Confidence

Everywhere, it seems, there are now media stories on the housing bubble and the worsening conditions. Hell... Global TV in Vancouver is running bearish stories.

In a story re-run everywhere, Reuters proclaims: “Canada braces as housing slowdown takes hold."

Garth Turner recently noted:

At some point, which is probably now, all this becomes a self-reinforcing event. Real estate can’t function without investor confidence, and when people perceive that other people are getting freaked at housing risk, it’s over. Market momentum turns negative, sales slump and in due course prices follow.

This, of course, is of grave concern to the real estate industry.

The last thing they want is for "investor confidence" in housing to wain and for people to bail and wait on the sidelines.

And in what will surely be only the first in a theme of articles on the subject, Canadian Business attempts to address the issue of "Housing markets and market timing" with those contemplating getting out.

Naturally the advice is not to do it:

Market timing appears to be alive and well in the housing sector. Some homeowners have sold their dwellings and taken up renting because they expect prices to fall. Similarly, a number of first-time buyers have delayed purchases in hopes of buying later at lower prices. But speculating on price fluctuations is a tricky art that can end up doing more harm than good.

Ahh yes... staying out of a falling market will do 'more harm than good', so don't do it, okay?

You can see the prevalence of market timing in the housing articles now popular in the media, especially in reader comment sections. A large number of the posters say they are renting in order to avoid price declines. They also express support for price tumbles of as much as 50%, which would allow them to buy back in at cheaply. 

A number of these commenters even appear, regrettably, to be trying to encourage a collapse in prices. For example, on one site a poster wrote: “Home prices will follow sales declines. If you own a home and want to get ‘top dollar,’ sell now. Don't hesitate.”

If you are concerned about the market, buy and hold - don't bail:

Market timing is a discredited practice in financial markets. Countless studies have found that it does not work compared to simply buying and holding over the long run.  

Legendary investors express similar views. Take Benjamin Graham, author of the classic Security Analysis. Near the end of his life, he declared: "If I have noticed anything over these 60 years on Wall Street, it is that people do not succeed in forecasting what's going to happen to the stock market." 

House prices may at times go into reverse, but they historically have enjoyed a long-term upward trend, like stocks. Even the infamous housing corrections of the early 1990s in Toronto and Vancouver have long ago been recouped.

The article then pushes real estate as an inflation hedge with all the printing in fiat currencies going on:

As long as the world operates on fiat currencies, there will likely be inflation in houses and real assets. And as argued in one of my previous columns, "Real estate as an inflation hedge," we could be nearing a resumption of the inflationary environment given the historic amounts of currency that have been printed by central banks around the world.

In past housing cycles, many first-time buyers acquired properties that needed fixing up or could be partly sublet. This approach provides protection against inflation yet offers some comfort against market setbacks. In the case of fixer-uppers, renovations boost market value. As for subletting part of one’s house, the rent provides a supplementary stream of income. 

Buying a property with an income suite may have an edge over the fixer-upper in the event the tail risk of a housing crash materializes. In the aftermath of the U.S. meltdown, the ranks of renters swelled, which caused rents to escalate. 

Instead of worrying about market timing, homeowners can stay focused on the long-term tendency of real-estate prices to appreciate and ignore the media noise.

The bottom line, as always, is that it is always a great time to buy real estate.

So what are you waiting for?

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Email: village_whisperer@live.ca
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