Tuesday, May 24, 2011

Doomsayers - World Enders and Now Crashers

I received this recently and wanted to share;

Dear David,
I wanted to take a moment to reach out to you again. We've talked a few times on the phone, on twitter and through emails. I enjoyed reading your responses to my blog posts although I cannot respond on my website so I thought I would email you. I truly believe that the market is going to tank this year and see some declining values over the next 3 years. I myself, have sold all my properties and have begun renting. If your asking what I personally think, there’s no justifiable economic case to be made for buying a house at this time. The value of the asset will go down and the carrying costs will go up. That rules out a capital gain and promises you’ll have less cash flow. Renting a similar property can be done with far less dough. And investing your money in assets that actually pay you to own them, like a nice balanced portfolio giving 8% or so, means renting and investing actually makes you wealthier.
Here was my response;


The fairly balanced portfolio you refer to does not exist, Stocks have not rebounded from 2008

TSE index is still down, Gold is skyrocketing as people seek refuge

Inflation is at 3% or higher. Bank interest deposits pay 1% to 1.5%

House Values have returned a 4 – 5% return for the last 17 years

Yes I see potential for fewer sales

Yes I see Potential for people walking away from their homes....

BUT they are walking away because of Hydro costs? Travel? Fuel? Insurance? Commuting? Changing Employment? Have the GAS prices push commuting too far from their place of employment? Are they walking away because of a 1% Variable interest rate differential on an average of $300 in mortgaging? I doubt it…

They still have their leveraged return on their investment.

Canadian Unemployment is < 8%

CAAMP (Canadian Association of Accredited Mortgage Professionals)

Says that 1/3 rd or Canadian Homeowners have no mortgage, One third have an average outstanding of $253,000 . The average rate was at 2.5% Variable Rate


A 20 year home owner in the same house now owes less than 1/3 rd on his home (debt versus market value) although adjusted for inflation they may collectively owe 75% of what they paid for the property.

A dual income.. nearing retirement… their major expenditure is planning weddings and UNIV fees. They are just turning 60's and have loads of energy. Maybe they have a cottage… They will inherit LARGE.

Do you believe that all home owners are over extended? CMHC 's annual statistics indicate a National default rate of 1.5% at 90 days. Many family’s that I interview are debt free.

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