Don't listen to the gloomers

Ten years ago, I wrote a story with a similar headline to the one above. Condominiums in False Creek were going down in value and the gloomers were out in force. In 1999, I wrote about the gloomers and five years ago I wrote a story preaching "faith." We had come through 9/11 and the "deflationists" and "depressionists" reigned.

Today, not a week goes by without someone sending me questions about this or that guru ("The depression/ deflation is going to come this time for sure..."). It makes me wonder, who are these people who forever preach doom in real estate?

Probably the same misguided souls who forecast the end of the world in 1974 when the Dow Jones average collapsed by 40 per cent and Vancouver house prices tumbled by 20 per cent. Or perhaps it was the crowd of the '80s as Toronto's real estate prices soared and we bemoaned our stumbling ways. Perhaps it was the crowd of 1990, who fearful of the 13.3 per cent five-year mortgage term told us to move out of real estate. The trouble is, of course, that they are always greatly respected gurus and seem so convincing at the time - and that makes them so dangerous.

So, beware your personal "It is a depression/deflation" gurus of 2008.

Probably the most distinguished gurus were the Club of Rome, which in 1972 issued the study "Limits To Growth". This "club," a collection of distinguished industrialists, scientists, economists, sociologists and government officials from 25 countries, was widely regarded as the top forecasting agency in the world. The study - in the making for some three years - produced a 197-page report that shocked the globe. The world would run out of gold by 1981, mercury by 1985, tin by 1987, petroleum by 1992 and copper, lead and natural gas by 1993. Growth was not sustainable.

The study had a phenomenal impact, yet while the world fretted, in reality growth came back bigger than ever. In fact, energy reserves, which were predicted to run out, increased by more than 50 per cent during the next 20 years (and as a result of enhanced recovery methods may increase by another 200 per cent by 2010) and oil reserves are now expected to last another 90 years. The price of oil, forecast to be in the hundreds of dollars per barrel, actually fell from $40 a barrel at the end of the '70s to $15, the price of agricultural products halved and in some cases fell by 75 per cent (adjusted for inflation). Natural gas reserves, estimated by the club in 1972 to be 1,500 trillion cubic feet, revised the estimate upward in 1987 (15 years later!) to 4,000 trillion cubic feet. Global reserves of copper doubled between 1970 and 1987, silver reserves climbed by more than 60 per cent, gold reserves actually rose by 50 per cent, and bauxite reserves were up by more than 35 per cent. In fact, all forecasts about dwindling supply were so spectacularly wrong that one might impugn malicious intent. Enough said.

So, beware your own personal gurus. Anyone wanting to project a future of doom, a future of less growth, should remember this fine club, because they were listened to, they were esteemed, they made sense at the time and they were wrong. Today's demographic gurus ("We will no longer want to live in houses") will also be proved wrong.

As far as we real estate investors are concerned, look back, go to the library and read the real estate gurus over the last 50 years. I mean the "now it is over" type of gurus, the "bubble gurus" and you will find out they were always wrong in the end. Owning real estate ended up outperforming most investments for the average family.

Owning your own home is the major and defining difference between North Americans and other countries of the world. Real estate has been the foundation of all wealth since Roman (Chinese?) times. It is the ONLY true wealth creator over time. The aspect of leverage (low down payments) allows a family to create an asset - an asset that can be inherited by the children. And that will continue throughout our lifetime.

This doesn't exclude the fact that you must do some research, some reading, some learning and some nail biting, but look at your Vancouver friends and relatives over the last 40 years - 20 years - 10 years - even two years. We could not have had a more volatile market and yet had you bought, at any time, you would have outperformed all others.

(prepared by Ozzie Jurock, special to Vancouver Sun)