Ben Rabidoux, of the Economic Analyst, has a fine post headlined at zerohedge.com 24 Jun 2011, ‘What’s Really Driving House Prices In Canada? The Must-See Graph Of The Day…’.
Here’s ‘Diogenes’ in the comments section, 24 Jun 2011 19:55 and 19:45–
“I don’t know why house prices are still climbing. I figured the US crisis would spill over into Canada so I sold all my rental properties between 2008 and 2010. I was wrong, now I am buying other properties at higher prices. Right now I am betting about 85% of my life’s savings in small town Canadian real estate, the balance being in physical gold and silver. I am buying nice houses in quiet small Canadian towns for the rental income. If they go up that’s nice but I can hold on quite comfortably and live on the rental income. If they come out with some kind of draconian rent control due to runaway inflation I can sell them at a profit. So no, I am not afraid of a Canadian real estate collapse. I expect prices to continue rising as long as governments pursue inflationary policies. If they ever decide to go for the balanced budget, higher taxes and higher interest rate policies I expect the market to dip then stay flat for a while. That is what typically happens in Canada. Yes we have boom and bust cycles but not to the extent of the US.
Examples of my purchases, in small towns in the neighborhood of Belleville Ontario.
Latest purchases, a 1400 sq ft bungalow on 2 1/2 acre lot on the Moira River, 265ft water frontage, $85,000 plus another $50,000 in fix up costs.
2500 sq ft solid brick Victorian 2 story 4 bed 2 bath house in a small town, $124,000.
1000 sq ft raised bungalow, circa 1987, 3 bed one bath, quiet neighborhood $140,000
All bought since last fall, rents $1000 to $1250 per month.
I leave it to you if these are “bubble” prices.”
As we all know, these returns are far, far better than any in Vancouver.
The prices seem very reasonable to us, partly because prices here in Vancouver have become so very unreasonable.
In the coming crash, some small towns in parts of Canada may suffer less of a price drop than in the bubble centres, but we’d still expect RE to underperform across the country. And are those rents possibly vulnerable to economic climate?
It’d be interesting to know if ‘Diogenes’ is using any leverage, in which case, considerably more than 100% of their net-worth is in RE. – vreaa