Van realtor posting vids from his car. Big City GTA Broker renting a giant concert hall to give his views on life. Multiple bids in the midst of recession. Economists spewing market-pumping nonsense. Reporters lapping it up.
I’d say these are signs of an impending endgame in the current bubble world of real estate. Yeah, yeah, I know it’s been mere days since we had word of sick July sales, but when salesguys starting walking like deities, check your pulse.
As for the usual sources of impartial market wisdom, picture this: The hardest-hit manufacturing city in the country, where 15% of the workforce is out of work, where front lawn ‘for sale’ signs outnumber pooch droppings, where a house can be had for less than a minivan, and mere miles away sits the sad and crumbling hulk of a once-great American city, half its population fled.
And what does a noted bank economist say about Windsor’s economy and housing market?
“We expect to a return to more normal growth for Canada’s economy of about three per cent by early next year, and Windsor’s economy will benefit from the general improvement in economic conditions,” Sal Guatieri said during a panel discussion Wednesday on the state of the area’s housing market. The buyer’s market has come to an end and the number of listings reflects a good balance between listings and demand, said Guatieri. “Following last year’s slump it looks like Canada’s housing market is on a solid rebound,” he said.
See what I mean? The scary part is, a newspaper recorded the crap down and published it.
The truth is, there’s no fix for Windsor next year. Once factories close, they take eternities to reopen.
Truth is, there’s nothing but downside risk at the moment for all those young buyers bidding to buy condos from the Van cam man or the scary Brad Lamb. Sure, these guys (and so many of their colleagues) are superb at turning human greed, envy and ambition into offers, debt and cash flow. But it often means properties are being bought with less care than goes into finding the right pair of Capri pants.
And in some markets, like Vancouver, bubblification does not begin to describe what’s going on, as what’s essentially a small regional city drifts into a price range reserved for places that actually seem to matter. While I love Van and almost all of BC, there is no better example in North America right now of what local delusion (and a dashboard cam) can do to the commodity of housing.
Of course, this will not last. The reasons for my conviction have been fully mined here. All that remains less than crystal is the timing, and the catalyst events.
Maybe it’s an economist ho. Maybe a realtor rock star.
Not quite sure who this guy is, other than an enterprising real estate agent with a dashcam in bubblicious Van.
Ten offers on a West Van condo, in a city where average prices exceed the national average by 50%. Where 70% of net income is required to carry a SFD, where leaky condos destroyed the financial lives of thousands of people, and where pre-Olympic activity just about guarantees the last ones in will be the first ones munched.
Still, I like this guy.
If you’re going to lead ‘em to slaughter, at least have panache.
Banks are like cockroaches. Especially here. We’ve made the decision to allow them to vertically integrate through the entire economy – deposits, insurance, brokerages, car loans, retirement, real estate finance, commercial and institutional banking. There is no way any of them will not survive. Like roaches coming out after a nuke, our banks will endure through any economic reversal. They are now backed by the central bank, the federal government and, ergo, the power to tax.
This is why those people shorting BMO on Tuesday were such gamblers. By buying puts on the options market, they were betting the price of the bank’s stock would tank. The put holder pays a premium for the right to sell a stock in the future (like tomorrow) at a price lower than today. If the price of the stock falls, the value of the put rises – and money is made without a single share of bank stock changing hands. Instead, the puts (like calls) derive value from the underlying stock – which is why they are called ‘derivatives.’
Still with me?
The point here is (a) you’ll do better investing in the bank than depositing money there, (b) hot stock tips are usually toxic, but (c) over the next five years equity markets will far outpace housing. There are a slew of reasons for this, but little doubt this will happen. Too bad most of us have put our wealth in the wrong places.
Like Lynn’s about to:
Hi Garth, I’m an avid reader of your Greater Fool blog. As I fight the emotional urge to buy back into the real estate market, it is so refreshing to hear your common sense take on the real estate situation in our country, let alone in this silly little town I live in. ;-)
I live in Kelowna, owned a house and sold the summer of 2008, currently rent, have a good job, am single no dependants, have paid off all of my debt and have a nice chunk of cash left over. So I feel I’m on the right track in waiting this bubble out.
My dilemma is what or where do I put my cash. Currently it is sitting in a so called “high interest savings account” which has dropped considerable over the last year and now only earns .75%. I’ve met with a couple of investment advisors but my lack of knowledge in this area is causing me to hesitate when it comes to investing. I’m leaning towards a portfolio that consists of 83.5% in Canadian bonds and 6.8% Canadian stocks with the remainder in Cash, US stocks, International stocks, and Foreign bonds. Based on your knowledge and experience does this sound like a reliable strategy? Your thoughts or ideas on how I can feel more comfortable in handing over my nest egg?
I currently have a lira account consisting of $30,000, RRSP’s $10,000, TFSA $5000, my present employment also includes a pension and I am 38 years old.
Well, Lynn, I am not an investment advisor, just a guy with an opinion. But you asked.
First, the bonds. If you plan on buying bonds which you’ll hold to maturity, and are happy with the coupon rate, go ahead. But hard to see how you could even stay ahead of inflation over the next five years. If you’re after the bonds for their yield to maturity, then you need an advisor or broker to seek issues you can purchase at a discount. If you’re buying bonds for capital gains, you probably don’t understand that bond prices fall as interest rates rise – and rates have only one direction in which to travel. Bad idea there.
Besides, what kind of bonds? Canadas – long or short? Corporates, and of what quality? Strips, or zero-coupon bonds purchased at a discount to face value?
And why 83.5%? In fact, why would a 38-year-old woman, with a life expectancy of six more decades put four-fifths of her cash into an asset which will give capital losses and a negative real after-tax yield? I’d say you should reverse this, and have 80% of your liquid wealth in growth assets like stocks and funds, including ETFs, and 20% in fixed income.
You made the right decision bailing out of the K real estate market. Don’t blow it now by trying to avoid risk.
The greatest risk any almost-40 woman faces is outliving her money.
