The real estate bust has "officially" arrived for Canadians. The Canadian Real Estate Association (CREA) has finally acknowledged that the trickle down effect from the United States has arrived. It is the first crack in the wall of denial and bluster thrown up by Canuck realtors since September last year. There will be more.
What should the Canadian investor do? We haven't hit the skids quite yet, nationally, but there are plenty of signs out there - literally and figuratively. Investors need to be more alert to additional warning signals in their markets. Here we list 4 common signals that the investor needs to look for.

Sign One - more signs. More "for rent", "for sale", and "will work for food" signs should attract the investors' attention. This indicates a shift taking place in hot markets turning south. Often, especially in previously hot markets, this represents people trying to cash in on some equity. This is really noticeable in newer developments (under 5 years) where price growth has been insane. More signs mean more supply. This is very important.

{sidebar id=1} Sign Two - increased supply that sets new "normals". Some markets have gone from low supply numbers (3,000 units) to high numbers (12,000) in a very short time. Despite much bluster, these high numbers are establishing a new "normal" level. While there has been much denial regarding the effect on prices and the ability to sell, we know different. Realtors in the Calgary area (big value increase in recent years due to strong demand and limited supply) have slowly begun to admit to double-digit percentage drops in selling prices. The new supply levels, which are sustained, indicated property values will come down. The housing for sale or rent in Calgary has been at very high levels since August. The US market crunched in mid-July. That is no coincidence.

Sign Three - new construction slowed or stopped. This is a key signal that many seem not to pick up on right away. A good example is the delay in a development permit for a new subdivision. This has happened in several areas of Alberta's hot market. Two years ago the papers would have been filled with indignant developers claiming jobs are being lost, more homeless on the street, and fewer chickens in their pots. Not now. Home builders are guaranteeing to have homes built in half the time that it took last year. New developments are getting completed ahead of schedule. This indicates problems with demand - or an oversupply. Probably both. In hot markets this is a correction.

Sign Four - increased tenant turnover. This really hits the landlord investor, but investors with income from notes and lease options should pay attention. Increased turnover signals shifts in the economy, available housing supply, or changes in prevailing rates (down). Could be all three - which it certainly is in the auto towns of Ontario. Commercial properties should count in this calculation, even if you are not a commercial investor. Business fortunes and failures show the longer trend in the local economy. The investor needs to pay attention to this.

If the Canadian investor sees these signs, what is he or she to do? Look at their exposure and how their investments are going to be impacted by a drop in property values, falling rents, rising vacancies, or general economic downturn. If the investor is in a vulnerable appreciation play, it is imperative that an exit strategy be executed. If the rents barely pay for the properties, then finding additional rents or building tenant loyalty need to be examined. Of course, each investor is in a different position, and will feel the impact differently. But as life is full of surprises, ignoring the signs could be very damaging.

Now that our bubble has burst, and rather dramatically in some areas, Canadian real estate investors need to take stock of their holdings and their expectations. Wishful thinking that we will somehow escape the turmoil in the United States is a bit naive. Auto workers know that. So do the workers from the Croc factory that's closing its doors.

As investors, our ears need to be to the ground to be aware of the stampede coming down the valley. Preparation and planning are necessary to avoid getting run over by the obvious.

About the Author
Mike Fears is an executive with TAT Investments International - which is involved in real estate, stock, and internet investing. Mike Fears mentors and coaches entrepreneurs, including one-on-one and through lectures. Based in Calgary, Alberta, Canada, Mike Fears has operations in Florida, Nevada, Texas, Costa Rica, and Russia. Mike Fears can be reached at author@tatinvestments.com or www.tatinvestments.com.