Preface: I had already written my post when I began a discussion with a co-worker of mine late in the afternoon. We began to talk about real estate prices (on Bowen Island, where she has family) and it was obvious that she had no clue about anything to do with real estate. That, however, didn’t stop her from affirming with the utmost certainty, that “we’re in a lull, and by the spring prices will start back on their inexorable climb.” Just then a co-worker jumped in claiming that he was going to wait until after the Olympics (about 2 years) to buy. When I told both of them that I expect a bottom in real estate prices (real prices, if not nominal) around 2014/2015, they looked at me like I was nuts.
I just smiled knowing that this is exactly what my friends/acquaintances in the US were thinking about 3 or 4 years ago. They no longer think I’m nuts and one or more of them e-mails or calls every couple of days to get my opinion on the real estate market. Well, here’s my original post below:
A native Vancouverite, I had lived abroad (in 4 different countries) for 13 years before returning to Vancouver this summer.
I have never personally owned real estate, but growing up in this city I was a casual observer of the manner in which my family’s (and friends’ and neighbours’) fortunes were party to the vicissitudes of the Vancouver real estate market. I saw my parents purchase a home on East 19th ave and Clarke Drive for $33K in 1973, tear it down in 1989, build a new home there and sell it for abou $500,000 (in about 1990), which my parents used to buy a building lot (right near the top of the market). There they built another home, the cost of which took the remainder of the profit from the sale of the earlier home, even though labour costs were mostly free (our labour, not counting opportunity costs). Then I left Vancouver and have watched at a distance as prices reached truly astronomical levels in this city.
As I stated earlier, I don’t own any real estate, but I began my long journey into trying to understand what was going on in the world of real estate in about 2003, which is about the time I started to seriously consider buying a home in the northeastern US (which is where I was living at the time). I thought that I could buy a 2-3 bedroom house, rent out a couple of the bedrooms and have my roommates help pay my mortgage. But when I started pricing things out, I realized that it just didn’t make sense financially.
My gut (and my analytical nature) were telling me that something was wrong. What’s more, I had moved to the US from Europe (where I lived for about 4 years) and just could not believe the amount of new cars on the road; something just didn’t add up and I couldn’t understand how I, who was making about the median wage for the area in which I was living, couldn’t even come close to comfortably purchasing a home, while families (not individuals, but families) whose gross net income could not have been much higher than mine at the time, were out purchasing four-bedroom McMansions so that they could park their two cars–one of which was obligatorily an SUV–in the driveway. That’s when I had to find out what the hell was going on…which led me to various “bear” sites on the Internet. I then realized that I wasn’t the only one who thought like I did…
That’s when I found the one-word answer to the dilemma: Debt. In fact, it was insane, “you’ve never seen anything like it” levels of debt that individuals/families were taking on without seemingly the littlest regard for a strategy of how they were going to ever pay it back. Everyone (and his two-year-old son and pet cat Wheezer) was going into debt at a rate that I just knew was not sustainable. So, I’ve been a housing bear since about 2003…
That doesn’t mean that I’m a natural “bear”, but I’ve been aware of the unprecedented amount of debt that is weighing down the balance sheets of families, companies and governments worldwide and which still have to be resolved in some manner before anything like a sustainable recovery is in the works. I think this will take years, rather than months…
What about you, what are the specifics of your own personal “awakening” with respect to the real estate market in Vancouver (or any other city)? Did you know that the realtor mantra “real estate only ever goes up” was b.s., or did they have you fooled for a while? When/why did you begin to think that most Vancouverites were nuts and deluded about the value of our real estate?