Will real estate prices go up or down gas definition wikipedia


Despite my fondness for home ownership and investing in real estate (17 properties in 20 years), I’ve never been able to predict real estate prices. Here’s an interesting article I wrote exactly 4 years ago in 2007 on booming real estate prices then). Predicting real estate prices is like predicting stock market prices . . . you can’t do it! Real estate has become a commodity

If you go back 20 or 30 years, real estate was less of a commodity and more of a lifestyle purchase. In other words most people bought homes but they just bought 1 house, not 2 or 3. They lived in that house for a long time to build equity mostly by paying off their mortgages. The value of their property would appreciate but slow and steady more like a GIC. Those that bought second properties rented them out and held them long term so that the rental income would pay down the mortgage and build the equity.

Today, real estate has become more speculative than ever because the product has become a shorter term commodity. Think about the last real estate boom and how many people you know that bought second properties with the intent of flipping? How many people were building new houses while keeping their old ones thinking it was crazy not to hold two appreciating properties at the same time. How many people thought making money with real estate was easy? Price changes on supply and demand

The price of any commodity is based on supply and demand. In the past demand was based on simple basics . . . population growth which was slow and steady. Now demand is affected by so much more, including speculation. Speculation comes from more people buying and selling because they are speculating on the short term price of real estate. Speculation is more common because of the internet and how quickly information travels. When some expert says real estate prices are going to crash, the media picks that message up and spreads it very quickly. All this speculation has enhanced volatility and also creates more unpredictability. The fear of rising interest rates

Many people have justified and rushed the purchase of homes because of the fear of rising interest rates which will make housing less affordable. This fear of rising interested rates is not new. We’ve been hearing about this fear for the last 10 years (Here’s another article I wrote in 2004 on predicting interest rates from what I called 50 year lows). Interest rates and housing prices are two things we cannot control nor predict. Real estate purchasers need to focus on more tangible and concrete factors when buying. They need to make sure they are buying homes they can afford today and if interest rates rise in the future? They need to make sure they are not extending their financial abilities to service a mortgage and all the other expenses that go along with home ownership.

If you are buying real estate as a place to live, there’s more to picking the place than just the speculation of pricing in the short term. Try not to worry about housing prices and whether they will go up or down over the next year. Focus on getting good value and finding the right home you can live in for a while.

If you are buying real estate as a long term investment, then really look at the rental income that you can get and see if it can cover your expenses and give you a margin of profit. If not, then they only way you can make money is on the appreciation in price. Remember in the short term, that is speculative. Over the long term, prices should go up.

If you are buying second property for recreation, like a cabin or a vacation property in Arizona, just remember it to know your primary reasons for buying the property. Every decision has two key aspects: logical and emotional. The problem is it is hard to put a dollar value on the emotional issues.

Be careful what you hear and all the predictions about where real estate prices are going to go. The last realtor I talked to thought prices were going up and I better get in to take advantage of it. In fact, every realtor I have every talked to thought the same. I wonder why that is? Take your time and make good decisions based on sound financial analysis. Long term it will work out. Short term, it could go many different ways you and you can’t predict it or control it! Good luck!

When it comes to interest rates I have to disagree with you that they are not predictable. I strongly believe that they are very predictable. Like any other commodity we look to supply and demand to determine what might happen to the price. Interest rates simple represent the ‘price’ of borrowing money. So the next question to ask is over the next year to 10 years are people going to borrow more or less than they are today?

I have long been a fan of demographics and if we look at what interest rates have done in the last 40 years there is a clear correlation to the rise and fall of rates with the baby boomers. As we welcomed in the 70’s boomers started buying houses and consumer goods and cars and borrowing a ton of money to do it. over the years they have worked to pay down that debt – borrowing less and saving more (ie less demand more supply) so interest rates have steadily declined for the last 25 years. In the next decade the boomers in Canada will inherit more than $13 trillion dollars some of which will be passed to their children reducing the demand for borrowing once again. This compounded by a weaker global economy for the next decade will likely result in stable low interest rates on debt with the possibility of a slight rise (doubling). But even if the interest rates double from where we are today we will be at the same level we were at six years ago when people thought rates were at the bottom!