Global Top in Real Estate Markets

Many people who invest in real estates including majority of the people in the industry think that they can see the trend. In other words, they think they know where the price for certain region of properties will go in coming 6 to 9 months. In reality, research shows such belief is not true at all. At best, investors in real estates are just lemmings surviving in the macro trend of the global economy.

I am talking about this because a conversation happened among several friends who are thinking of buying houses. The reason for doing so is very interesting – they will not be able to afford it if the realty market continue to rise at the current rate. Interestingly, they are all thinking about the same thing with the same twisted logic in their minds.

For seasoned traders, they would be thinking about the same thing like me – isn’t this exactly how emotional traders rushing in to buy the top and sell the bottom? Their minds are thinking of the potential that they may not be able to participate in the move if they do not act immediately. What they failed to pay attention to is the fact that the trend may not last.

The real estate market I am talking about is Toronto, Canada. The conversation is interesting enough that it drove me to make several calls and send a bunch of emails to see if similar thing is happening in other major cities. Well, it turns out to be true in quite a number of major cities all over the world. In fact, it has been the driving force on higher end real estates for quite some time already.

In general, bull run in realty markets do not last for more than 7 to 10 years. Not every bull run in real estate ends in a crash like what happened to Canada back in year 1989 or what happened globally back in year 2000. There are times for which realty markets can simply go sideway to absorb the excess due to low demand. The problem, however, is that for realty markets to stay strong, we need an expanding global economy. Right now, the risk of global economic slow down is too high to be optimistic about the future.

To make the situation worse, governments will not be able to collect enough tax from corporate profits and personal income as both will suffer significant setback during bad times. The only thing the governments around the world can turn to is to tax those people who are trapped. What is better than realty tax and related special fees on the real estate within a country? As no one can move the property somewhere else, there is no way to avoid paying up the taxes. Tax hikes will put price pressure on the realty market as investors will look for alternatives instead.

Robert Shiller warned for months that unlike the year 1929, everything is overvalued since the beginning of this year. Everything means government bonds, real estate and lately the stock markets are all in overvalue territory. Since Dr. Shiller is usually early with his warning like what he did in pointing out the dot com era was a bubble, it means that we are stepping into the real dangerous time period for which if global economic down turn starts, all these asset classes will suffer.

As a day trader, I couldn’t care less about the real estate markets. Using data provided by various real estate associations here, I would say that the realty market of Toronto dropping only 30% across the board should be considered lucky over a 7 to 15 years slump. Since I am no expert in realty markets, I am making this projection purely based on STOPD. Let’s see if my theory can perform on realty markets like what it does on financial markets.

Share