RichardGibbons

Plus, black swans are not necessarily unusually bad events, even if the most recent example in the market was unusually bad. You can have unusually good events too. (e.g. Harry Potter, Bill Gates, maybe oil going from $10 to $143). I don't think exclusively playing the downside is a requirement of the theory. Richard

Hi Philip, Yeah, for me, the main goal is to maximize happiness, not maximize money, so I can't argue with your decision to stay in your place. It is a lovely house. My parents live in Qualicum, near Parksville. If Parksville's demographics are anything like Qualicum's I could see that the stock market drop and low interest rates could have more of an effect on rents there than other cities. If a large chunk of that market is retirees whose primary source of incomes was investments, that could have a significant impact on rents. I'd agree with you on the mortgage rates having a bigger impact than unemployment. The interesting thing is that I've been looking at this stuff for a 3 or 4 years, and historically there was much higher correlation between unemployment and prices than there was between interest rates and prices. But I think that may no longer be true, since housing is priced so highly that it's only feasible for a large segment of the population to buy when rates are extraordinarily low. This time it's different. ;) (The other fun real estate-related stat I saw a couple years ago was that something close to 100% of Vancouver's employment gains during the last boom were jobs in real estate.) Richard

Nodnub, I'd agree with most of what you said. The Vancouver housing market is in a bubble, and will almost certainly correct significantly in real terms. The typical ratio between median household incomes and median housing prices is about 3. Even if you consider Vancouver attractive enough to warrant twice that ratio, Vancouver at the peak was somewhere areound 9. So, that would imply a 33-35% correction. The price to rent ratio is out of whack too. Not so much as it used to be because of falling rates, but if you're buying, you probably shouldn't get a 30-year amortization mortgage on the assumption that mortgage rates will remain at multi-generational lows for the next few decades. If you assume reasonable long term interest rates, the price to rent ratio is insane. (When I looked at it last summer, the typical family would have had to spend 70% of their gross income to buy the average house with 25% down.) The correction is extremely likely to happen in real prices falling rather than rents rising, because rents are constrained by rationality more than prices. If you earn 60K, you really won't rent something that takes 50% of your gross income, whereas if you're buying, you can do that, because someone will lend you the money even if you're unlikely to be able to afford it. So, I think the most likely scenario is falling prices in Vancouver. (That said, I'm talking my book since I'm someone in Vancouver who could afford to buy, but is renting.)

Barring a conflicting commitment, I would attend.