Usually, when people ask us this question the answer is easy.
Find a good community.
Determine if the rent (revenue) will be greater than your expenses.
If it is, you're good to go.
Buy it, manage it and hang on for the ride.
But yesterday someone screamed out, "No No, I'm not asking you about investment property - I'm asking you about my own home ... so, is it a good time to buy right now?"
We prefer to avoid such conversations.
We understand the interest in it though...
Buying your own home with the hopes of prices going up after you buy is everyone's dream of course.
And it's a much more difficult conversation than discussing income property.
There are countless Canadian blogs and sites that have been calling for the demise of Canadian real estate prices for years.
Entire teams of economists try and tackle this type of thing.
A friend of ours has been calling for a real estate collapse since 1998.
And we're sure, one day, he'll be proven right 🙂
Because this seems like such a hot topic will tread in these dangerous waters with a few thoughts...
First, some background and context.
The world is a messed up place right now.
We're a global economy and we're a global economy that's pretty messed up.
We'll attempt to summarize it like this:
1. Countries all around the world have spent like drunken sailors for over a decade.
2. The governments don't have the backbone or political will to cut spending for fear of losing their next election. So they blame "the rich", "tax programs" and talk about setting up "committees" and having more "financial regulations". All of which gets them nowhere fast.
3. The bottom line is this: the current debt-based money system can't allow debts to be paid off because that would shrink the economy, not grow it.
4. The only options out of the current mess are:
a) Pay off debts (difficult since economies are not growing fast enough).
b) Default (that would be a major disaster for the powers at large - only Iceland has had the guts to do it).
c) Inflate out of the problem (with the use of low-interest rates and easy money).
5. Central Banks around the world are going with Option c). Only the Germans seem to be fighting this approach. All the other big economies are "all in" on Option c).
6. This means the value of the dollars around the world will weaken. The U.S. Senate is still pretty clueless on this, check this out:
Sounds like one Senator in the U.S. Senate is starting to get scared of the direction they're headed in.
But a single voice in the government won't stop the current central bank policies.
We're not even sure the Senators he was speaking to understand what he was talking about.
OK, that's the background of the situation in a generalized nutshell.
Although "threats" of higher interest rates are making headlines in Canada ... are they just that? Empty threats?
Higher rates mean higher debt payments for the U.S.
Higher rates, for Canada, mean crushing our export-based economy.
Do governments, in fact, want to weaken their currencies to promote artificial economic growth?
Are they doing this so that their debts as a percentage of inflated GDP's look smaller?
Yeah, that's what it looks like.
Let's think about this for a moment.
If you can sell yourself on the fact that governments around the world are agreeing to pile on more debt and print more money as the solution to their economic woes ...
Can we use the same strategies that central banks are using to benefit ourselves?
If they're going to try - with all their might - to inflate their debt away can we pick up more debt right now and ride the inflation wave?
And does this mean that if you buy a house today it will be even a higher price 5 years from now?
With obvious ups and downs along the way - but overall, will easy money and extended low rates continue to drive property prices up?
Will you be paying back your new home mortgage with "cheaper dollars" each year?
These are all dangerous thoughts.
But these are the thoughts that central bankers want you to have.
They want you to borrow and spend.
When done for investment property we feel pretty good about it all.
But could all of this mean that prices for your own family home may push up higher and higher?
When you read between the lines and stare through their empty threats isn't that the plan?
We don't dare answer these questions for you.
These games that central banks are playing with interest rates can explode in their faces rather quickly.
Playing with prices like this is like juggling dynamite.
We're much more comfortable discussing investment property.
Revenue > Expenses = Good.
Nice and simple.
And to be fair we haven't discussed fundamentals such as employment and population growth and their effects on housing.
Regardless, this stuff is worth thinking about. And definitely worth time investigating.
And look, if you do buy yourself a brand new home with hopes of prices increasing year after year - we'll definitely invite ourselves over to your backyard BBQ housewarming party.
Just let us know ... should we bring red wine or white?
Until next time ... Your Life! Your Terms!
Hey guys awesome article, I love how you always incorporate the money system and other macroeconomic factors when discussing things. It does matter and it does have a role in the everyday things we do.
This is interesting. Actually, I am curious about the future development in the US. I think the housing bubble in Canada is already reality, though it does not mean it is not good time to buy real estate there. The resilience of the Canadian housing market is obviously a great surprise as the prices continue to reach record levels. However, I feel it's better to be more careful as there are already signs of housing bubble. It's also beneficial to reflect on the situation in US, there is a lot to learn.