“Maybe,” says Dave from Calgary, “some pictures would help people clue in.” You bet. As houses get more unaffordable and the masses grow greedier, perspective is sadly lacking. Too many people believe gravity has ended. They have faith that this time it’s different. That an asset can climb steadily, without end.
As strange as it may be, most people you’ll see today, at work, on the bus, in your bed, have bought in. They’re convinced interest rates will never rise, house values never seriously fall and that overpaying for an inflating asset is called ‘investing’.
They know history’s bunk. Prices don’t revert to a mean any more. There’s divine wisdom in crowds.
People, being people, are massively affected by what other people think, say and do. When a lot of people want something, like a house in Leaside or the west side of Vancouver, it has value. When most people shun something, like real estate in Florida, it has none.
Of course, there was a time when houses were just homes and everyone wanted Nortel. Or Bre-X. Yesterday they wanted LinkedIn. In 1637 they wanted tulip bulbs. In 1929 they wanted industrials. This year, they want single-family homes so badly that a half-decent digs in 416 or Van costs at least a million. Despite that, the average family earns $83,000, has record debt and a 40% chance of an empty bank account.
There’s no more reason to expect the status quo to stay the same in 2011 than there was in 1999. In the dot-com era, people invested in companies with no earnings because the share price was rising and everybody was doing it, many of them with borrowed money. The outcome was obvious. As it is now.
I’ve noticed lately that this blog, and its moldy author, have attracted a fair amount of dissing. I expect lots more in the denial phase to come. But expect this. Rates will rise. The Chinese will go home. Boomers will need cash. Debt will overwhelm. And house prices will fall.
All booms end. We know that much. How this ends for you is the question.
It’s different this time – 1637. A tulip bulb sells for a man’s annual wages, before plunging to almost zero.
It’s different this time – 1929. The stock market soars even as the economy sours, before losing 80% of its value.
It’s different this time – 1996. Bre-X lays claim to an improbable gold find and the stock vaults to $286, before going to zero.
It’s different this time – 2000. The NASDAQ leaps to 5,000 on the speculative tech boom, before losing 82% of its value.
It’s different this time – 2011. A Vancouver SFH tops $1 million for the first time in history, even amid a slagging economy, before…