Has the Bubble Burst?

Commentary by Darryl Mitchell, Managing Broker, RE/MAX Professionals Inc. Brokerage

Interesting how, when the tide turns, everyone wants to get off of the boat. Panic sets in. Doubts begin to cloud an otherwise clear picture.
That is just what has been happening this summer as the press, both big and small have been shouting that the great real estate bubble has burst. Print, radio and television, internet and word of mouth, everyone had the impression that the market was collapsing victim of too many high priced sales in an overheated economy. Interesting how even some real estate franchise leaders felt the same. Look out, the sky is falling!
Funny, isn't it how a few changes such as government intervention in the tax system and interest rates, G20 summits, overly hot temperatures and simply fatigue can stall a market that appeared healthy and strong.
But what happens when the smoke clears? Is there a collapse, a steadying or reigniting of the market we all knew was too strong?
If we look at simple economics theory of supply and demand we may be able to predict the results. When I was taught supply and demand theory I was told that when the demand for a commodity drops, sales of that commodity will also drop and price will follow quickly behind. This summer we did see the drop in sales to the tune of over 20% in most markets. We did not see, with this great drop in volume, an equally strong drop in price. In fact, we saw prices for existing inventory go up! What is that all about?
Prices go up and sales volume go down? Well that is a sign of a valuable commodity that is in short supply. When the volume of a valued commodity becomes short in supply, the many buyers are willing to pay more for it and up goes the price!
Simple economics. Too simple perhaps for a market that is so diverse and complicated.
It does explain the phenomenon we are now experiencing. Ample amounts of mortgage availability, short supply due to fewer sellers willing and able to sell, and lots of willing buyers. Remember we have two governments, both the Provincial Liberals and Federal Conservatives chomping at the bit for an election within the next year. They will certainly continue to watch as the stimulus money begins to impact our economy more fully.
Perhaps we even have another round of pent up demand as buyers just were not in the market this summer, afraid of the so called overheated market, sitting on their down payments, waiting for a price collapse. They were listening all to closely as the popular press and the government and bank experts promoted a market in turmoil.
Well, fortunately no collapse in price has or will come. Not unless we hit another iceberg at least. There is just too much demand, too many willing and able buyers, too much available credit, and two governments that are unwilling to rock the boat. So jump out of the boat since not jumping may mean not participating in the healthiest real estate market we have known in years.