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September 08, 2006

Waiting for the bubble to burst

Housingbubble2_1 Housing bubble in Edmonton…hmmm…A stock market analyst's dream…Then maybe people will swing their money back to the stock market to over pay on price to earnings ratios on stocks and mutual funds, that they as investors have no control over. Is there a bubble here in the city of champions? Prices are certainly going up, but in my opinion the term bubble is incorrect - it suggests that if it pops everything is wiped out. Is that what the media is sensationalizing? Yes. It sells papers and causes fear; who’s going to argue when all the media outlets are spitting out the same words? Quite frankly there is some danger in the market. The more accurate description is that the market is approaching a precipice. Its meteoric rise will not continue forever. Those brainchild’s at TD bubble watch have at least got that right. Good for you boys and girls. I can’t imagine what gum they chew at work as they write these stories. Is it Hubba Bubba or Bubbalicious?

The truth is a peak is approaching. In some cases that peak will not occur simultaneously, but condos, homes and different price ranges will peak and recess at different times. So much for “there goes the bubble”, unless of course past recessions and crashes are no longer indicators and everything will pop and then swoosh.

So what happens after the peak? Will prices in the Edmonton area flatten out? Will the bottom fall out as it did after the introduction of the National Energy Program? Will there be massive, I mean massive layoffs as the inventory of labour is currently very short? Will there be wide spread foreclosures and bankruptcies proceeded by Shocking interest rate hikes to flat line out of control inflation? Will Alberta survive? Will Edmonton survive? Will we have to sell massive tracks of land to China for bare bones prices? Will we be able to avoid burning our furniture in make shift fire pits in our living rooms?

Sorry for the extensive sarcasm. Currently in the Edmonton market there is a need to proceed with fundamental caution. Most buyers should be aware that there could be an eventual pull back on pricing. Will this pull back hit bottom, and if it does it will land with the media’s creditability and will the media collectively pat themselves on the back and say “see we told you so”? Will prices go back to there “sane” 2004 levels? Not likely in my opinion, but I’ve been wrong before. One thing is for certain: over the long haul Real Estate has always been a good investment. There are definitely reasons for optimism, and there are signs of caution, until then don’t believe half of what you read including our stuff.

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