What Goes Up Will Come Down in Real Estate

No matter where you live, a lot of you probably think that the cost of homes will continue to rise. In New York, a bachelor apartment in Manhattan can run you over a million dollars!

 Housing prices have been soaring around the world; recent years have seen prices jump 154% in Britain, 73% in the United States, and 47% in Canada since 1997.

 “We are looking at the biggest escalation of prices that we have seen in history,” Mike Donia, a Toronto realtor who specializes in upscale homes, said. “But although we groan about prices here at home, what’s happening in Toronto pales in comparison when you look at other places in the world.”

 But, what goes up must come down.

 We’re already seeing a decline in price acceleration in areas of Britain; homes that appreciated 19% in 12 months a couple of years ago have increased in price by only two percent this year. Prices of homes in the U.S. fell by more than seven percent in July of this year.

 By keeping a watchful eye on different areas of the world, one can amass what will happen in their own area.

 “If prices can fall in Sydney or in London, then prices can fall in Toronto too,” Donia said. “Nothing goes up forever.”

 Toronto real estate sales increased by 18% in August, as compared to the month of July — though much of the increase has been attributed to first time homebuyers. On the other hand, in the United Kingdom, the price of a home is expected to drop five percent over the next two years.

 “The prices are just out of whack,” Don Campbell, author of Real Estate Investing in Canada, said. “And when the fundamentals are out of whack, it’s time to sell.”

 He also adds, “The prices are so high now that it takes an inordinate amount of income to buy a home, so no one has money left over for anything else. That’s a real danger sign.”

 There are fewer first-time homebuyers in both Britain and Australia, because the price of a home is so high few can afford to own. If the price continues to rise in Canada and the U.S., there could be a drop in sales in these countries as well — especially as interest rates continue to rise.

 Stay tuned, because the drop in real estate prices we’re seeing in some parts is only a drop in the bucket of what lies ahead for the economy.