“I have a story about RE meltdown and the downturn of the wealth effect. My good friends, a couple who were my neighbours in the neighbourhood I sold out of in 2008, are experiencing the shift. They are in their early 60’s and might be considered geriatric by some. After I sold and moved to a nearby town here in the BC interior, they decided they would build a bigger and better home on a lot in the country. They bought the lot, built a rather deluxe workshop and went over the house plans with the builder. Meanwhile, RE prices in the old neighbourhood started to decline, but they decided to hold off on selling their home to wait for the prices to go back up “in the spring, like they always do.” Hasn’t happened, prices are down almost a third of what they were in 2008 in that little neighbourhood enclave. They cancelled with the builder and lost a sizable chunk of their deposit. The lot with the workshop is for sale and sitting on MLS. They won’t get the price they need to break even, and they pretty much know this but are hoping for a greater fool. Meanwhile, they are paying a mortgage for this lot, and really, this is becoming a struggle as they both work in their home-based business, and business is slow.
Back in 2008, the wealth effect from inflated RE values was running high. The party is definitely over in my old neighbourhood. On this blog [greaterfool.ca] we often discuss Vancouver, Calgary, and Toronto..the fact is RE is local and if you look to some of the smaller towns here in BC anyway, you’ll see advance evidence of the new reality. Since 2008, I’ve been renting in a new town with a lake and an artsy reputation…it’s different here according to the locals. Ummm…not likely .
As for my geriatric friends, they have only known RE appreciation with corrections from time to time. I’m pretty worried about them, and they’re worried too. They say that now, they would not consider themselves middle-class anymore…that somewhere along the way, that’s been lost.”