House Price Surge – But why?

Posted on Posted in Brampton News, Burlington, Caledon, Liberty Village, Uncategorized

Since 2005, the price of homes all around the world have significantly increased, and to the present date, show no signs of stopping. An article published in the “The Economist” titled “In come the waves”, discusses the belief in the rise of housing prices is a result of the stock market plunge in 2000. It is believed that after this “burst”, as described in the article, of the stock market, citizens began looking for alternative ways to invest their money. With low interest rates offered on mortgage loans, it became more appealing for individuals to invest in a asset that they could potentially make a substantial amount with.

For reasons undisclosed within the article, the property pricing surge did not remain consistent throughout Europe and Austrailia, decreasing by as low as 16% in some areas of Austrailia in 2003. Some of the issues introduced as potential causes of home pricing decrease, is the inconsistency between home price to rent price ratio. The reason for the inconsistency is the due to the homeowners obligation to be affordable to potential renters. With the inflation in housing prices, it is nearly impossible for citizens with average wages to afford the standard mortgage costs per month, which in turn requires landlords to decrease rental costs in order to remain competitive in the rental market.

Unfortunately, the inevitable “what goes up, must come down” philosophy will eventually negatively affect these property owners, with no way of knowing if/when the market will rise again. This proposes issues for homeowners who rent their properties to a number of tenants, as well as those individuals who are know as “Flippers”. A “flipper” is one who purchases a property for the sole purpose of remodelling or fixing it up, and then will put it back on the market in hopes of making a fairly substantial profit. The issue with this is if the market declines during the flipping process, which can often take a lengthy amount of time, making it difficult to make a profit once you calculate what you have invested in both the home and renovations.

The real estate market manages to remain such a demanding and fearful market due to it’s ability to not be reliant on economic trends. Regardless of job loss or a spike in interest rates, housing prices can and will remain over-valued as they know citizens will continue to buy. This has been made evident after decades of rising and falling housing prices all over North America, Europe and Australia.

For more information on market trends and pricing statistics, check out the “In Come the Waves” article, initially published in “The Economist” magazine

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