The Four Horsemen of the Apocalypse — better known to their friends and family as Conquest, War, Famine and Death — are among the more colourful characters in the New Testament's Book of Revelations. But should they ever decide to extend their brand in these turbulent times, there's not much doubt who they should sign up as the Fifth Horseman: Bubbles.
True, the most famous Bubbles of all was a chimpanzee once owned by the late Michael Jackson. He used to tote Bubbles everywhere with him and dressed him in matching, primate-sized outfits, like the red leather jacket he wore in the Thriller video. All of which is profoundly alarming.
But the most terrifying bubbles these days are the ones that continue to rattle and roil the confidence of financial markets. Most recently, economist Nouriel Roubini (aka Dr. Doom) has been warning anyone who will listen that low interest rates and a falling U.S. dollar could puncture an asset bubble that's formed in the aftermath of the financial crisis.
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Bubbles come in many varieties (perhaps the best known one in recent memory in Canada was the high tech bubble of 2000), but they are feared to such an extent because they ravage personal capital and leave entire market sectors in rubble.
Currently, the Apocalyptic Bubble that is striking fear in Canada is of the real estate variety. There's concern in many circles that relatively high housing prices will pop mightily when the Bank of Canada moves, as it inevitably will, to increase interest rates.
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As asset bubbles go, the housing market sort are especially tricky devils because of their highly political nature. Home ownership, you see, is a very popular thing with voters. And governments, especially minority governments, like to keep voters happy. Furthermore, because of the ripple effect on confidence and spending that go with purchasing a new home, it's all the more desirable to encourage it as a form of economic stimulus.
There's not much question that the performance of the Canadian real estate market in the midst of the recession has been impressive. In August, the Canadian Real Estate Association estimated that national home sales were up 18.5 per cent year over year and prices were 11.3 per cent stronger in the same period. Hmm.
So what's been underpinning that activity and how sturdy are those underpinnings — especially in light of unemployment numbers and the apparently slow path to economic recovery?
Conquest is another horseman of the apocalypse who is generally not well known. He is thought to be a little slow and doesn't really ride very well. The other horseman usually leave him out of their fun, sometimes riding just a little too fast for Conquest to catch up and then laughing when they stop to see where he is.
For horsemen of the apocalypse they're surprisingly cruel.
NOT a well researched or thought out article at all. The fear mongering HAS to stop.
A far more alarming issue is the scenario suggested by Professors Myers and Ryu in the Journal of the American Planning Association.
Myers and Ryu have identified an "epic transition" looming in the housing market. The baby boom generation is entering retirement age and by-and-large, the baby boomers are relying on the equity in their homes to finance their retirement. The result will be a massive influx of homes on the market.
However, historically the majority of home buyers are between the ages of 28 and 35, and that generation is much less populace than the baby boom generation (about 1/4th the size) and also less financially secure.
This is going to lead to a massive supply of housing and low-to-moderate demand. That means prices will plummet and baby boomers won't have the expendable income they were anticipating.
This could have serious consequences on everything. The banking structure could collapse. Whole markets geared toward seniors could evaporate. Governments will not be able to generate adequate revenue from property taxes. Seniors won't be able to provide for themselves, and will be forced to live with their children, who are going to be unprepared and financially incapable of providing for them.
These are real issues that face the future of the real estate market. Its the dooms-day scenario city planners have been anticipating for quite some time, but the real estate industry is trying to ignore it and cash in while they can.
i suppose i could attach some merit to this article. i have been battling with something:
do i choose a 5yr variable rate or a 5yr fixed on a brand new mortgage. the average 5yr var. which happens to be the banks' prime rate is at 2.25%, and the fixed average bout what ? 4 - 5%
see id be tempted to ride with the variable, but quite possibly next year, things start to rebound and B.O.C. raises those rates. would i not have been better off planing for, or rather basing all estimates on the fixed rate ?