To believe or not believe in the real estate bubble

Saturday, August 27th, 2005

Some wait to cash in when bubble bursts, others think real estate is reliable

Tom Everitt

Most adults don’t share the same enthusiasm as my one-year-old daughter when it comes to bubbles.

Over time, we discover that, unfortunately, what goes up must come down and that every bubble bursts at some point, leaving behind only soapy suds and a lingering memory of their beauty.

We all eventually discover some bubbles can be downright scary. Certain bubbles can not only be physically dangerous, like the fatal kind hopefully not found in your bloodstream any time soon. Others can be financially dangerous like the most famous bubble in recent time –the tech bubble. Remember that big, glorious gluttony of wealth? My former cyber-millionaire compatriots and their empty bank accounts remember that bubble for sure.

This brings us to what could be the most terrifying bubble in recent memory — the elusive real estate bubble.

It is terrifying because its pop could potentially diminish the net worth of virtually

every homeowner in North America and it is elusive because not even the world’s leading economic experts can agree on whether or not it actually exists.

Across our continent, economists, bankers, brokers, politicians, investors, homeowners and tenants are clearly divided into two parts.

First there are those that believe the bubble is real and that the North American economy, perhaps even the world economy, will come crashing down when interest rates inevitably climb. (We’ll call these people the bubblers.)

And then we have those who think that the real estate game has changed forever and that current values are simply reflective of the times. We’ll call these people the non-bubblers.

Bubblers come in all shapes and sizes and should be avoided by new home-buyers. These former ”friends,” co-workers or family members would rather shake their head in disgust when you proudly tell them of your real-estate purchase rather than simply congratulating you.

They will also inform you in no uncertain terms of their devious plan to buy a property or two (probably yours) when the market crashes (aka. The Bubbler’s Master Plan).

They then continue their verbal assault by reminding you of the price of your piece of property only three or four years ago or, even worse, how much they paid three or four years ago for the exact same one as yours. Bubblers proudly point to the fact that 17 subject-free offers on a one-bedroom clunker with faux laminate does not a rational real estate market make.

Some bubblers are either bitter because they didn’t snap up that three-level waterfront condo in 1999 for $300,00 or they cashed out of their own home at the “peak” of the market in 2003 and are still making their landlord richer to this day.

Then there are the non-bubblers. Considering 2005’s record pace for real estate sales in B.C., there seems to be an awful lot of non-bubblers out there.

Non-bubblers are those positive people that, for better or for worse, are filled with a sunny disposition and brimming with optimism for the future of B.C.

Non-bubblers ignore the pessimists and love to point out that Vancouver continually ranks as one of the best cities in the entire world to live in regardless of the increase in both real estate prices and squeegee kids. Non-bubblers argue that CMHC rules have changed permanently regarding things like deposit requirements (no money down), tax implications and eligibility.

These same shiny, happy people also note that while interest rates may eventually go up, they don’t think it will happen overnight and even if they do rise quickly, non-bubblers insist they are fully prepared and have a mortgage broker on speed-dial so they can lock in for 15 years at 5.68 per cent at the drop of a hat.

Finally, non-bubblers appear to be willing to throw all their eggs into one basket and insist that, for a great many people who have crashed and burned with various other kinds of retirement funds, real estate has been tagged by many investors as the most reliable and tangible RRSP of the new Millennium and, therefore, as safe a bet as any stock on the TSX.

So who’s right? Well, that’s the trillion dollar question folks. One need only Google “real estate bubble” to pull up more than 368,000 web links of arguments from both sides of the bubble conspiracy.

Interestingly, Warren Buffet, the world’s second richest man and one of the only men to have correctly predicted and avoided the tech bubble, is a bubbler for the U.S. market.

Others, like chief economists Helmut Pastrick from the B.C. Credit Union and Patti Croft from Vancouver’s Phillips, Hager & North, are on the non-bubbler side, pointing to a lack of conditions necessary for a bubble to exist in British Columbia.

Me? I’m going back to blowing bubbles with my daughter. They are a lot less daunting and more fun to figure out.

Vancouver real-estate agent

Tom Everitt maintains an Internet site at

© The Vancouver Sun 2005

Comments are closed.