by Robert Howell
I have been involved in the real estate industry for almost 45 years as an agent and later working for an investor. I have seen the ups and downs. The one thing I have noticed is that although the real estate market tends to be cyclical, it is also affected by government decisions and outside economic factors.
People have asked when is a good time to invest in real estate. The answer is simple. If you treat it as a long-term investment, now is always a good time to invest. If you are trying to play the market and think you are smarter than people with decades of experience, you are better off buying a lottery ticket.
I started in the real estate market as an agent in 1981. In 1982, interest rates soared to all-time highs with mortgage rates eventually reaching 24%—loan shark territory. Of course, the market crashed, and prices cratered.
I was working later in the investment market when the government brought in a plan to invigorate the market: capital gains exemptions on the first $500,000 profit (Canada). It spurred the market, and prices soared. Then the same government discovered that its deficit was soaring, so they cut the capital gains exemption in half the next year and eliminated it the following year. The result was a glut of apartment buildings suddenly on the market. More poor economic news spiked apartment vacancies, and investors were stuck with properties they could no longer cover by the rents they were collecting, losing their buildings to the banks. These buildings were then sold at cut-rate prices. It took years for the markets to recover.
Then came 2008 and the United States subprime mortgage crisis. House prices peaked in mid-2006. Lenders were giving mortgages on overvalued properties to anyone who could breathe by offering short-term ultra-low interest rates. When the new rates kicked in the following year and people could no longer afford them, they willingly gave the keys back to the lenders. Now these lenders were stuck with repossessed properties they couldn’t sell at even fifty percent of the loan amount. It was years later before a recovery began, and again it was government intervention that changed the market.
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