Over at the CBC Don Pittis notes that what goes up can also go down.
Specifically, he notes that in the oil market there were a number of ‘experts’ with access to detailed data and analysis, yet seemed to be as surprised as anyone at the drop in oil prices.
Canadas housing market is of course a completely different beast, and we don’t really lack for ‘experts’ noting that prices are a bit out of sync with reality. When the Finance Minister speaks up and the Bank of Canada estimates that real estate is as much as 30% overpriced nationwide that’s not exactly ‘without warning’.
Pittis notes another key difference between oil and housing is of course the liquidity of the market:
This is one example of how housing is different from oil. While oil trades on big, well-informed central trading desks by large corporations, housing is a market made of individual, many of whom have only bought and sold a house once in their life.
Partly because of that, housing is an illiquid market. Unlike stocks or oil, you can’t just sell a house at today’s price and get out. You have to go through the long process of finding another individual who wants to buy your exact house at a price at which you are willing to sell.
In previous housing downturns that has meant a stock of overpriced houses builds up because buyers are unwilling to pay the price sellers expect.
At that point, prices in the market are set by people who have to sell immediately and will take the price offered. Sudden divorces. A new job across the country. A death in family. People who can’t afford to keep up their payments. Overpriced properties waiting for their price actually fall in value while the seller waits.
Read the full article here.