Like all natural phenomena, real estate prices can rise or fall flat at any time. Though a drop in prices may be good for would-be investors or house buyers, it would play hell on your real estate investment portfolio, if you had one. Every coin has two sides. What may be best for short sellers may be bad for home investors. When the prices fall, the investments already made by you will take a hit. The economy as a whole will suffer with prices of consumer as well as luxury goods taking a significant fall. The Government will increase taxes because it will have to compensate the fall in real estate revenue
The whirlpool effect of declining real estate prices
When real estate prices face a meltdown, and you are even in any minuscule way connected with real estate ventures; then there is a direct increase in business. If you are a real estate agent or lawyer, provider of insurance, mortgage broker, real estate broker, or other real estate specializations, then your business will experience a down turn. Not only will the jobs directly connected with real estate take a blow, but even ancillary industries will take a severe blow. Businesses like restaurants, hotels, tourism, manufacturers of high end luxury goods like watches, cars, and many more, will be severely affected by a fall in real estate prices.
Where do the real estate tycoons go?
Quo Vadis Canadian real estate barons? Today, Canadian real estate borrowings are approximately $1.5 trillion. The real estate barons do not pay heed to the prices but spend in a lavish manner hoping that the prices will one day rise. Once the real estate prices decline, the spending will also decline thus plunging the whole of Canadian economy into doom. You may think that by selling your house you may be saved. Yes, this action may be your savior. But the sale has to happen pronto. With the decline in prices, house buyers will be hoping for a further decline and hence, hesitate to make purchases now. Thus, the sale of your house may take even a year, by which time the current mortgage rates in BC will eat into your savings.
Panacea for a doomsday scenario
It would be prudent to find solutions to such a dilemma. For example, if you have more than fifty per cent of your fortune invested in real estate, it would be advisable to divest some or most of it to lower exposure to such a dilemma. If your job is closely related to real estate then it is advisable to dissociate yourself from the present situation and seek some other legal source of earnings. You need to scrutinize your investment portfolio and if you are over exposed in real estate or other related jobs, then, it is best for you to sell off some of these investments are have a more diverse portfolio.
It is advisable to be proactive rather than be a stooge
The ultimate element is to evaluate your exposure to debt. When the going gets tough, the tough get going and during tough times the king is cash. Hard cash is the joker in the pack and debt is the Trojan horse. It is anybody’s guess the way the Canadian economy is going to go. What is apparent is that during the past two decades and more, the real estate has seen benevolent days. But like all trends, real estate has also a life cycle and it is quite some time since real estate has taken a hit. Such a time is due soon and the question is only when. Don’t act like a stooge but become proactive now!