Housing bubble? Waiting for the crash before buying has cost you 60% in the last 6 years.

Housing BubleBad news travels 10 times faster than good news!  It’s just human nature that we can’t seem to escape.  We seem more likely to gossip about someone’s misfortune than their accomplishments.

Here’s a negative headline….  YOU LOST APPROXIMATELY $355,000, SO FAR, IF YOU’VE BEEN WAITING TO A BUY HOUSE SINCE 2008.  Read on to see understand how and why.

Take Wednesday’s headline in the Financial Post, “Bank of Canada warns house prices are overvalued by up to 30%” .  WOW!  How’s that not gonna get your attention?   It certainly got mine.  I immediately had to read this article.  But the more I read, the clearer it became that this statement wasn’t exactly true.

The article pointed to a semi-annual report that is put out by the Bank of Canada entitled, Financial System Review December 2014.  That headline is an attention grabber.. And like most media headlines, it’s not the full story.  In fact, it’s not an accurate reflection of what the Bank of Canada report had to say.   If you look at Stephen Poloz’s (Bank of Canada Governor) comments, he says “there is some risk that the housing market is overvalued, and our estimates fall in the 10 to 30 per cent range”.

But he’s not done there.. Poloz goes on to say “we continue to expect a soft landing in the housing market.”  And here’s the best comment of all “the overall risk to financial stability in Canada is roughly the same as it was at the time of our June FSR.”   Did everyone get that?  No real changes to the governments June forecast.

Yet reading the headline would cause most homeowners or potential homeowners to panic or think twice.  I don’t mean to single out The Financial Post.  All the major newspapers,TV news channels, Business programs, etc, have picked up on this and have reported it the same way.  It’s incredible.

We’ve become headline skimmers.  Most of us won’t read the detail, just the first 5 to 10 word headlines.  And that’s a dangerous thing.  Especially when we see a story such as this be so widely misrepresented.

OUR LOVE AFFAIR WITH PESSIMISTIC FORECASTERS

Maybe that’s why so-called ‘housing analysts’ or ‘economists’ or ‘financial gurus’ seem to get way too much air play with the mainstream media.. Even when they have been wrong with their forecasts for several years…!!  What’s that?  don’t believe it? Well, check this out..!

A few of the more popular housing pessimists are Ben Rabidoux, David Madani and Garth Turner.  They’ve all been calling for a real estate crash or a major correction.  I’m sure you’ve heard one or all of their names as some point in the last 6 years.  And hey, they may be right.  We could see a correction in the near future…. maybe even and collapse (but that doesn’t seem likely)

The only problem here is that they’ve been saying it for 6 years or longer and their forecasts have been wrong!

Take Garth Turner, former business editor of the Toronto Sun, former Member of Parliament and is an avid blogger with a huge following. He’s warning us to stay away from real estate as it’s overheated... since 2008!!.  Check his book from 2008, “Greater Fool:  The troubled future of real estate.”  In this book, Mr. Turner said the U.S. housing crash was coming to Canada soon and that we should hold off purchasing any real estate.  Remember, that’s from 2008!    How much has real estate risen since 2008? (the answer at the bottom). (by the way, I think Mr. Turner is very well spoken and has a way with words.. I just don’t personally agree with all his views or strategies when it comes to real estate.)

David Madani is another outspoken housing market pessimist.  His has good credentials according to his Linkedin profile.   He was a former Bank of Canada employee and has a degree in Economics.  He is currently an Economist with Capital Economics.   Search David Madani’s name and you’ll get thousands of results with quotes from dozens of interviews or articles… all with a negative outlook for Canada’s housing market… going back to at least February 2011 (I couldn’t search more than this as I was getting dizzy and depressed with all that negative talk).

One of the articles seems hilarious to me now.  It’s entitled Rate hike could trigger housing collapse, economist warns” in February’s Financial Post.  In this article, Madani is quoted as saying house prices could fall by 25% if interest rates spiked up.   Uh, I think real estate has done quite well since 2011…  (see the bottom for more numbers.)

And then there’s Ben Rabidoux.  His name popped up out of nowhere, around 2010.   His Linkedin profile only begins in 2012.  His company website consists of one page with no phone number or address. (by the way, if anyone has details about his personal background, work history or where he came from, please send it to me.  I can’t find out anything about him online… just seems odd.. All my searches only go as far back as 2010.. and all I find are his comments being quoted in the media…does anyone have any info about him….??!).

Since that time, he’s been a self-proclaimed housing analyst, expressing his opinions about how the housing market will crash very soon.  Check out this article from 2010, where here’s telling us that house prices would crash in 2011 by 10-20% and would continue to decline for many years to come..  Of course, the opposite happened.. house prices went up and up..

HOW MUCH DID YOU LOSE LISTENING TO THESE PESSIMISTIC FORECASTS?

In case you’re one of the many that put your house purchase on the shelf out due to housing bubble fears, you would have lost anywhere from 40% to 75% during that time.   And I’m NOT factoring in the cost of paying rent and not paying down your mortgage for 5 yrs.

If you bought a house for $500,000 in 2008, that same house is probably worth around $800,000 in 2014 based on average resale prices in Canada’s major cities.  That’s $300,000 in equity you lost, so far.  And if you paid a $400,000 mortgage for 5 years,  your payments would be around $1900/mth totaling $114,000.  Your balance owing at the end of 5 years would be around $345,000.  That’s an additional $55,000 in equity you just built up.   GRAND TOTAL….  $355,000 in lost equity…  OR you made $355,000 if you didn’t listen to the housing pessimist.

And let’s not forget, we don’t live in the US where our mortgage interest is tax-deductible (sorry), but our homes ARE Capital Gains exempt….. meaning we keep all that profit TAX FREE!  (By the way, investment and rental properties are allowed to write off the mortgage interest against any rental income.. send me a note if you want more info.)

Look, real estate prices will go up and down. There’s never any straight line up.  In the long-term, and certainly over the last 15 yrs, real estate has performed very well.  It’s always been considered a good, long-term investment.     It would be great if the mainstream media could just do a follow-up to some of these Housing price forecasts…. maybe like a ‘where are they now’ thing.

Your best interest is my only interest.   I reply to all questions and I welcome your comments.  Like this article?  Share with a friend.

Steve Garganis 416 224 0114 steve@mortgagenow.ca

2 Responses to “Housing bubble? Waiting for the crash before buying has cost you 60% in the last 6 years.”

  1. Alex Says:

    Good one Steve. Hope readers realize the actual fact of the matter and learn to weed out hype out of statistical data dump finally.

    • Steve Garganis Says:

      Thanks Alex. There are stats, then there is sensationalism.. hopefully, we can present stats and good solid forecast… funny how BOC Gov Poloz said he doesn’t expect house prices to collapse or interest rates to spike up or unemployment to jump up…. I didn’t see as much media coverage on that…!!


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