When indiscriminate buyers become indiscriminate sellers

This CBC news article is about the negative cash flows eating away at many condo investors today, but its also a perfect summary of the past 5 years of Central Bank enticed speculation that has swept through global asset markets:

“When times are booming [debt/leverage levels increasing], many people begin to decrease the amount of due diligence and planning they undertake before jumping into an investment or speculative purchase… All it takes is a downturn in the economy like we’re getting now…and all of a sudden instead of a cash-flow positive investment, you’ve got a millstone around your neck basically.”

Few people can afford to hold for long, assets with negative carrying costs, or assets that fall in capital value much more than any income received.  This is a universal timeless truth the world over.  It is also why indiscriminate buyers become indiscriminate sellers before each investment cycle completes, every time.  See:  Calgary’s condo surplus during slump tough on investment property owners.


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