A short history of everyone who's been wrong about Canadian housing
Because hot damn have there been a lot of people
Back in 2012 or so, life was good for ol’ Nelly. I was a potato chip salesman (yes, really) with access to all the salty snacks anyone could ever want. For some reason, despite a enviable position in an upcoming zombie apocalypse and a compound of chips, I was single. My now long-suffering wife was just a gal I’d flirt with on Twitter.
(Aside: if you want to cut your chip addiction, get a job delivering them. After staring at chip bags for 8-10 hours the last thing you want to do is crack a bag open. I had to beg people to take outdated chips away.)
More importantly to the scope of this article, I fancied myself a bit of an investor. 2021 Nelson cringes at how little 2012 Nelson knew, but I did have a solid portfolio of some better Canadian dividend growers that was offset by some deep value trash I bought in 2008-09 that did pretty well. The dividend growers were sold shortly after as I threw more of my cash at “deep value opportunities.”
Author’s note: it did not pay off for em. And by em, I mean me. Sure, I made some money, but I would have been much better off if I would have just bought and held solid companies, like I try to do now.
I wasn’t just lighting my money on fire going after sectors like coal (yes, really), defunct auto parts suppliers, and many shitty retailers. I was convinced the Canadian housing bubble was going to burst. I listened to certain commentators on the subject, researched their claims myself, and came to the same conclusion. It was only a matter of time until the Toronto and Vancouver real estate markets imploded in a huge way.
I was a little insufferable about it. Actually, that’s a lie. I was super insufferable about it. I was mean to all sorts of people who didn’t deserve it. And in an especially cringe-worthy moment, I was an absolute dick to a personal finance blogger — who shall go unnamed, mostly because I don’t even remember who it was — who had the audacity to buy a property in what I deemed as a crazily overvalued market.
Like any good overconfident investor, I was easily convinced to put my money where my mouth was. After researching the various options and realizing I didn’t quite have enough capital to bet against CDOs like in The Big Short, I did the next best thing. Sometime in 2012-13 I I bought long-term puts on the Canadian banks I considered to be particularly trashy. I went from being long BMO to essentially short in the span of a day or two.
I even texted a friend who worked at a bank to, I dunno, warn her I guess? I was probably worried she would lose her job after her employer inevitably blew up. Like I keep telling you guys — housing bubble Nelson was the worst. Although I never actually saw her reaction, it was probably a little bit like this.
This trade did not go in my favor, and after bank shares marched relentlessly higher for a few months I got out. Luckily for me it was just a small portion of my portfolio that had the potential to be much bigger if I was right on the bet.
Shortly thereafter I did a little post mortem analysis. The numbers were on my side. It was obvious the market was overheated. So what went wrong?
The answer didn’t come immediately, but I get it now. Houses aren’t bought by rational people who have weighed all the possible options and picked the most economically feasible one. They’re bought by emotional people who fall in love with nonsense like granite countertops or central air. These emotional folks will do anything to get the property they love, including getting into bidding wars with 46 other people.
Plus, the bubble arguments miss a really important point — immigration. Canada is letting in all sorts of people, and most of them want to live in Toronto, Vancouver, and Montreal. I think more should pick places like Calgary, Edmonton, Winnipeg, or Halifax, but hey. I get it.
The point of this now long-winded intro is this: I get why people want the market to fall, and I get why a certain subsection of the population is convinced this is all going to end badly. But the important lesson to learn, at least in this author’s opinion, is predicting big macro events like a real estate bubble bursting is hard. So don’t bother trying. Just sit back, relax, and rent if you don’t want to commit to a big mortgage.
So without further adieu, allow me to present a small sampling of people who have been wrong about Canadian housing. Turns out it’s not just me.
Garth Turner, Dec 29th 2014:
(I’ll give him credit - he was right about oil)
More Vancouver, 2018:
Finally, 2020. This one is my absolute favorite:
Guys. The head of CMHC couldn’t even predict real estate prices. And you think some schmoe like you or I can do it? Please.
I never miss out on an opportunity to dunk on Evan Siddall, btw.
BNN Bloomberg @BNNBloomberg#BREAKING: Evan Siddall named CEO of Alberta Investment Management Corp. https://t.co/ljLLeVUOEI https://t.co/c0d62Ppc4c
(Only eight likes? That’s criminal. All y’all who haven’t faved this have broken the law.)
Also, why would the head of CMHC even weigh in on housing prices? Their mandate isn’t to predict where the market goes. CMHC exists to make home ownership a reality for millions of Canadians who couldn’t save up the 20% needed for a traditional down payment. Hell, if anything, you could argue CMHC helped cause this “bubble.”
At one point, I even saw sponsored ads on Twitter, paid for by CMHC, warning people about Siddall’s prediction. What a terrible use of taxpayer dollars. Sure, CMHC is swimming in money, but still. Come on guys.
One important reason why these anti-real estate articles end up seeing the light of day is because they’re popular. Really popular. When I wrote for a certain Canadian investing website that shall remain nameless, pretty much a surefire way to generate tons of clicks was to write something bearish on real estate. So I did. Often. Despite not really believing the conclusion.
Look, the overall point is this. Calling bubbles is hard. So I try not to bother. I stick to trying to find interesting stocks with solid long-term potential at a reasonable valuation. And if they pay a dividend to help me with my passive income goals, all the better.
Stick around. Maybe I’ll even write about some of them on this here Substack.