I get quite amused when people get so wrapped up in the bubble debate that they read things into what I say and try to make me some sort of anti-bubble Crusader advocating instant buys at any price.
I’m not convinced by any of the arguments I’ve heard for a Vancouver real estate bubble. Sorry. If you’re one of the people making one of those arguments, you failed to convince me. Here’s the good news: its not a big deal. We can have different opinions, and we can all spend or save our money any way we want.
I have read some interesting things in the bubble arguments that I’ve seen. Comments about the mortgage gap, the coming supply of downtown condos and net migration levels are only some of them.
I’ve read other things that either strike me as old and tired (borrowed demand from the future, affordability), because I’ve heard them for literally decades. I’ve read still more things that strike me as predominantly emotional, rather than reasoned, and those are probably the least convincing of all the bubble arguments.
So, where do I stand? Its not mystery. I don’t think we are in a bubble. I don’t think corrections only come after a bubble; they can come after any notable price advances. We’ve recently experienced notable price advances, so we’re due a correction, but I don’t think corrections always come on time. I also think that the longer something doesn’t happen, the longer the opportunity exists for something else to happen.
That’s it. That’s my stand on the bubble. Not much of an argument, I realize, but I’m not promoting it as an argument. I’m just saying that bubble promoters don;t convince me.
I look out upon a world that I find very complex. As the years pass and I learn more, it appears more complex, not less. I take no reassurance in over-estimating my ability to understand it or decipher its ways.
I’m fond of saying that the real estate market is going to change because it always does. Its a cliche, but its a cliche that lasts because its true. A correction is coming. So is a rise in prices. If you can time the market you can make a killing. We’ve seen that time and again.
I’ve never succesfully timed the market, and I’m not sure I can do it. I’ve never made the killings I’ve seen others make. Based on my experiences it would be arrogant of me to assume that I could time the market. It would be hypocritical and irresponsible of me to recommend market timing to my clients. I have clients who have market timed, but they didn’t do it on my advice.
I prefer “time in” the market to “timing” the market. “Time in” has worked for me and for clients that I have advised. Time in is based on an assumption (“assumption” being a very important word) that the real estate market will trend upwards long term. Some assume an upward trend greater than inflation, some don’t. The difference isn’t that important. The important difference is “time in” versus “timing”.
Buying anything, anytime, on the assumption that long term the market will rise is foolish. No thinking person would ever recommend that. (For that matter, no thinking person would ever suggest that I’ve recommended that). Buying anything anytime reduces “time in” to “timing”, without making use of the arcane skills that market timers use. Its a mug’s game.
The time in approach requires making use of at least some sort of rudimentary analysis. The easiest and one of the most sensible ways to approach it is to apply certain metrics to your potential investments. Decide what kind of break even point, what kind of rent multiplier, what sort of internal rate of return and what cash on sale after a specific time you like. Those are personal decisions. Be too strict and you’ll never get in the game. Be too cavalier and you won’t stay in the game unless you have a high paying job. All things considered, I like 25%-45% down to break even, and a rent multiplier of between 150 and 175. If I can get those two things I’ll look more closely at the other metrics, not to mention the characteristics of the property itself.
What does that mean today? Its pretty simple. If I find something that breaks even with 25% down, and has a realistic rent multiplier of 150, I’ll take a very hard look at it, and if I’d buy it myself I’ll recommend it to others.
Given today’s market conditions, does anyone think I’m finding those kind of properties? I’ve highlighted those kind of opportunities in the past, of course, but I don’t think anyone can say I’ve done it lately. Why? Again, simple: they’re hard to find.
That’s a benefit to the time in approach versus the timing approach. When railbirds crow that its a terrible time to buy its also generally tough to find good buys. Of course, that doesn’t mean you don’t look, and it doesn’t mean you suddenly decide that you can time the market after all, now that it seems so obvious. A little discipline and humility is often in order when everything appears to be crystal clear. And of course, discipline and humility can prove the railbirds wrong.
If the preceding is difficult to understand, and if you think it means “Buy now or be priced out forever”, you haven’t gotten my message.
If you think it means “Don’t rent, only buy”, you haven’t gotten the message either.
If you tink it measn “Buy anything and sit back, don’t worry, you’ll be fine”, again, you’ve missed the point.
If you think it means that if you want to buy investment real estate I recommend abandoning market timing and embracing an objective, disciplined approach, even if easy opportunity doesn’t seem plentiful right now, then you’ve got the message. (Yes, there is more to the disciplined aprroach than the 4 metrics I’ve touched on).
If you think that message is an anti-bubble argument, you’re fooling yourself.