By Ozzie Jurock
This article appeared in The Vancouver Sun
The big question: "When will the market crash?" (February 28, 2005, 3 PM precisely ... ahem!? I mean, what a question.) But also tons of questions about "Is there a 'bubble'?" (We see no bubble but some very poor 'fad' deals.) Where is inflation going? (Higher!) Isn't mortgage debt too high? (Yes, but only because we increased the national percentage of home ownership by 7%.) Are people still able to pay their mortgage? (Yes, because of lower interest rates debt/payment ratios are the same as in 1993.) Which market is good to invest in (the one where YOU negotiated the best deal for yourself.) Is it over? (No, it is NEVER over!)
And of course even questions on the Canadian dollar, oil prices and the stock market pour in. Usually prefaced with: "I know, that is not your area of expertise and I won't hold you to it ... but what do you think?" Oh well, I guess you long suffering readers know that 'yours truly' runs in where angels fail to tread, but the reasons for all the questions are clear. The world is an ever more confusing place. Every year it seems to get a little nuttier. Consumer debt seems to be soaring, stock markets crash and soar and even real estate investments - seemingly the only safe haven - now start to worry the 'yeah butters' again. I mean ... could it continue, would it not collapse this time?
Of course, a careful study of economics usually reveals that the best time to buy anything is last year. And while funny, that is really where I would like to direct your attention. The past.
Lest we forget, house prices (single family home) in Vancouver (and that applies throughout North America) were $13,500 in 1961, $48,000 in 1974, $120,000 in 1982, $180,000 in 1988, and $250,000 in 1992 and are $475,000 today. (On a 5% down payment or say $655 dollars in 1961, you would have made $474,355 profit. Tax free! Or some 71,500 % increase. These price increases are echoed in Spain, Ireland, England, Australia, the US - in fact everywhere in the world. That is, everywhere, where people want to live! You can still buy a $1 lot in Shell Lake, Saskatchewan (Manitobans can today enter an auction held June 15, 2004 for 700 odd - from $1,500 waterfront lots - call 1-800-282-8069), and I am certain that there are some choice cheap plots in Siberia too. But where people want to live and play, real estate values have soared. Soared? Soared!
But only in relation to our ever inflating dollars. The availability of money, the ease with which we can get it is the determining factor ... and will be so in the future. It is just harder to imagine today's dollars (which seem so real to us) depreciating as much. But imagine if you were back in 1965 in your $13,500 home ... could you have imagined a doubling in price...? Or a 10 fold? A 20 fold? Hey, this is precisely what happened. Actually, you don't have to go back that far. It is 2000 (close your eyes and imagine it!), do you foresee used condo prices in Yaletown rising from $100,000 to $190,000 in two years or in North Vancouver where the average single family home rise in price from $320,000 to $460,000?
So - you already have my conclusion, don't worry - be happy, prices will rise ... as long as there is excess creation of money and easy access to it. Just let your imagination soar. But is there excess of money? One word. Yes! The US created 1 trillion more last year and prices are soaring worldwide in hard assets.
The London Telegraph reported that 9 homes a day (a day!) sell over 1 million pounds (1.8million dollars), US real estate is soaring ... all because of excess cash. The astounding appointment of 'easy money' Greenspan (another 4 years) before the election also points to more of the same.
Will it continue forever? Of course not, no market ever goes up in a straight line forever. That is why YOU should be concerned always with the personal deal that you are investing in ... and understand your motives, as well as having an exit strategy.
So, don't you worry about anything Ozzie? Of course I do. I lived my life worrying on behalf of my clients. Personally, I worry about higher interest rates (although less after the extension of Greenspan's contract), I worry about old downtown condo conversions in Calgary, Edmonton, Toronto and Vancouver, I worry about time shares, condo hotels, some native land deals, leased land, people that don't do any research, people that stay short on their investment mortgage, people that buy foolish Limited partnerships without checking on the principals. But I am not worried about an astute investor looking to buy with little down payment in a good town (Abbotsford, Langley, Cloverdale, Chilliwack, Harrison Hot Springs, Nanaimo, Cumberland, Parksville, Chemainus, Duncan, Prince George, Kamloops) where the tenant pays off the mortgage over time. Nothing like creating unearned passive income. Nothing. It creates a self actualized life. As I wrote here a few months ago. If you can find ... 5 condos anywhere in BC and Alberta (and you can!) without any or little down payment, that pay you $800 in rent ... you can own them in 18-20 years and with that $4,000 per month income you can pay off a million dollars. And guess what, it matters not whether values went up or down or rental income soared and what the economy did or did not do. Plan for unearned passive income in your real estate investments ... it forces you to make the right decisions ... and don't worry. The only statement I have consistently heard every year for 35 years: I wish I bought 5 years ago.
For more real estate investment advice, visit Ozzie Jurock’s website at Jurock.com
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