“I’ve thought since early 2010 that Vancouver housing was in a bubble, and have refused to buy a house for this reason. I’ve felt that the risk of mean-reversion was far higher than the risk of missing the upside.”

“It’s all a speculative bubble. End of story. This includes housing prices in Vancouver (and elsewhere in Canada), as well as The Everything Bubble.

Any fool can lease a high end car. It doesn’t make you rich. It makes you fake – you live in a world of make-believe, which has been working out fine so far. But, all the wealth effect of rising housing prices here can be reversed in a heartbeat.

All bubbles mean-revert. Always. And the results are phenomenally painful, especially to the late-comers who thought the party would go on forever.

I’ve thought since early 2010 that Vancouver housing was in a bubble, and have refused to buy a house for this reason. I’ve felt that the risk of mean-reversion was far higher than the risk of missing the upside. Of course, I didn’t foresee interest rates staying at emergency levels for so long, and more stupidly, being actually lowered in 2015. I don’t really feel badly for having not bought, as it’s impossible to time the market and we could easily have been buying right at the peak at any time in the last 7 years. But, emotionally, I very much want to buy a house, so that my kids can grow up with better stability (my 7 year old is already living in her third rental house). Not that owning a house is a sign of stability, and our family’s/our marriage’s stability have not really been impacted by renting, but moving frequently is a huge drain of time and money. (and our credit scores are 832/850, with six figure investments/retirement savings, so we could buy if it made sense).

Now that Canadian (and Vancouver) real estate appears to have peaked and to be dropping though, I’m questioning if I even want to buy in the Lower Mainland in the foreseeable future. That would be buying into a declining asset class, which could even drop below the mean and stay there long term, due to upcoming structural demographic problems. I know this is considered impossible by the vast majority of Canadians, but if they would read about (1) asset bubbles, and (2) Japan’s economic situation for the last 20 years, a few might understand what I’m talking about.

My opinion is that, while both overseas buyers and local speculators have been absolutely desperate to get into the Vancouver housing casino game, that solid and sustained drops in prices here will have an ice water effect on their FOMO. I think that, like speculators everywhere, they will not want to actually lose money, and will do their very best to get their money out if at all possible. Those who can’t will ride it down. As it drops, the flood of speculative/store-of-value foreign “investors” will run, not walk, away from Vancouver and into safer markets in other countries.

Although I’m a 3th generation Canadian, born in Vancouver, I have lived in 4 other countries, and I understand there’s nothing magical about Vancouver. There are many special places around the world. Our ease of money laundering, ease of bypassing inconvenient and toothless taxation laws, and perceived strong laws and banking system have made us a magnet for all kinds of stolen money worldwide, money that in fairness should be helping to increase living standards in the countries of origin, not enriching a lucky corrupt few who managed to smuggle it out.

Please don’t see this as racist or against any particular ethnic or country group – I’m strongly opposed to corruption worldwide, and while I’m under no illusions, one of the things I love about Canada (and most of the other developed countries) is that levels of corruption are far lower here. You can be pretty sure that the police will help you when you need them, (without incentive payments), and not let you get away with things you shouldn’t, just because you’re rich. I welcome productive, honestly-earned foreign investment in Canada, and welcome productive, committed immigrants.

All those flashy cars bought for cash, top end clothing and jewellery being bought, dollars splashed around by young “rich” people? Well, when the money comes from dubious sources from one’s parents, it’s easy come, easy go. Or, it’s fake – the truly rich would not need to mortgage their purchases of Vancouver property, or lease those high end cars. But then, the truly rich don’t feel the need to buy such flashy excess.

Additionally, I am horrified at the massive expansion of credit and therefore debtload of all levels, worldwide – individuals, households, corporations, municipal and provincial governments. It is unprecedented and shocking — and unrepayable.

I see the result as nothing short of total economic collapse. The party simply can’t go on forever. “You can’t cure debt with more debt”. And, you can’t really inflate your way out of it, when trillions of QE mysteriously has not resulted in more than very minimal inflation. No matter how governments worldwide may try, I can’t see any way to avoid collapse, deflation, and depression. This is a terrible future vision, and I’m very saddened for the fate of my young children, and their possible children and so on. I worry so much that they won’t have health care when they need it, and that their safety will be at risk from desperate idiots who didn’t have the forethought to plan ahead and not consume beyond what they could afford. I worry about what we’re going to do when faced with seeing neighbours’ children going hungry – I can’t stand to see children hungry, but I can’t possibly feed them all.

It comes at a very bad time already, with climate change (yes, eventually the naysayers will have to admit it’s happening, whether they ever admit to the anthropogenic aspect of it or not) becoming an existential threat to populations worldwide. All it will take is one epidemic virus, with no money left to fight it, to devastate a large swath of humanity (not to mention the huge damage that so many billions of humans have already caused to every other form of life on this planet).

I’m sorry to be such a doom-and-gloomer, but I wish I could see a way forward for humanity that didn’t have this outcome. Yes, humans are incredibly adaptable and clever, especially in coming up with insane financial weapons of mass destruction (like CDOs, CDS, derivatives, rehypothecation, and all the other things that keep me up at night). These are nothing more than clever ways to transfer money from large numbers of middle class people/taxpayers to a small set of people who know how to play the game very well.

I’m not left wing, nor right wing, just somewhere in the middle like most Canadians, but I’m appalled at what we are doing to ourselves by taking on unrepayable debt just to keep up with the Joneses, to pretend we have lifestyles which we haven’t actually earned. This debt is merely pulling demand from the future, and it won’t be there when we need it – in the future, we can’t rely on the “consumer” to support our GDP growth or increasing quality of life. (and, nor is infinite growth in a finite world a real solution either)

Sadly, I can only see a return to a much more hand-to-mouth existence for much of the population of the developed world, and an even worse existence for the bulk of the world’s already poor and starving populations. The can can only be kicked down the road for so long. We just can’t extend and pretend forever, as much as our politicians don’t want to admit. I sure hope I’m wrong though.”

– ‘JCH’, commenting at VREAA, 28 Oct 2017

Many thanks, JCH. – vreaa