Sunday, September 4, 2011


It is natural for all bloggers and commentators to rarely talk about their mistakes and regrets and only mention 'how they got it right'.

I am no different.

From my first post (the first year was deleted after a serious illness) I posted about the high price of RE in both Canada and the US which did not make sense to me. It had surpassed all fundamental supports, such as income growth, population growth or rental return. The root causes were the same speculation fuelled by low interest rates, easy lending, and government policies which favoured speculation (tax deductible mortgages in the US and the numerous measures like RRSP down-payments, extended mortgages etc that our Conservatives instituted)

As I blogged the world started to change in a way I expected it to. The US, which was far more expensive on all metrics, started (after a few stops and starts) to correct. The correction was initially gentle and then quickly became more steep.

It threw the whole US financial system into chaos. I waited patiently for Canada and specifically Vancouver to have it's hallelujah moment. It eventually started late 2008 and early 2009 the housing market went into free-fall. This was it!

However as we all know the Bank of Canada cut rates to zero and the CMHC was pumped up and commodities flew. I blogged about how the result of the drop in prices (10-15%) and the drop in carrying costs (25-30%) was the same as the 40% drop I had expected as the final outcome and that was driving demand again and some people may want to buy in.

HOWEVER- I didn't buy in! Why? Because I didn't expect this state of affairs to continue for so long. I expected rates to be forced up, but two and a half years later they still haven't moved up. In fact long rates are even lower.

I expected the Government to realize what a potential risk to the system the CMHC insured mortgages were, based on what had happened in the US, and tighten their leash sooner (they only did that earlier this year which BTW coincides with the top of the market).

Finally I completed missed the huge flow of Mainland Chinese money as a major factor.

I am still waiting and looking for that crack, that break that will bring prices back to reality (at least my definition of it). Any weakness is pounced upon, any sign of building inventory noted, any new bank report mentioning unprecedented un-affordability adds to the strength of my opinion that this state of affairs is not sustainable.

However I recently read two quotes at this blog which I should also keep in mind.

"People who hold strong opinions on complex social issues are likely to examine relevant empirical evidence in a biased manner. They are apt to accept confirming evidence at face value while subjecting disconfirming evidence to critical evaluation, and as a result to draw undue support for their initial positions from mixed or random empirical findings.

Thus, the result of exposing contending factions in a social dispute to an identical body of relevant empirical evidence may be not a narrowing of disagreement but rather an increase in polarization."

Charles G Lord, L Ross, Mark R Lepper, Biased Assimilation and Attitude Polarization: The Effects of Prior Theories on Subsequently Considered Evidence

which I had not come across before and this one which I had read many times, but which resonated with me:

"Faced with the choice between changing one's mind and proving that there is no need to do so, almost everyone gets busy on the proof."

John Kenneth Galbraith

I will certainly bear these two in mind as the fall numbers come in. if, like 2010, inventory starts to drop again, then it would be foolish of me to expect a different outcome from another run-up, particularly if rates keep moving down and the Government comes out with more pro-housing initiatives on the back of economic weakness. Housing it seems is the cash-cow that must be milked when everything else fails.

If, on the other hand inventory does not fall this fall :) and sales continue at their current rate, even with the other factors, we should expect a different outcome.

Please reader- hold me to these parameters and do not let me pick on only the data that supports my belief systems but deliver a cyber-slap of reality to me.