Book Review: Greater Fool

Ok, I’m a little proud of this.  I managed to get my library to buy a book for me and so I was the first one to read the copy I got.  A brand new book and I didn’t pay a cent for it.  I love my library!

Anyways, back to the matter at hand.  I recent finished reading Greater Fool: The Troubled Future of Real Estate in Canada by Garth Turner.  It’s basically just has one message to all Canadians.  The sub prime melt down of real estate that is going on down south.  Well something similar can happen here.

Obviously not a popular idea to write about.  We Canadians have been on a diet of steady increases in real estate for so long we tend to forget about the last time the market went to hell on us.  Good old selective memory and the cherished belief that things are different this time.  I tend to agree with Garth that we have a bit of a bubble in real estate prices.  When the average home owner can only afford their average house in a city with a 40 year mortgage something is not right.  The real issue is how big is the bubble and how much of a correction will we have.  Neither of these questions is answered in the book.

The other thing that bothered me about the book was the lack of organized thought.  Garth seems to wander around a fair bit and repeat himself which makes section of the book not so enjoyable to read.  I also disliked that many of the graphs he provides where printed too small so studying the data in detail is impossible to do.

Perhaps the thing that made my wife the most pissed off when she read it was the idea you should sell your house now to cash in before the bust and rent until the bust. I agree it is potentially an over reaction.  Garth states that big house in the suburbs will be hardest hit and smaller houses (less than 1200 sq feet) that are close to services that downsizing baby boomer would like to buy should do alright.  Really that advice is hardly new.  Good location and a nice layout are key when buying a house.  Ignore them at your own peril.
So overall I did enjoy reading the book.  It is a nice slash of cold water to keep people from getting overly excited about their house going up in value.  Something that many people could benefit from right now.  Yes the book has it’s faults, but the message itself was interesting.  Anyone else read this one yet?  What did you think?

5 thoughts on “Book Review: Greater Fool”

  1. Sounds like Garth figures that average working class wages have remained reasonable and that real estate prices went too high.

    Could it be that working class wages have not kept up to the true value of things? If so….would real estate prices still decline?

    Just stirring the pot a little!


  2. I read the book a few months ago and was impressed. It’s nothing I didn’t suspect before and Garth Turner’s point of view just added strength to my opinion that we’re in for either a long, slow price decline or a sharp market crash followed by a long period of stagnant prices.

    I am selling my home right now and will be renting for the next year or two while we look for a home in Vancouver. I suspect that waiting will afford me a lot of great buying opportunities from motivated sellers. The Vancouver market, above all others in Canada, is way too overheated.

  3. Home prices have certainly been going up faster that inflation in the past decades. With clever financial engineering, banks are able to squeeze the lemon even more by granting 40-year mortgages, or even “pay-interests-only” mortgages. I’ve heard that in the US they even had plans which would let people pay only interests partially and apply the difference to the loan principal!

    Previous generations were paying far less for their houses. My parents had theirs paid out in 6 months, and my wife’s parents in under 10 years (they are in Europe and prices have an edge there). Two examples don’t make a statistic but it’s just to illustrate my point.

  4. CM,

    Actually that is an interesting idea, but the result should be the same. In a market where price is partly a function of what people can afford prices can’t go up forever. There simply won’t be any market left of people that can afford to pay those high prices.

    I also think the prices increase is from first time buyers expecting too much. Our parents used to get a little starter home in acceptance of what they could afford. Now people are starting off with 3000 sq foot + homes and they think that should be normal. Yikes!

    All in all it should be an interesting ride down.


  5. I like the book. As I am not a real estate speculator, I am not in a panic with respect to my housing market prices. I have a buy a hold philosophy here too.

    I found his suggestion of real estate holdings amounting to 30% of portfolio interesting. After whipping out my calculator, I realized that that is where I am heading without realizing it. I just never thought about it as a percentage before.

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