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Buy! Sell! Hold! Huh!?

Don't be so smug, real estate winners. Your success is based on luck more than skill.

By Vanessa Richmond, 2 Dec 2009, TheTyee.ca

Shangri La Hotel

Photo of Vancouver's Shangri-La by Tim Bracken. Selected from The Tyee's Flickr photo pool.

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The recent housing boom and (variable) bust is one that inspires biblical, epic and mythical language.

Photographer Lauren Greenfield, who shot "Foreclosure: Death of the American Dream," has a photo essay in the New York Times today about the rise and subsequent crash of Dubai's real estate market. "Dubai is a cautionary tale in the same way the foreclosure crisis -- which I photographed -- was," she says in the accompanying article. "Dubai was this miracle of development with minimal planning and no infrastructure."

"I call the story an improbable fairy tale," she continues. "Anything that could be fantasized could be built. It really was the land of opportunity. It's more Las Vegas than Las Vegas."

In the Dubai photo essay, there are shots of decaying backyard swimming pools, crumbling spiral staircases and a dying tree that's falling over in the yard of a lavish, uninhabited house.

There's also a shot of Burj Dubai, the world's tallest skyscraper, which is still under construction, and which overlooks artificial islands shaped like palm trees. "The tower is a useful symbol for considering Dubai," says the Greenfield. "Is it the Tower of Babel? Is it Icarus, flying too close to the sun? It's unclear whether this crisis will simply be a pause in Dubai's ascent or whether Dubai's story will itself become a cautionary tale of mythical dimensions." Currently, the real estate market in some neighbourhoods in Dubai is down about 40 percent.

Commenters after the article talk about how "humanity is a pestilence on the planet", call the decaying opulence a "perfect Hell", and reference Shelley's Ozymandias.

And it's not the first time in history -- fictional or real -- we've heard this narrative. It's everywhere. In the television show Weeds, two seasons ago, the "houses made of ticky tacky" in suburban Majestic burned in flames. It was a fire sparked by a marijuana drug cartel -- the only growth industry in that fictional land of suburban boredom and cultural decay. I just visited the Versailles palace outside of Paris, and after seeing the outrageous opulence that the aristocrats there lived in, it's not hard to see why the French Revolution happened.

Punishment and repentance follow greed and avarice. That's one of the simple morality plays we humans seem to cling to. And maybe it's sometimes true, so myths must be doing their job of simplifying stories, but that's not always how it actually plays out.

Consult the oracles!

Though experts may emphatically proclaim otherwise, there's no way for anyone to understand or predict the soaring and crashing fortunes associated with humanity's most fundamental, powerful, and ubiquitous market -- one that affects people in such an intimate and emotional way. I've interviewed a couple dozen financial planners, accountants, and bank executives (real estate's priests?) over the last few years, and been told varyingly but emphatically by each group that Canada's market will crash, that it will stay the same, or that it will continue to go up.

Just recently, the Global Property Guide proclaimed the Canadian market will climb in the near future, the CBC reported that the forecast was mixed, and Garth Turner, the MP who wrote Greater Fool: The Troubled Future of Real Estate, said in a Globe and Mail video that the crash is coming to Canada in the spring. How do we make sense of that?

And if there's no way for ordinary people to understand what will happen with the real estate market, there's also no way to understand why this economic downfall affects different geographies and generations so unequally. Dubai might seem like a cautionary tale, but that lesson isn't applied uniformly to every market.

Why should it be that those who bought houses in Phoenix (which was down 42 per cent at one point) or in the suburbs of L.A. (one famously named "Foreclosure Alley") now suffer, while those who bought in Vancouver's Kitsilano neighbourhood prosper? The Economist famously called Vancouver the "bubbliest city in the world," but there's been no crash here, and the most recent stats put the benchmark price up 6.8 percent since this time last year.

Though the Lauren Greenfield article and its commenters talk about the "justice" of the crash in places where the boom was so excessive, that crash didn't happen in all places where prices soared beyond reasonable and affordable levels.

Blessed are the landless?

Though most people I've spoken to who have profited from the boom tend to speak (smugly) of how they knew they were making informed and sound decisions, I'm sure those from crash towns whose houses are now worth half what they were felt the same way. And though many Vancouverites talk about how real estate is always a certain investment here -- there's the Olympics, after all -- different but equally solid sounding points were doubtless made elsewhere. When it comes down to it, none of us can really grasp the totality of forces that make some markets (and people) prosper while others fail.

Yet, it's created a new class system -- those who were lucky feel somehow that they deserve it. Which also means those who lost deserved it. And neither is true. So, if we're borrowing from religions and myths here, perhaps we should turn to those same systems for some lessons in compassion and humility. [Tyee]

Tyee contributing editor Vanessa Richmond writes the Schlock and Awe column about popular culture and the media. She is also the former managing editor of The Tyee.

12 Comments:

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  • Jeffrey J.

    2 years ago

    History Repeats Itself

    The more we read history, the less surprised we are about pending events. Whether one reads John Kenneth Galbraith's The Great Crash (1955) or The Lords of Finance by Liaquat Ahamed (2009), it becomes very clear that existing regimes that pontifcate about economic growth being endless are ALWAYS wrong. Always.

    Both of those accounts show how the identical conversations occurred 80 years ago, with very 'smart' people debating every aspect of the economy, and in every case, the elite ruling class were wrong. It seems to be something about drinking the coolaide, which causes a correlative lack of objectivity.

    Sceptics and contrarians are typically much more accurate in their concerns, and tend to be supported by the historical record.

    An excellent article about a significant aspect of BC's identity. I always look forward to Ms. Richmond's work.

  • Cynic

    2 years ago

    Another great book by

    Another great book by Galbraith is Money, Whence It Came, Where It Went, from which we get the famous quote: "The process by which money is created is so simple, the mind is repelled."

    Ordinary people can understand the warp and weft of real estate markets, Vanessa. Just apply your intelligence to the right subject. It's all about the money, isn't it? Well, where does it come from?
    Please see http://www.ohcanadamovie.com/

  • Cynic

    2 years ago

    Jeffrey, the elite ruling

    Jeffrey, the elite ruling class are rarely wrong, they just want you to think they are. They inflate and burst bubbles by controlling the flow of money. It's pretty simple, open the spigots or close them, and make hay either way. Until we get money reform, history will repeat itself, intentionally.

  • Paul Clapham

    2 years ago

    Of course it's luck

    And furthermore, all those people who boasted about their ability to pick other investments which went up in value -- that was mostly luck too. Watch them for another few years and you'll see that their so-called ability evaporates. When the prospectuses say "Past performance is no guarantee of future results" they aren't kidding. It's luck.

  • kl

    2 years ago

    Luck

    Indeed many Vancouverites, and Lower Mainlanders for that matter, have been lucky with their real estate purchases. But yes, it's just that, luck. The hidden hand of the real estate market has been debased to "pent up demand" yet when population growth in the city can best be described as negligible over the last decade pent up demand can hardly begin to explain what is driving prices upwards. Further, salaries in Vancouver do not match obscene real estate prices.

    There has always been talk of a bubble that is about to burst and surely, hopefully Vancouver real estate prices will come back down to reality soon. On the flip side those who bought at the high end will be unlucky. But in times like these investements can only be described as a gamble.

  • realisticman

    2 years ago

    About twelve years ago a

    About twelve years ago a good intelligent friend said I'd be better off to rent because housing prices were too high and would probably come down. He said, keep your money in the bank and earn the interest. I didn't listen and bought. Risking all my savings and risking too that I could become horribly in debt, particularly if a crash came. Well it didn't come and instead of earning almost nothing on cash because of low interest rates I now have a home and no matter if it's worth a million or a hundred thousand I don't care because this roof and this space is mine.

  • realisticman

    2 years ago

    Luck is not that important

    If I bought my home, to live in, for X dollars and the market crashes so it's now worth X-40% dollars and I want to, or have to, move, then what I next buy will also be valued at X-40% dollars within the same time frame. The important thing is whether or not I have paid down the principal of the mortgage/debt and am proportionally more the owner.

    Long-term studies repeatedly demonstrate that if one rents and SAVES the lower monthly expenditure, then one comes out ahead after many years, except in extraordinary times of rapid and substantial real estate values.

    The difference with buying to own is a bit like having children. It's more expensive but somehow you manage it. Buying is a form of forced savings that for many of us is not such a bad idea because most of us will spend it otherwise.

    Buying, for most, is a personal choice that has much to do with self-confidence and determination, as well as knowing whether or not forced savings is a good idea for oneself.

  • Cynic

    2 years ago

    Ownership of your home is

    Ownership of your home is not what it seems. What if you don't pay your property tax? Home's not yours anymore, sorry! Can you imagine? All those years of work and slaving to make those payments...

    Mortgage payments. If people only knew. Banks don't lend deposits. The money they gave you for your mortgage they printed up fresh. New money. Brand spanking. Unearned...

  • Yammer

    2 years ago

    Don't be hating

    This is now approximately the zillionth time the Tyee has decided to take down the evil/foolish/gloating/hubristic Vancouver homeowner. If one didn't know that the Tyee only stands on the right (er, correct) side of every moral issue, one might perceive some sort of class bias.

    As a homeowner, I feel a wee bit defensive. I don't think my situation is a result of either luck or smarts. It is the result of both. I inherited $20,000 when I was 19 from an uncle I barely knew. That was luck. Instead of spending it on a vacation, a car, or entertainment, I used it as a downpayment on a rental property. That was smart.

    I rarely spend any time congratulating myself on this, for two reasons: a) owning a house obliges a lot of user cost and effort in maintenance, to say nothing of upgrades; b) I fully realize the difference between paper equity and cold hard assets. I work a lot to pay the mortgage, which I deliberately keep well under my CMHC limit, in fear of a multi-point interest spike. I'm not saying that renters have it easy, but it's not easy for anyone.

  • rangergord

    2 years ago

    Duhh.....

    Don't worry your pretty little head about it Vanessa. Next weeks new movie should answer all your questions. Seriously anyone with half a brain and some discipline can educate themselves about economics and personal finance. Your success will most likely depend on the viewpoint you adopt. Either you believe in the status quo or you realize the system is in collapse. Where is your vested interest?

  • kl

    2 years ago

    The bubble is about to burst

    http://nbbusinessjournal.canadaeast.com/front/article/859810

    http://www.advisor.ca/advisors/news/economic/article.jsp?content=20091123_151516_6636

    http://www.yourhome.ca/homes/realestate/article/724613--mortgage-lender-warns-of-housing-bubble

    http://www.theglobeandmail.com/report-on-business/three-views-on-a-housing-bubble/article1365253/

    http://www.theglobeandmail.com/report-on-business/three-views-on-a-housing-bubble/article1365253/

  • realisticman

    2 years ago

    Here a bubble, there a bubble

    Didn't the bubble burst last year?

    The Canadian Press Published on Thursday, Dec. 03,

    "Residential real estate sales should recover in almost all major Canadian cities by the end of 2009, while average prices should post new records in an improved economic climate, according to a new housing report.

    The Re/Max Housing Market Outlook survey for 2010 predicts the uptick in sales will be lead by an anticipated 45 per cent increase in Greater Vancouver, while Ottawa and Quebec City are expected to hit historic highs in the number of homes sold.

    The report also says average prices are expected to improve in 65 per cent of markets as economic performance picks up.

    Eighty-three per cent of markets are expecting sales to increase over 2009 levels while housing values are predicted to rise in 91 per cent of Canadian centres in 2010. The remaining markets are predicted to match 2009 levels."

    Maybe it will bust in 2020.

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