A recent article by Cameron Muir dated August 29, 2005

Housing bubbleoney

By Cameron Muir, Senior Market Analyst
Canada Mortgage and Housing Corporation

I must admit that I sometimes chuckle when bombarded by Vancouver’s latest home-grown fad—Housing Bubble Mania. The armchair economists who populate Internet blogs on the subject have been prognosticating a Vancouver housing bubble for years now. The imminent crash hypothesis is based on what can only be called pseudo analysis supported by few facts. In these forums, only discourse that agrees with the cause is valid, and all else is labeled incorrect or even conspiratorial. The popularity of such opera is due, at least in part, to the fact that impending doom sells.

Today, even the chartered banks are weighing in, trying to reap the harvest of media exposure that accompanies any news release with Housing Bubble in the title. Of course, the banks recognise that the so-called bubble is an illusion, a fact contained in their research if anyone bothered to read it. Recently, one bank economist released the first of a supposedly quarterly report called Housing Bubble Watch. The bombastic title eclipsed only by the disclaimer, “it is impossible to identify a bubble before it bursts.” So why bother? Publicity, that’s why.

No reputable economist believes the housing market is due for a 1982-type collapse, where prices fell 40 per cent in one year. They will tell you, including those milking the Housing Bubble theme, that housing markets move in cycles, that today’s hot market will eventually cool and that home prices will likely edge downward before the next cycle begins. Headline material? Hardly.

Nevertheless, the spectre of a market crash is proving to be irresistible as bait for media attention. In fact, the Housing Bubble is merely a straw man propped up by some economists so they may knock it down in fine analytical style. It’s shooting fish in a barrel. However, an unintended consequence of all this is the anxiety created when people only remember the term Housing Bubble and not the rationale for why it doesn’t exist.

Housing is a long-term investment for all but a small minority of buyers. Those who choose to speculate do so knowing the risk. Long-term homeowners face much less risk and can more fully enjoy the many other benefits of their homes. This is the crux. Homeowners expect the market to ebb and flow, and the current market cycle is just that—a market cycle. No catastrophe is on the horizon. Don’t be fooled by straw men and housing bubbleoney.

Source: Timely Issues for REALTORS® - August 2005 (BC Real Estate Association newsletter)