What about real estate?

We get many questions and rather than respond to each one individually, we will select the most popular or interesting questions and share the answers with all readers. Today’s question is on real estate.

Q. Given all the talk of recessions and the debt crisis that you are forecasting, what will be the impact on real estate?

A. With real estate it really depends on what country/region that you are looking at. Global investors always look for safe places to park their capital and real estate is a popular choice. We live in the Vancouver area which became a huge destination for capital escaping out of Asia and Europe. When the provincial and local governments tried to discourage these buyers via foreign and vacancy taxes, all of a sudden Seattle’s real estate market became a new destination.

We are now seeing the London market drop dramatically due to heavy taxes and Brexit fears. In the US, we are seeing an exodus of people leaving heavily taxed states such as New York, New Jersey, California, and Illinois, and migrating to states with no or low taxes, such as Florida, Texas, and Arizona. As the crisis in municipal and state funding of pension plans intensifies, we will see these governments dramatically raise property taxes, which will ultimately kill the real estate markets in those regions. There will always be much sought after places within each region but generally we are seeing those who can afford to pack up and leave, move to more tax friendly destinations.

What will finally cause the top in real estate will be interest rates. As confidence in government declines, investors will be more reluctant to buy long-term bonds, which will ultimately make it more difficult to find long-term mortgages. This could actually result in 30-year fixed rates mortgages ceasing to exist.

Stay tuned!