Friday, June 10, 2011

The Toronto Star - More Housing Propaganda

It's everybody's favourite kooky left-wing paper - The Toronto Star! Helmut Pastrick is spewing nonsense...

Looking back my biggest money mistake was waiting too long to buy a house.

Really Helmut? It wasn't buying into the Dot Com bubble?

I also bought Nortel stock and lost money, but missing out on long-term housing price gains was far more costly.

Fool me once, shame on you. Fool me twice.... And it's clear I don't have any understanding of business cycles, misallocations and malinvestments, and the fact that whatever happened in the United States can never happen here!

in my 20s, I was an economist at the federal housing agency CMHC specializing in analyzing the housing market. You would think I would have taken quick advantage of home ownership.

You would think that you'd have a better understanding of how fucked up the fundamentals are.

Here are three reasons why buying a house is a good idea:

1. You build equity

Buy a big fucking house and then fill it up with a bunch of cool shit like big screen TV's and an indoor hot tub. All you need to do is dip into your home's equity!

2. It is an appreciating asset

Home prices decline when the economy turns down, but the long-term trend has been and will continue to be rising prices. The reason is supply and demand. As someone once remarked – “Buy land. They ain’t making any more of the stuff.” Land supply constraints for residential development exist in most markets.

Oh my God. Those were the exact same arguments the Americans were sprouting five years ago. A house is not an appreciating asset. It's expensive consumer good that depreciates; like a car, or a computer, or clothing.

3. Demographics trends are favourable.

The Star doesn't have much credibility, especially when it comes to business and finance, but this is just getting ridiculous now. Someone should send Helmut some primers.

Indeed, some commentators point to record high price-to-income ratios as a sign of over-valuation and warn the housing market is near a tipping point and the price bubble will burst.

Yes, it will become increasingly difficult for first-time buyers to achieve homeownership since affordability will decline in the long term. Fundamental housing supply-demand forces will drive higher prices while incomes lag.

So the bubble will burst but real estate prices will rise? Only with government interference of the price system.

But this should not discourage potential buyers from their goal, but they need to adapt to those circumstances and be smarter with their money than I was.

Exactly. In order to be smarter than our friend Helmut, potential buyers should acquire a basic understanding of the business cycle. Second, they should leave the country and look for better opportunities abroad.

Tanstaafl, Canada.

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