Canuckleheads are overpaid and have crap mortgages

[crazy canuck]

No wonder Zanza started another thread.

[Malthus]

I've been hearing about Canada's housing bubble practically my whole adult life ...

I predicted a housing market crash in the U.S. back in 2004.  I was scorned.  We'll see how yours goes.

People have been predicting a housing market crash in Toronto and Vancouver since before 2004.

Now, I'm not saying it won't happen. Maybe it will. Prices rise and fall, and bubbles do burst. But I am tired of hearing the same doom-saying repeated year after year after year ... sure, when it eventually happens, evert Dguller out there will happily pat themselves on the back and congratulate himself on his foresight - it's like a doctor predicting you will die: he's never actually wrong. 

[Malthus]

The bubble happened, what hasn't happened is the bursting of the bubble.  That happens occasionally, bubbles wouldn't happen if the timing of their bursting were entirely predictable.

Excuses excuses.

Yeah, I have no illusions that I would be able to convince Malthus.  He's looking at himself in the mirror every night, enamored with the sight of a man who was wise enough to ignore the doom-sayers when he was buying his house.

You read me wrong. I judge the risk greater now than ever before. I think the condo market here is particularly threatening.

The difference between me and the doom-sayers, is that I wasn't busy predicting a likely bubble burst in the Toronto market the last decade or more. Another difference: I was proved right.

[DGuller]

Now, I'm not saying it won't happen. Maybe it will. Prices rise and fall, and bubbles do burst. But I am tired of hearing the same doom-saying repeated year after year after year ... sure, when it eventually happens, evert Dguller out there will happily pat themselves on the back and congratulate himself on his foresight - it's like a doctor predicting you will die: he's never actually wrong. 

Should I be saying something that I think is deeply misguided just to not tire you out any more?  Unsustainable trends do sometimes sustain themselves for far longer than might be reasonably expected, before they don't, but I think we're still better off calling them what they are.

[Malthus]

Now, I'm not saying it won't happen. Maybe it will. Prices rise and fall, and bubbles do burst. But I am tired of hearing the same doom-saying repeated year after year after year ... sure, when it eventually happens, evert Dguller out there will happily pat themselves on the back and congratulate himself on his foresight - it's like a doctor predicting you will die: he's never actually wrong. 

Should I be saying something that I think is deeply misguided just to not tire you out any more?  Unsustainable trends do sometimes sustain themselves for far longer than might be reasonably expected, before they don't, but I think we're still better off calling them what they are.

A trifle longer than expected - a mere ten, fifteen years or so. A bagatelle. 

The problem with you, is that no amount of failure will ever convince you of the unsoundness of your predictive method. It is completely unfalsifiable. Given that a bubble bursting or sharb downturn in a market will, inevitably, happen eventually, it can never be "wrong" to predict it.

Problem is, no-one cares what will happen "eventually" in making actual decisions, they care what is going to happen soon. Your advice is true only to the extent it is trivial - downturns will happen, eventually.

I myself would not advise buying a house right now in Toronto - I'm "Dguller" enough to be getting spooked of this market at this time. 

[DGuller]

The difference between me and the doom-sayers, is that I wasn't busy predicting a likely bubble burst in the Toronto market the last decade or more. Another difference: I was proved right.

Guessing the timing of the bubble pop doesn't really give you any "proved right" credentials.  There are inherent uncertainties that are unpredictable, and you don't prove anything about your understanding by happening to be in synch with them.

Let's say we go into a casino and observe the guy playing roulette using a martingale system (you basically bet, and if you lose, you keep doubling down until you win, then go back to regular bets).  I say that this isn't going to end well for him.  You say "nah, he's been doing fine so far, he hasn't had any really long losing streaks yet". 

Two hours later he's still at the table.  I still say that this isn't going to end well for him.  Now you start worrying as well, the guy just lost the last five rounds, but you do make a point that I have been predicting his doom for a long while, and the guy is still at the table.  You haven't been predicting it until now, and were proven correct (the guy hasn't gone broke yet), so obviously you have deeper understanding of gambling systems.

[Malthus]

The difference between me and the doom-sayers, is that I wasn't busy predicting a likely bubble burst in the Toronto market the last decade or more. Another difference: I was proved right.

Guessing the timing of the bubble pop doesn't really give you any "proved right" credentials.  There are inherent uncertainties that are unpredictable, and you don't prove anything about your understanding by happening to be in synch with them.

Let's say we go into a casino and observe the guy playing roulette using a martingale system (you basically bet, and if you lose, you keep doubling down until you win, then go back to regular bets).  I say that this isn't going to end well for him.  You say "nah, he's been doing fine so far, he hasn't had any really long losing streaks yet". 

Two hours later he's still at the table.  I still say that this isn't going to end well for him.  Now you start worrying as well, the guy just lost the last five rounds, but you do make a point that I have been predicting his doom for a long while, and the guy is still at the table.  You haven't been predicting it until now, and were proven correct (the guy hasn't gone broke yet), so obviously you have deeper understanding of gambling systems.

Interesting and revealing comparison.

Seems that, for you, real estate is *always* a doomed proposition unless you are stupid-lucky, like doubling down at a casino.

Another problem with the analogy - your prospective bettor is digging himself deeper in the hole with every throw - indeed, exponentially. How does that apply to real estate? Say if instead of a casino, the guy plunked his cash down on a house ten years ago. Every year since then, prices have risen by an absurd amount. The guy refuses to listen to you and holds on to his house. The "bubble bursts" and prices go down 40%. He would have been better off to sell right before the bubble it is true, and maybe over that ten-year period the averaged return on investment is less than if he put it into stocks (taking into account the downturn) - but it still is not the disaster your gambler faces, of losing all his money and being ruined.

The better analogy here is that of a doctor predicting that his patient will die. It is true but useless information, because of course everyone dies ... eventually.

[DGuller]

The casino example was to highlight uncertainty (as that is the environment where it is most prominent with fewest confounding factors).  In an environment where there is great uncertainty, and markets are definitely one such environment, you can be right and still wait for a long time before reality catches up to expectation in any individual case.  It doesn't mean that in the long run you would be better off being wrong.

[Malthus]

The casino example was to highlight uncertainty (as that is the environment where it is most prominent with fewest confounding factors).  In an environment where there is great uncertainty, and markets are definitely one such environment, you can be right and still wait for a long time before reality catches up to expectation in any individual case.  It doesn't mean that in the long run you would be better off being wrong.

Again, you are facing the problem that your position appears unfalsifiable. If you can allegedly be "right" and yet the actual evidence not demonstrate it, how can you ever come to the conclusion you were "wrong"? If you can't predict it because it is too uncertain, why is one plan "wrong" and the other "right"?

And if 15 or so years isn't the "long run", what on earth is? Are you planning on immortality? That's a decent slice of one's working life - the 32-47 years. Say someone was faced with a choice - buy a house now, when they are 32 and about to start a family, or wait "until the bubble bursts". They wait, and it fails to burst. They are now 47, and it bursts, so now they buy. How are they "better off" having been "right" all along in the "long run"? What was gained by following advice here?

[alfred russel]

When I was in business school, we were taught that 5 years is the threshold of long term.

[DGuller]

The casino example was to highlight uncertainty (as that is the environment where it is most prominent with fewest confounding factors).  In an environment where there is great uncertainty, and markets are definitely one such environment, you can be right and still wait for a long time before reality catches up to expectation in any individual case.  It doesn't mean that in the long run you would be better off being wrong.

Again, you are facing the problem that your position appears unfalsifiable. If you can allegedly be "right" and yet the actual evidence not demonstrate it, how can you ever come to the conclusion you were "wrong"? If you can't predict it because it is too uncertain, why is one plan "wrong" and the other "right"?

And if 15 or so years isn't the "long run", what on earth is? Are you planning on immortality? That's a decent slice of one's working life - the 32-47 years. Say someone was faced with a choice - buy a house now, when they are 32 and about to start a family, or wait "until the bubble bursts". They wait, and it fails to burst. They are now 47, and it bursts, so now they buy. How are they "better off" having been "right" all along in the "long run"? What was gained by following advice here?

Long run is statistical expectation.  It is true that statistical long run may be incompatible with human lifespan, especially in financial matters where getting or missing out on one big score can make all the difference. 

If you have an offer to quadruple the money you bet by guessing the number that comes up after a die roll, in the long run that's a bad proposition, the odds are against you.  But if your success in life is determined by the result of one such die roll, how can you ever on a personal level confirm which decision was right?  You can't, it's not falsifiable nor confirmable on that level.  Sometimes you just have to go with the best decision and hope luck doesn't completely overpower it. 

Uncertainty is a bitch, and it can really mess with your intuitive learning algorithms.  That's why I find it very interesting.

[alfred russel]

That said, DGuller and I had epic arguments before 2008 about the housing market and stock market. I took the side that it wasn't just a bubble. In hindsight, I'm not sure that it was so simple that I was wrong and he was right, but at least with the housing market I think most people would give him the edge. I bought in early 2008, when things first started to slide, convinced it was a buying opportunity, but now I'm hopelessly underwater.

My father bought a home in the early 1990s in South Florida. He had absurd appreciation. Then the market tanked. His home value is roughly what he paid for it 25 years ago. So not a disaster, but it real terms he has lost a lot of value (especially considering upkeep costs/renovations). The loss of value happened in 2008 and immediately afterwards. Had DGuller started harping on the Florida market being irrational in the late 90s, he might have had a point, but it wouldn't be evident for quite a while.

[crazy canuck]

If I had listened to DGuller back in the early 90s when I bought my first property I would still be renting and waiting for the crash.  My net worth would also be significantly less.

Sometimes it pays not to listen to your accountant.

[Barrister]

If I had listened to DGuller back in the early 90s when I bought my first property I would still be renting and waiting for the crash.  My net worth would also be significantly less.

Sometimes it pays not to listen to your accountant.

Um, the early 90s were the last noticeable housing slump.  People back then might have told you not to buy, but only because they were saying real estate never goes up in value so it's a lousy investment.

[crazy canuck]

If I had listened to DGuller back in the early 90s when I bought my first property I would still be renting and waiting for the crash.  My net worth would also be significantly less.

Sometimes it pays not to listen to your accountant.

Um, the early 90s were the last noticeable housing slump.  People back then might have told you not to buy, but only because they were saying real estate never goes up in value so it's a lousy investment.

Um, we have had this discussion before BB.  In the Vancouver market the slump didnt hit until about the mid 90s - a few years after I bought my first property.  But it wasnt much of a slump at that.  Within a very short period - I cant remember exactly - the market had rebounded and all those poor DGs who were waiting for it to actually crash were left out in the cold.