[throwaway1979]

As a datapoint .. we're from the Toronto area ... we looked for renting a home in a remote community - a few hours away from Toronto. I am shocked to see how urban prices have creeped into the area. 450K for a nice house in the boonies? Also, rents are through the roof. All the landlords we spoke to who weren't professionals seemed to have 1 main home in the community and two or three others that they bought and renovated.

As someone who doesn't own land and was hoping to do so later in my career, I am scared. I knew I was priced out of major cities where the good jobs are (e.g. for my spouse). Since I can theoretically work remote for the most part, I thought .. it'll be okay. Now, I am getting a feeling of dread that I have been priced out of a huge chunk of the market.

I am beginning to think that a rise in interest rates won't dampen property prices where there has been significant foreign investment. It'll hurt the mom and pop landlords but not the foreigners putting up all cash.

Here is the frustrating part .. this chain of logic says I need to buy something right now ... buy into the bubble! (Housing in Toronto and Vancouver is widely considered to be a bubble). I've essentially held out for 7 years and it is getting to the breaking point. If I had bought into the same (but at that time smaller) bubble, my "investment" would have doubled.

Am I screwed?

[FiatLuxDave]

I was in a similar situation a few years ago, before the 2008 housing bubble crash. I grew up in a beachside Florida town, where the prices had literally never gone down since the founding of the town. I was worried that I would never be able to buy here. I was really worried that what looked like a bubble in 2003-2007 was going to turn out to be permanent, and lock me out of owning in my hometown forever. I felt stupid for not buying into the rapidly rising prices as early as possible. But I worried and waited, and rented and saved.

It turned out I was correct to do so. The housing market crashed and I was able to pick up a large house in a great neighborhood for $200k. The two things that really convinced me that the real estate bubble was indeed a bubble were these: a) I had friends who were able to make a better living flipping houses than I did as an industrial physicist, and b) the rental rates were not growing nearly as fast as the housing prices were, which indicated that all those houses bought as investments were unlikely to pan-out as good investments long-term.

I don't know much about the Toronto market. But I'd recommend keeping an eye on the difference between growth in rental prices and growth in property prices. They are rarely the same. Yes, foreigners are willing to take some losses to keep their money safely out of their home country, so the situation isn't the same as in 2007. However, the purpose of their investment is to keep their money safe, and so like all bubbles, when the prices start to fall there will be a rush to another safer asset class.

So, you probably aren't screwed long term, just short term. If you see the bubble, so does (almost) everyone else. You can buy and try to time the market if you want risky returns. Or you can rent a house for now and then buy a nicer one after the crash if you want to just get a good deal on housing for your money.

[GFischer]

This article purports to have some tools to predict the bubble:

http://www.dce.harvard.edu/professional/blog/how-use-real-es...

[GFischer]

The same is happening in many other countries (housing in my country is similarly overpriced related to income), and I have the same problem - I'm renting, and housing is getting more expensive every year (as well as rent).

I believe prices are cyclical and we should expect a "down" period, but when it will happen is always the question :) .

Most economists believe cycles are almost inevitable, but "On average, upturns last more than downturns" and "the amplitude of upturns is also larger"

Some googling found for example this paper, which includes Canada:

http://www.imf.org/external/pubs/ft/wp/2011/wp11231.pdf

It warns of "slow nominal price adjustment" during downturns, which is my experience as well (prices trail reality by 1-2 years during a downturn).

So, you have to understand your reality, if you need a house in the next few years, they're not going to get any cheaper. If, OTOH, you can wait out the cycle and save money, you can probably make a good deal later. That is, unfortunately, not a choice for most of us.