Monday, March 15, 2010

Why are analysts so often wrong?

Ok I could start this post with a cheap play on the word anal-yst, but I won't. How many RE analysts forecast the sudden drop in demand and the free-fall in RE that took place late 2008? None. They mostly called for slowly rising prices.

What about the huge rebound since 2009?

Nope. Most called for a gradual stabilization or slowly rising prices again.

None of them called it. Why? Because there are sooo many variables, some of which we can guess at, most of which we cannot.

Larry Yatter has pulled a quote from Cameron Muir, the BCREA Economist, which is below.

“As we settle in to a post recession economic environment and bask in the benefits from our Olympic legacies, take comfort in knowing that during the worst financial crisis since the Great Depression, the Vancouver housing market suffered only a few bumps and bruises, and the healing process is now complete.”

I have nothing against Cameron, in fact we would probably have a good talk about economics over a beer. However I cannot see how anyone can make any predictions, when so many unknowns exist out there.

It is lucky that analysts aren't held to their predictions, unlike..say bridge engineers or aeroplane designers.

Lets think about us bears. We have been looking at affordability as our main measure.

It hit all time lows in 2008 and os we reasonably expected a proper correction. Especially as the financial world started to unravel.

It started and then the government panicked and dropped rates to all time lows, ever, never before seen. Ergo the affordability went up again. The industry..developers, RE brokers, mortgage brokers, CHMC, banks- all rejigged their numbers and showed buyers how much more they could afford. The party was off again and we are now at all time highs in most parts of Canada.

Who could have possibly forecast it?

Lets look at the variables -we are in a worldwide recession where large banks were saved from bankruptcy, the US has over 10% unemployment, we have 2% higher unemployment than 2008, the Federal and Provincial governments have brought down huge deficit budgets and we are still heading into huge debt for the foreseeable future, Ontario's manufacturing sector is in trouble, Alberta lost 15,000 jobs last month, large countries like Greece are on the verge on defaulting, to be followed by many more...etc etc

All these variables added up to nought!

The ONLY variable that dragged this bloated bubble out of the gutter, were the emergency rate cuts to zero (almost) and the pumping of the CHMC. It wasn't the Olympics, because the whole country has seen a rise, especially Toronto, where the Provincial debt is in worse shape than ours.

Who would have thought it?

How could an analyst have forecast that?

They can't. They look a few things and then make their best guess and sometimes they end up being right FOR TOTALLY DIFFERENT reasons!!

In any case, take all analysis on the net and from wise words from experts with a pound of salt. Look at the numbers yourself and do what feels right. Where is the pain more? Buying an over-priced asset that may go down, or watching that asset go even higher. That is the crux of the decision.


  1. Ireland has 12% unemployment and up there with Greece on debt/GDP. Happy St.Patrick's Day!

  2. Fish when China's bubble bursts ours will too.

  3. Frank - I think it is more related to interest rates.

    The rates in the US and Canada are irresponsibly low. they are punishing savers and rewarding debtors.

    The idiots at the Bank of Canada keep saying people are piling on too much debt and housing is going too high- duh- raise rates and both problems disappear.

    However the US Fed and their Canadian ex-Goldman Sachs clones have helped cause this financial mess in the first place, so I didn't expect anything else from them anyway.