Recently @Douglas Coupland quipped on Twitter that 2013 was a very bad name for a year so he was going to rename it Tammy. Tammy sounds like a hurricane name to me.
But then again perhaps thats what we can expect.
Hurricanes , to me , imply strong winds that go in circles. With regard to Real Estate how long have people been calling for a serious turndown only for us to see a mild correction and then swing up again- even higher.
I remember an old joke about the guy lost in a hot air balloon. He sees a fellow down below and yells "Excuse me, can you tell me where I am ? " to which the fellow below yells back " You are in the air". The balloon man shakes his head and says " Surely you are an economist !"
" Yes " replies the fellow, " how did you know?" " Because " says the balloon man, " your answer was totally right and totally useless".
Telling me exactly why prices went crazy the last few years does not help me in figuring out where they are going to go.
Stats, smhats. We have entered unchartered waters and there are as many reasons why this can go on longer as why this can end tomorrow.
Are you going to stop buying cheap replica trinkets for a quarter of the original costs? Will enough people finally say I want to buy things that last and will pay for it? If not China will keep booming.
China is making more millionaires a year, and taken more people out of poverty in the last few years than anyone could ever fathom. This has been on the backs of some large corporate brands.
It is a vicious cycle. Our companies are tightening spending so we are working more and maybe getting paid less so we are buying cheaper stuff. That stuff is predominantly made in China. So the Chinese people are making more money and wanting to invest in less volatile regions. Welcome to Canada. Hurricane Tammy strikes again.
Here is an interesting graph showing the psychology of investing. This was done by Dr Rodrigues of Hofstra University.
Let me follow that with a graph of Real Estate trends since 1977.
If you look to the right, you see the similar double peaks. Scary isn't it?
BUT, I don't predict the massive drop with rates still so low. If I can borrow at 3% interest , eventually a significant drop in prices will mean I can rent cash positive and I would do that over paper stocks anyday. In some less desireable areas, yes i think prices will go down. But if we treat Real Estate investing as an emotional, confidence based type of investing ( isn't all investing that way?) then I would proceed with caution.As always, get very good advice before any major purchase.