But: In the newest issue of Toronto Life, there's an article by Rachel Giese that convinces me that we're fucking doomed. Not because of any pessimism on the writer's part, but because it reads exactly like something written in SoCal about three years ago. We even get this choice bit:
A more likely scenario is that the housing market will plateau.Right, a "soft landing". We've, uh, heard this before, and recently. While Giese is quick enough to realize that this will hurt people who are borrowing against their home's equity, she doesn't seem to connect the dots with what has just happened in the US. First, the most marginal cases are hurt, and they sell their houses below-market to get their asses out of the sling as quick as possible. This is the start of the snowball -- as the price of homes stops increasing as quickly, the market reverses direction. People who have homes and were thinking about selling, start doing so in greater numbers to get out at the top of the market. This puts a glut of houses on the market, and presto. Dean Baker explained this very basic reality about five and a half years ago (PDF), and was warning people about the housing bubble ever since. This isn't, really, the kind of thing you can solve with better regulation, nor is unscrupulous realtors: the article points out in every example, the realtor recommended an "agressive" overbidding to secure the house, but neglects to mention the realtor gets a percentage of the sale -- the bigger the final sale price, the more the realtor makes. Kind of an obvious point here: the people who are the key players in a pretty opaque market have a direct financial interest in driving prices ever-higher. If you're thinking auditing firms, circa Enron, 2001...
The other problem with the article is that it focuses on people buying houses, when the real bubble in Toronto, the one that has the potential to pop in a really nasty way, is condos. Eventually, people will stop paying semi-detached prices for a two-bedroom shoebox. (Not that I oppose shoeboxery, I intend to be a big fan of condo living some time in the future...)
The Toronto Life article is not online, sadly, but I'd recommend picking it up and glancing at the article, which is actually very good on its own merits -- pointing out the growing class of house-rich, money-poor yuppies in Toronto. Which are, of course, exactly TL's prized demographic. Sympathetic or no, Gliese sums up their predicament nicely. Also, she gets major points for pointing out that no, it does not always and everywhere make sense to own vs. renting. In fact, if you click on the Baker PDF link above, you'll see that for the entirety of the post-war period, it's been cheaper to rent than to own.