How To Eat A Whale

How To Eat A Whale

***Edited from the original version***

Historically posts on this site have been focused on facts, logic, and basic math. The original version of this post strayed too focusing on the individual making the statements, this was bad form on my part. In this edited version and the segments that follow we will focus on facts. It is still a whale of a topic to address.

 

How To Eat A Whale

 

How do you eat a Whale?

 

One bite at a time.

 

Vancouver real estate is increasingly a whale of a topic, with disparate opinions and varying stats thrown around including the comments a of a US based stock market short-seller about Vancouver Real Estate and the Canadian mortgage market.

 

Short Version

 

Stock market shortseller:“Well I think the market’s going to go down somewhere between fifty and eighty percent.”

 

Myself: This comment seems to me to be detached from the many realities of our real estate market and our nation in general. The comment indicates a complete lack of understanding of such things as mortgage lending guidelines in Canada, basic geography, topography, weather, sensitive environments, and the ALR***.

 

***ALR – Agricultural Land Reserve, y’know that legislation put in place to protect land from development and preserve it for farming – like this 26M$ example. (not exactly a working mans farm)

 

Long Version

 

Such a drastic comment on the future of our markets comes across as fear based, not fact based. In fairness the spreading of negative information to promote fear is a short sellers number-one tool for profit.

 

Chicken Little?

A short-sellers motivation is what?

 

Is it to warn us all here in Vancouver of impending doom. A public service?

 

Or perhaps the motivations is to push market sentiment a certain direction in relation to a short-position against a Canadian mortgage company (Home Capital Group in this instance).

 

What about Dustan’s motivations?

Yes I am a mortgage Broker, but unless you are a previous client or are referred to me by a previous client, you are not going to become my client.

 

I do not accept cold-callers as clients.

 

So this piece is NOT being written to generate business for me. Nor am invested in Home Capital Group stock, although the more I dig into this story the more I am inclined to re-open my trading account and go long. Although those who know me, or have read this blog post, know that I am in fact 100% out of the stock market. I prefer real estate.

 

Ah, there it is this mortgage guy likes real estate! Well sure…

Yes, my wife and I own a home – a thing in which we live, which we bought (in 1995) to live in for many decades to come. The value of it is moot to us, for at least another fifty years (I hope).

 

Yes my wife and I also own two investment properties (purchased in 2009 & 2010) – which we have no intention of selling. Again making the value of the properties moot. In fact we are actively shopping for a third investment property – even at today’s prices as there are still some great opportunities. (I do eat my own cooking.)

 

So we are buyers (buy&hold), not sellers. These properties represent our retirement income. People can talk all they want about property values, but when was the last time rents went down? Exactly. The rental income is our pension plan. And tenants are paying off the 80% of the purchase price we financed.

 

So…

 

Part 1 (just one of the dollops)

 

Short-seller: “Well I think the market’s going to go down somewhere between fifty and eighty percent.”

 

Dustan – Now, just pause and think about that statement.

 

50% to 80%…

 

Setting aside some basic fundamentals that constrain our land supply,

 

let’s think about current levels of demand and consider a few simple facts, like the fact that more than 50% of the 48,000 people to come into BC over the past 12 months were Canadians migrating from other provinces. How many tens of thousands more do you think would pile in if our prices dropped by 50%, never mind 80%?

 

The domestic demand would be unprecedented, never mind external demand. And what would that huge spike in demand do to prices?

 

Exactly, it would drive them right back up. Instantly.

 

Before we pick up on Part 2, do take a few minutes to read The Big Short post which serves to clarify key differences between the US and CDN mortgage markets.

 

For a few minutes of verbal sparring between a bubble-believer and a moderate – click here

 

Thank you

 

Dustan Woodhouse

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