Friday, 11 January 2013

Is there a bubble or not? What do people think?

Mass media always tells us what big banks, real estate firms or famous economists think will happen to the housing market, but what do the rest of us think? I picked an article by CBC, ( and reviewed first 141 comments posted.
I was curious to see the percentage of people who thought that the real estate market is going to crash in the near future.  I organized the comments by the following categories; market will correct, no crash, no side, and irrelevant. 
Market Will Correct – This category included all the people who thought that there was a real estate bubble in Canada, who thought there was a major correction was coming, who thought that market was unsustainable, or where ridiculing how expensive the market is. Below are some of the comments in this category:

“A child can see what is going to happen now. After all, when you have no underlying incomes or ecomomic growth (as in Vancouver, Toronto, etc) what is there to support outrageously high house prices?
“When I first entered the house ownership market (circa1970) the suggested rule of thumb was that you spent 25% of your income on housing. That figure now seems ridiculous. What happened? Let me answer part of that. The gouging greedy pigs got to the trough and found out how to parasitically bump up prices to where they are at heir ridiculous values now.
“Yep. You know you are in trouble in Ontario when the only economic activity is in immigration consulting and residential real estate speculation.
“If your house ownership strategy cannot survive a doubling of current interest rates, and a 15% drop in property value when you renew your mortgage, then you are living on a bubble.” 
No Crash - This category included all the people who expressed in their comments a belief that things are different in Canada, that there will be no crash and that even though a real estate crash has been predicted in Canada for years, nothing has happened. Some examples below:
 “well gee, do i live in fear of a housing crash? or of the polar ice cap(s) melting? or ? there's only so much fear to go around. so, instead, i will carry-on and not spend unnecessarily and not worry about all the crises that are being shovelled at all of us. i wonder how many are real...” 
“It is my understanding that in Vancouver at least, house prices have always been high. That may be more to do with geography (there's not much room) and climate (it doesn't snow very much in the winter) than anything else. It is highly unlikely that a US style housing crisis will hit Canada any time soon. The difference is that in the US you could buy a house with no downpayment, no assets and no job.”
“So we have another doom and gloom news paper expert wading into the crap they post. Three years ago these same idiots were predicting that Canada would fall into a deeper recession that the US was in, (and is still in for the most part). The Canadian banks were supposed to collapse two and three years ago. The looney was supposed to be worthless. The housing market was supposed to collapse two and three years ago. Canada's job loss was supposed to be in the double digits two and three years ago.
“Well all you self appointed experts, you have made a complete a*s of yourselves again. Canada is still the shining light on the global economic pole. Why don't you blow hards go find some other media to work in. Like comic books for instance.

Undecided – This category included people who expressed their uncertainty whether there was something wrong with Canadian real estate or not. The key word here was “if”.
“If you get into trouble if prices drop or mortgage rates increase, its not the banks or governments fault, its your own fault.”

“If you purchase a property with only 5% down, you know at the time you make the purchase that if the property's value drops by more than 5% you will owe more than the property is worth. If you make the decision to buy anyway, you take the risk, no one else.

Irrelevant – These were all the comments that did not express a clear opinion in regards to the real estate condition in Canada. Examples:
“In the process, household debt has doubled, going from a manageable 75 per cent of household income in the early 1990s to 150 per cent today.”

“Huh? How can debt be 150% of income? Only the government can pull that off.
“The housing market of any country is the exact reflection of how well or how poorly the country is doing.

Results - The original article contained over 300 comments, and I only examined the first 141. Almost two thirds of the comments were irrelevant, as you can see on the graph below, while just over the half of all comments thought, directly or indirectly, that the market is going to correct in some way or another. While I did not group the individual comments any further, the biggest theme was how overpriced houses and condos are especially in Toronto and Vancouver (surprise, surprise). 
Now, what do you think?



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