“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

21 responses to ““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.”

  1. white_angelos_detached_defagitability
  2. Thanks to JCH for this honest and thoughtful post.

    While Vancouver is in some ways an insular place, it is inextricably linked to the rest of the country and to the world. JCH is seeing the big picture, and the big picture is not pretty. Vancouver is a bubble atop a bubble. The ‘everything bubble’.

    Short of a massive upsurge in productivity and wealth creation, there is no way out. At some point the piper will be paid. As JCH notes, widespread impoverishment is the inevitable outcome.

    If Western civilization doesn’t blow up economically, or from war, or from a pandemic, or something similarly dramatic, it will die by a thousand cuts. Fake news. Government corruption. A brainwashed, suicidal population that has convinced itself that we’re all racist, white supremacists, that speech is violence, and that all cultures and values are equal (sorry to digress, but these are all steps in our collective march toward the cliff’s edge).

    We mustn’t lose sight of the huge advances that have been made, and the many reasons for optimism. But as we hope for the best, we must plan for the worst.

    How to prepare for collapse? The answer depends on what is meant by “collapse”, its severity, and duration. At the mild end, some basic diversification and other precautions will see you through. At the other end – the Cormac McCarthy scenario – no amount of preparation will suffice.

    You can lose valuable time worrying about it. It’s the stuff of nightmares. Best to strike a balance – be well prepared, without going overboard, and then move on with your life.

    I have lots of ideas as to what prudent citizens, especially fathers and mothers, should consider doing, but this isn’t the place. I will only say that, in no reasonably likely scenario will buying Vancouver RE at current prices have been a smart move.

  3. “You don’t have to be racist to be racist”.

    https://pbs.twimg.com/media/DNPgCHbXUAIi4Sn.jpg:large

  4. From the Oracle of Omaha, Warren Buffett:

    In the 20th century, the United States endured two world wars and other traumatic and expensive military conflicts; the Depression; a dozen or so recessions and financial panics; oil shocks; a flu epidemic; and the resignation of a disgraced president. Yet the Dow rose from 66 to 11,497.

    You pay a very high price for a cheery consensus.

    From Galbraith:

    Markets can stay irrational longer than you can stay liquid.

    Every generation faces the possibility of extreme disaster, either man made or from nature. My parents were born in Depression, grew up in war, then lived under both the shadow of nuclear annihilation and the hope that international institutions like the U. N. would be able to create a lasting global peace. By the 1970’s they noticed a movement of young couples choosing deliberately to not have children.

    “You can lose valuable time worrying about it. It’s the stuff of nightmares. Best to strike a balance – be well prepared, without going overboard, and then move on with your life.” This is sage advice, through the online world we are far more connected to bad news and doomsday predictions than any generation in human history. Make the best of your situation for you and your loved ones, hope for the best and prepare for the worst as much as is practical. Try to enjoy the journey whenever there is a chance.

    • “Every generation faces the possibility of extreme disaster, either man made or from nature. My parents were born in Depression, grew up in war, then lived under both the shadow of nuclear annihilation”

      In my experience, people who grew up during the depression are measured, thoughtful, and conservative with their financial decisions. “don’t lose time worrying” is not something that people who have endured extreme poverty usually say.

      It’s more like a rationale put forth by someone who is justifying spending frivolous amount of borrowed money.

      The Greatest Generation knew better than to spend millions on an asset that should be priced in the hundreds of thousands.

    • white_angelos_detached_defagitability

      y’know the warren is full of feel-good non sequitors such as these … and it’s by design … saying top 30 us industrials are worth more now is just cherry-picking hindsight to state the obvious … debunk to get something maybe useful from his nonsense … none of the dow components are even remotely comparable now vs then … and $ now worth < 2c vs 1900

  5. Probably the single most stupid thing I’ve ever read

    • Thank you for your (pointless) opinion. Shouldn’t you get back to work now? How else are you going to pay back your $900K Vancouver mortgage on your $50K salary? You really should be working every waking minute!
      Me, I’m going to go back to relaxing in the sun with my kids. I am always grateful for the good life I have, and try to enjoy every minute, free of financial stress.

  6. JCH – your not alone. We can appear to be a fool before the bubble pops as apposed to the majority of actual fools after the bubble pops.

    This bubble is like none ive ever seen. It is so enormous and its everywhere.

    Property, stocks, bonds. London New York Sydney Vancouver, it doesn’t matter.

    Prices were ridiculous in 2010. Now they are insanely stupid. Vancouver and Sydney are manic.

    As a developer in Australia, i’ve sold all but just two of my properties (from which i earn income). Stuff i had earmarked for future development all sold and at prices 5x what I would have got 20 years ago.

    Right now the feeling and the euphoria i see everywhere, is just like 2007, and we know how that ended up.

    1987 I didn’t see coming and i watched the markets fall 25% before my eyes.
    1997 I knew that there were serious issues. LTCB.
    2007 I definitely knew something wasn’t right.
    4th time. 2017 – no something is seriously seriously wrong, and 99% don’t see it

    This is a subject that i have had many arguments about all over the world.

    There are only two outcomes.

    1) This is just a long litany of stupidity and we have all got here by accident.

    2) This is a preplanned long term plan. Many would say a “conspiracy” by the elites who have the money and power to pull the right levers to get the outcome they want. Without doubt that will evolve in 100 years to being a world government and a single currency. It doesn’t matter how we feel about that as none of us will stop it. Merely be prepared and transition in the best fashion possible.

    Under scenario 1 – were all completely phecked!

    Under scenario 2 – there will be a predetermined outcome.

    If scenario 2 is correct then these people don’t intend to lose big time in the stock, property or bond market. If they can plan this big, with this much power, and money, then they will have certainly arranged their lifeboats.

    The obvious candidate is precious metals because they are still misunderstood and hated, which makes them very cheap. If I was in their position, id certainly plan for an escape boat, to transition assets over to the new system.

  7. 85% of UK Members of Parliament were unaware that new money was created every time a commercial bank extended a loan, while 70% thought that only the government had the power to create new money.
    The Guardian, 29 Oct 2017

    If MPs don’t know, you can be sure the general public has absolutely no clue as to how bizarre the money system is.
    More from the same article:

    On the mortgage side, house prices rise to meet the amount the lender is prepared to lend, rather than being moored to wages. The lender benefits enormously from larger mortgages and longer periods of indebtedness; the homeowner benefits slightly from a bigger asset, but obviously spends longer in debt servitude; the renter loses out completely.
    All money comes from a magic tree, in the sense that money is spirited from thin air. There is no gold standard. Banks do not work to a money-multiplier model, where they extend loans as a multiple of the deposits they already hold. Money is created on faith alone, whether that is faith in ever-increasing housing prices or any other given investment.

    • white_angelos_detached_defagitability

      govts at all levels are stocked with either morons or sell-outs … but eventually bare sheep have little left to lose … last century, all the major uprisings went socialist … this time, the establishments are socialist … will be interesting to see how that works out

    • Absolutely amazing, VREAA. The amount of money floating around out there is simply stunning, and you’re right, most people have no idea that it just appears from nowhere, and then flows through the economy, feeding all the bubbles. It’s all good until suddenly, it isn’t.

      If we were right on the edge of global financial meltdown in 2008, as I’ve heard we were, we must be even closer this time. Yet the US stock market just goes up and up. Thinking about talking to Hilliard Macbeth, as I recently read his book, “When the Bubble Bursts”, and I liked his (brief) thoughts in it on how one might position oneself for the end of the Canadian housing bubble. (But I don’t know if his recommendations would be adequate if we have a Lehman Brothers part 2 event)…

    • Wow.
      Reading that article, I feel gutted (and that’s from someone who knows about the issues it deals with).
      We will have to headline it.

    • “I can’t immediately buy the big house that I want. I have to live in a smaller one for awhile. I’m out!”

      Damn it’s tough being a pretty, educated, successful, connected white girl in the best city in the first world. I will weep for her suffering.

      Maybe her Interpretive Dance degree didn’t teach her about asset bubbles and how they are temporary by definition and usually go away right around the time that naysayers have declared that it’s a new normal and “this time it’s different.”

      I mean I guess she could have found that out on Wikipedia but now we’re splitting hairs.

      Forced with having a family in a dwelling that’s smaller than her dream house but located in a wonderful place that she loves and was “committed” to, this entitled millennial is gone forever and she wants us to know it.

      Bye bye, mon cowboy. If this isn’t good enough for you or it’s too scary for your beta companion, please leave.

      Within 12 months she will buy one of the millions of identical plastic yuppie boxes that sprawl across the prairies in endless identical and affordable rows, then watch her local market correct 20% so that she is just barely under water and is trapped in her dry, dusty, salt-stained world of oil and Chinooks and rednecks and F550 service trucks, loading her brats into the minivan every time they want to go to the park. (And six months a year, the “park” means the mall or the indoor rec center.)

      Stay tuned for the followup article “It’s always darkest before the dawn: If only I had trusted my instincts.”

      don’t it always seem to go
      that you don’t know what you’ve got til it’s gone.

  8. moderation? What sorcery is this?

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