News Flash: Predicting Real Estate Prices is a Fool's Game

We have a friend who told us real estate prices had peaked in 1998.

Carol and I bought our first family home in the early 2000's; we paid $267,000 for a 4-bedroom fully detached, two-car-garage, home in Mississauga.

Sounds like a deal today right? When I signed on the dotted line, I literally said out loud to the sales guy, "someone's gotta buy at the top of the market, might as well be us." I was both half serious and half joking.

Little did I know, we would sell that home two years after moving in for $100K more.

There is a fundamental problem in trying to predict real estate prices.

Real estate is a hard asset, it's a "thing" that you can touch and feel.

Cash isn't.

The price or value of cash is decided on the whim of the Bank of Canada.

Got that?

Hard assets have value in and of themselves.

The value or price of cash is dictated by the Bank of Canada.

Stick with us for a moment and let's take a peak at some charts to illustrate why trying to predict real estate prices is a fool's game.

Did all the people who have been calling for a real estate crash in Canada since 2007 predict the Bank of Canada would keep rates at historic lows over the next 15 years?



Does anyone really know the exact effect on housing of all the immigrants pouring into Canada and the Ontario real estate market?

Did the mainstream financial media see this massive Canadian Dollar crash coming?


Predicting prices is fun but it's not very effective.

For those of us looking to use real estate as a way to increase our net worth, there may be a better model to analyze real estate.

Perhaps, the better model to analyze real estate isn't to use the price.

The "price" doesn't tell us too much. It's too easily manipulated.

Perhaps, the better way to analyze real estate is as a productive asset.

Most people won't get this idea. They will be stuck on the "price" of real estate.

But if we analyze real estate as a productive asset, then our problem doesn't become the "price" of it.

Our problem becomes finding properties that produce more income than expenses in areas with sustainable demand.

Sometimes this is easy, sometimes this is difficult, but this is the game.

The price is just a component in the analysis, not the "be all and end all."

Our problem changes from arguing about "the price" to finding properties that are productive.

Our problem changes from arguing about "silly people are for paying what they paid" to finding properties that will stay in demand.

In our opinion, it's a much more constructive model to work with.

And once we find such a property, our biggest risk becomes controlling the borrowing costs of owning it.

No one is going to control the actions of the Bank of Canada or other central banks, which will largely dictate "the price" or property.

We can just accept that the price is going to swing both up and down.

It's not worth time even debating that.

But it is worth our time analyzing properties, locations, and controlling our costs.

This is exactly why you want to spend a lot of time watching what the Bank of Canada and the global economy is up to.

We live in a world where Canada is affected when China's economy falters. We live in a world where many people outside of Canada are scrambling to get their money into Canada. We live in a world with more debt than ever.

THIS is the type of data that we need to watch, not the ups and downs of real estate "prices."

Using the wrong lens to analyze real estate will keep you out of the market forever.

You should know our own personal biases: we strongly believe that people without productive hard assets in their lives are going to wake up in a much poorer place ten years from now. We're sharing this because we don't want it to be you. That's our lens.

Together, we believe we can use these global trends around rates, currencies, oil, debt etc., and ride them to victory 🙂 (OK, that sounded super cheesy but fun, no?)

Until next time ... Your Life! Your Terms!

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0 comments on “News Flash: Predicting Real Estate Prices is a Fool's Game”

  1. Cheesy that last line??? Don' t think so was the best line...!!!!! a vision with passion..."and ride it to victory"...I too believe in understanding the geo-political environmental system we"re in & make that system work for you!!!
    Enjoyed the article very much and thanks for sharing your thoughts & insights....until next time...OUR LIFE..our terms

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