Friday, November 9, 2012


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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  1. "As long as the world operates on fiat currencies, there will likely be inflation in houses and real assets." - Says someone desperate for that to be so.
    What's to stop those fiat currencies from simply blowing up - disappearing off the face of the earth? Then how much is your house worth?

  2. The author of this CB article has always been a R/E bull and has promoted R/E as an investment. I will give him credit that he admits Vancouver prices are out of whack, but generally he uses his own cognitive bias to reinforce his own opinions. He ignores the credit bubble, and rock bottom interest rates along with relaxed CMHC mortgage rules in fueling this bubble. All in all a very biased article. Also, who wants to rent out part of their house to a stranger to help pay the mortgage? Not me, that's for sure.

  3. Market timing for stocks is hard, but then there is technical analysis with a million different theories and countless experts that attempt to do exactly that. A market crash such as we are heading into does not need to be timed, just avoided. The media seems to switched on its sooth saying machinery, that is akin to gently suffocating the un-informed financially.

  4. Carney says Canada is at "immediate risk" to the US fiscal cliff.

    Doesn't exactly spell confidence for ailing RE markets.

    But hey all the banking economists and realty "experts" did say they did not forsee any external problems developing that would negatively affect the Canadian housing market, so they must be right.

    1. Carney is right. The potential for a major external shock has almost arrived and here we are at peak credit where the consumer is concerned. Rona's third quarter results meanwhile were utterly dismal as the companies profits nosedived from 48 million to a slim 5 million dollars. With housing heading to the deep freeze it was inevitable the building suppliers would take a hit eventually. This came faster than expected though and is a clear indicator of contraction in the Canadian contruction industry and slowdown in builds.


    2. I love it when people who have skin in the RE game quote famous investors and theory. Have they forgot about the one "Buy Low Sell High"?

      If RE was really such a great investment why doesn't Buffet or Soros own tons of RE? Buffet owns a railroad and Public Storage. They base their investments on fundamentals. Their investments are liquid; most can be sold very quickly without anyone knowing.

      I'm failing to see the connection between the two other then you buy and sell based on fundamentals.

    3. Carney (and Flaherty and Harper) are praying that europe stumbles or that the USA falls off a cliff so they have an external focal point for the made in Canada recession. Canadian economic policy (support of TBTF banks + emergency ZIRP for nearly 4 years) and Canadian fiscal policy (evisceration of middle class through despotic taxation levels) and Canadian credit rules (more subprime lending here than USA) and Canadian smugness and persistent Canadian negativity toward their largest customer - these things are the biggest "immediate risks" to the Canadian economy.

  5. Ben Graham advocates buying things at low valuations, meaning low P/E, P/B (E=earnings, B=book value) for stocks. Analogously, for real estate, that would be low price/rent, and price/income.

  6. Please Don't quote Garth Turner.

    He works in Banking. On his email, you will note he is associated with the Big Banks. Try emailing him and wait for the response.

    His primary goal is to get people to sell theirhouse and invest the proceeds in ETF's etc., and he gets a cut one way or another.

    For each naive blog dog he brainwashes, that's about $300,000 he gets to oversee.

    And Oh, I do think RE is way overvalued. But Garth, has ulterior motives. He was a politician after all.

    1. Totally agree. I went to his Vancouver event and he said he was doing these events with his partner out of the goodness of their generous harts. Bullshit for sure. You can look up his emphatic endorsement of Nortel as it was plummeting towards reality if you care.

  7. Any competent investor would see the writing on the wall right now with respect to the housing market.

    We have seen a 13 year, artificial escalation in house prices due to massive stimulus from loosening of credit. Now that the vast majority of that stimulus has been removed by tightening of credit, prices have only one way to move. Selling your home now and renting is a no brainer.

    Things are never that obvious with the stock market and you don't get months to react as you do with the housing market (even though prices have already dropped noticeably).

  8. AnonymousNovember 9, 2012 11:55 AM
    Please Don't quote Garth Turner.

    You sound a bit trollish to me (maybe a conservative hack?)

  9. Not a troll. Do you really think Garth hosts events from the bottom of his heart? Write daily blog essays to educate the masses?

    I've talked to him and he wants to invest ur money for a fee. He's been calling for a crash in real estate for says only a correction in some areas. Meanwhile he has been buying real estate.

    He needs to remain credible so more sell their houses and then use his services to buy etf's. I feel sorry for the cult followers. They are lost.

  10. Troll for sure. Some people are unable to comprehend that their are people out there that are willing to give up their time for free.

    How much credibility would Garth get if he called for a 60% price crash? Probably not much. Garth is a millionaire many times over and much like people that work at shelters for the homeless or serve food at your local missions his time is given freely.

    Garth donates every cent he receives from his government pension to charity.

    Garth is a philanthropist and you sir are a bottom feeding nasty, bottom feeding Troll of the worst kind, now go out there and find someone to sue.

    1. Sure, Garth Turner travels around the country out of the goodness of his own heart. I'll just assume that you didn't know about Garth when he was recommending people take out money from their HELOC's to buy Nortel before it crashed. You're naivete suggests you would have lost it all.

      Google Garth Turner, Nortel.

  11. You have drank the koolaid.

    No going back for you.

    Sure I would donate my pension if I was going to get it back many times over...

    Garth gives his time freely? Really?? I just about died laughing. Oh, the naivety of some people who think they know it all because they can spell and have proper grammar in their responses.

  12. To the guy/gal who loves Garth.

    Sell your house and give your proceeds to him to invest. I'm sure you can trust him with that ;)

  13. Boy off topic or what. If you have any comments about Garth how about using his blog...not tie up this informative blog with trivial bias that's off topic.....troll or not.

  14. Garth was completely correct with his prediction about the Canadian housing market in 2008 that the market would experience a major correction. House prices dropped 15% on average across Canada in about 6 months. Then, well, we all know that a massive, unprecedented, emergency intervention took place to turn the market around.

    This time there will be no such intervention.

    He is now predicting a 15% decline over the next year or so and then a slow melt after that.

    He may have had Nortel wrong 10 or 15 year ago, but he was bang on with the housing market correcton in 2009, except of course with the intervention, which nobody predicted. Without it , the housing market would have continued to tank.

    He is currrently being proven correct with his housing market correction prediction that he made 6 months ago.

    Even major Canadian banks are predicting a 10% drop in prices in Canada and then no recovery for 10 years. Garth's prediction isn't far off of this. Many foreign banks, etc. are predicting a much more severe correction.

    If someone has a personal problem with Garth Turner, they should reserve those comments for his blog.

  15. Hmmmmm. Twenty comments. The most in a while on this blog and the majority are about a different blog site and author. Maybe Whisperer should ddevote an article to The Greater Fool site since that is what people want to debate.