the country it sure does look like things were falsely inflated. Cities like Edmonton, Toronto and Vancouver are showing substantial drops in their average price. A "market correction" is in place but nothing to the extreme our neighbours to the south are experiencing.

So where exactly did this "bubble" come from? When my son is in the bath, I may not see where the bubbles come from but using all 5 senses I can come to a hypothesis. If we look beneath the surface we can see things that we may not have been able to see due to our viewpoint.

You purchased a house for $200,000 3 years ago. Your life has changed. Things are moving and shaking in your life, better job, new family member, hey time for that bigger house. You find the house that you want, listed in the neighbourhood perfect for that little bundle of joy of yours. $350,000, Hefty increase in mortgage but that is what you were expecting. You have been watching the market and know that house prices have gone up. Your estimation is around 5%. The agent that you bought your house with comes in to give you a free "market evaluation". He tells you you are lucky because in the 3 years you have owned the house it has increased by $15,000. More than you expected! Problem is when he takes his cut ($10,750 + GST) your increase is less than his commission. Not to mention all the other costs like legal and Land Transfer Tax. You decide to list for $225,000 in order to get your increase you need.

This situation happens over and over in city after city. As people sell homes with agents the market increases on an intangible, unsubstantiated, overblown cost associated with the sale. Anytime the market is falsely increased it will correct. Ask anyone that had Nortel stocks in the last 15 years.

I came across this video and could not ignore it's strong message.



Mind numbing bliss is the stink coming from those popping bubbles.

M