Originally Posted by
SailorRob
First of all, let's be clear on what I'm saying - I'm not forecasting a crash or anything like that, just saying that going forward returns are going to be very different and in real terms almost certainly negative for a very long period of time (with ups and downs). This could play out in a huge decline, a slow decline or no nominal decline at all but with a constant 3/4% haircut from inflation over many many years, or even a decent nominal rise with a real decline. Who knows, but what I am confident about it that prices will not continue to grow compared to wages and wages will not be able to grow in aggregate faster than the economy.
In the provinces when prices revert back to somewhat more normal price to income levels (3-5x) this isn't going to be good. How this happens who knows.
Am I advocating that nobody buys houses, and what is my position on what the average person should do next - well if we rephrase the question - am i advocating that the average person borrows 800/900% of their net worth to buy pretty much the most expensive housing assets anywhere in the world with mortgages topping 7% where they have no certainty of the value of the asset they are leveraging to buy and the returns going forward will almost certainly be less than the cost of their debt. Hell no.
So if like me, you could pay cash for a house, why the hell would you? What possible reason would I have for swapping my BRK shares with a likely 12% forward over the next decade for something that will likely be less than zero?
And then if I couldn't pay cash then why the hell would I borrow for the same thing? That would be even worse.
So yes I am advocating that no one buys houses unless you can specifically show me the math of how it will work out for you and give me a confidence interval. If you borrow to buy now then the pad will have to be worth more in the future than what you pay now less ALL your costs after netting out what rent would have cost you and maybe a factor for the security of not having to rent etc...
Show me the math.