Back then we were talking a lot about the stock market crash in 2000. We figured that, like most cycles in economic history, the bull market in housing was a direct result of capital fleeing out of risky equities into stable real estate. We both saw signs of economic growth in equities and figured that the local RE market wouldn't have legs to sustain the growth it had experienced over the past 18 months. I was decidedly bearish. He owned a house and of course didn't want to see a correction.
At that time, I was earning great money in a job I didn't want to do anymore. My dad was urging me to buy a home. I decided that a mortgage would be a life sentence to a less-than-satisfying job and decided to go back to school and get a university degree to open new employment doors. I could play the what if scenario forever here, so I won't. I don't regret the decision I made. Hindsight being 20/20, I realize I could have done both.
Fast forward to today. We have a rarely witnessed situation: parallel bull markets in both local RE and world equity markets. One seems to have endless legs, the other, I'm not so convinced. RE prices in the western world are correcting: everywhere except Canada. East of Manitoba, the market didn't have the heat that the West did, and manufacturing is getting hammered, so I believe the RE market will soften there very soon. West I don't know. I want to believe that Alberta will continue it's downward trend to a negative year over year loss. But I doubt it will. Currently it's negative month over month; it will take a massive hit for it to go below the 30% or so it had gained already this year.
So what is the Bear's Dilemma? Roger asked an interesting question over the weekend: "how low does the VREB published median price have to go before they jump in?" And that question my friends outlines exactly what the Bear's Dilemma is: when is low enough?
I've maintained on this site for some time that being an owner of a property is better than being a renter. There are many reasons for this:
- pride of ownership
- building of financial equity
- flexibility and security in living arrangements
- asset appreciation
The trouble for us is we can't find those kinds of places; either we'll be unhappy in the unit/neighbourhood for any great length of time or we'd be stretching our budget to the point where we can't afford to save for our other financial goals, like eating and retiring. So we wait for our income to explode or this bubble to burst. I wonder which will come first?
When prices start falling, how will we judge when is the right time to buy? All around us we're inundated with media extolling the benefits of buying property right now by telling us how good it would have been if we bought a year or more ago. When the market goes down the opposite will be true: societal reinforcer's--media and our peers--will be saying the opposite: "don't buy now you'll be losing money."
To which I state the only answer I can come up with for the Bear's Dilemma: "If you are happy with your purchase, you don't blow your budget, you don't compromise on your retirement and other savings, and you can live in the place you buy for 7-8 years or more, you will have nothing to worry about."
To answer Roger's question: for us, I figure that a 30% correction on the median SFH price in Victoria will give us the legs to get into the market and stay there.
Current median: $520,000
30% correction is: $156,000
New median: $364,000
Is this realistic? We hope so. If it's not, who knows what we'll do.