Etiquette: Telling People They’re Wrong

July 31st, 2008 by Potato

People don’t like to be wrong. I don’t like to be wrong — on the one hand I’m doing all this extra schooling so I can be Mr. Dr. Smarty-pants and be wrong less often, but on the other hand I’m a scientist and science is all about being told you’re wrong and learning from that. Occasionally the social situation crops up where a friend is doing something that I think might be, you know, not perfect, and I really don’t seem to handle telling them that very well. I nearly lost a good friend over something like this “Dude, guess what, I’m doing X.” “Man, it’s your life, do what you want… but I think that’s not going to work out the way you think it will. Seriously, rethink X.” “You’re a rotten friend, I’m not talking to you for a year.” “…but I was right…”

While I can be a bit of a loner, Dottie, a rebel, I do have enough of a clue to just bite my tongue when there’s nothing that can be done even if I am right. For example, I currently think this is a fairly terrible time to go off and buy a house, in a financial sense, yet a few friends and acquaintances have done it anyway, and I didn’t find out sometimes until the housewarming party. By that point there’s obviously nothing to be done. Now I just found out another set of friends is out there looking for a house, and I don’t know what to say, how much caution to give them. So far, I’ve just said “oh, you might want to look into maybe waiting or at least offering below asking — the days of bidding wars seem to be over…” The decision to get a house in particular can be a very emotional one, doubly so if you’ve just spawned and need more space for the rapidly growing F1. I really don’t want to be seen as the one shattering “the dream” with my damned Vulcan logic. Simply keeping my mouth shut to avoid an awkward situation isn’t really an option for me — they’re my friends. And isn’t putting your foot in your mouth in the best-intentioned way what friendship is all about? So how do you go about telling people they’re wrong?

…in person, that is. Of course here in the blogosphere you can just call people to the mat, pull out charts and references, and just generally make an arrogant intellectual ass of yourself :)

[Admin aside: I’ve stepped up my posting schedule the last few days as you may have noticed, and now I’m going to take the long weekend off. Rest those eyes!]

4 Responses to “Etiquette: Telling People They’re Wrong”

  1. Ben Says:

    Why isn’t it a good time to buy a house right now? Just curious b/c a friend of mine mentioned to me last night that he was looking, so I told him it wasn’t a good time to buy, but then I didn’t really know why not when he asked me…

  2. Potato Says:

    I think you arrived after we had the big conversation with Anita about it… so it wasn’t that hard to tell her I thought she was wrong. I don’t think I convinced her 100% (which I don’t expect to, given that I haven’t even convinced Wayfare), but I did manage to (civilly) state my case and she listened.

    Basically, I’ve got 3 arguments. The first is that real estate prices have gone up so much recently that they’re out of whack with the current rental rates. There are some rent vs. buy calculators around (and there’s a post on that here as well) to look at that issue in more detail, but the basic rule of thumb is that you should look to buy a place if the rent is about 150X the monthly rent or less; between 150-250X is more of a grey zone, and depends on a number of factors including how much you love the home and being a homeowner. Above 250X monthly rent, and it gets really difficult to justify owning vs. just renting an equivalent place and saving the difference — and from what I’ve seen, many homes in the Toronto area are in the 250-300+X range.

    The second is based on what’s happening around the world: Canada is just about the only country that’s not in some kind of real estate crash or correction. There are number of articles out there saying that the Canadian banks are more conservative, that we don’t have a subprime problem, and that the US housing woes won’t come here. The thing is, the US market didn’t go down because of subprime lending, it went down quickly because of subprime lending. As long as everything was going up (and it was nothing but up for about 10 years there) then the subprime mortgages weren’t a problem. But once things started to turn around, then everyone who was depending on their house being worth more to refinance down the road, etc., suddenly had to sell in a panic, all at once. It’s exceptionally difficult to say what caused that first turnaround, but it probably was due to some combination of the market realizing it was overvalued, overbuilding, oversupply, credit conditions, speculators dumping, etc. Many of those factors are present in Canada, which is what leads some to say we’re in for a “correction” or “soft landing” — even without subprime lending, the direction looks to be down or flat for Canada. Hell, real estate here should start to decline just because it’s gone down in the US, and all that media coverage of it puts a negative slant in the minds of buyers here.

    The third argument is based on what’s happening right here right now: the inventory levels are skyrocketing: more and more people are trying to sell, fewer and fewer trying to buy. Just look around your own neighbourhood and you’ll almost certainly notice more for sale signs, and that the houses that are for sale are sitting there way longer than they would have a year or two ago. That makes some people say it’s a “buyer’s market”, but truth be told, the real buyer’s market is yet to come. Prices almost always lag the sales volume trends — as more of those houses sit, unsold, for months at a time, eventually some will start getting desperate and cut prices, and that’s when the market will start to turn down. Adding to this is the fact that 40-year 0-down mortgages are no longer an option (at least, they can’t be insured by CMHC). That’s going to take a number of potential buyers out of the pool — without the extra demand from first-time buyers jumping in earlier in their lives with zero downpayment, prices will have to come down.

    Speculators add to this. People who live in their houses can just continue to live in them through a real estate down turn. But people who have “an investment property” that they intend to flip can get in real trouble as soon as the market starts to flatten. They often have to pay regular fees (mortgage, taxes, insurance, utilities) to have a place sit empty in the hopes that they can sell it for more later. Once they realize that the market’s not going up any more, that investment property becomes a huge gaping hole into which they are just throwing their money. If they don’t want to become landlords, or can’t rent it for a profit (and that goes back to my first point: that housing is getting to expensive to be able to rent out at a profit; that it’s cheaper to rent), then they simply have to sell. If there are a lot of speculators in the market, then these downturns can quickly snowball. Unfortunately, there is no central registry or statistics to say how many speculators are in the market, but I think it’s gotten to the “retail level” — I’ve heard far to many stories about friends of friends flipping houses or buying several pre-construction condos to sell for “massive profits” once the building is built.

    Added to that was a point specific to Anita: they don’t have a downpayment saved up yet, and don’t think you should go and buy a house without decent downpayment, at least 10% + closing costs saved up (20%+ is even better).

    Update: The “soft landing” talk has started to turn into “housing is cyclical” today:
    The great Canadian housing myth
    Housing activity set to wilt
    Another dip in home sales
    Home sales sliding

    Those last two links are the monthly updates from the Toronto Real Estate Board, which you have to take with a grain of salt, IMHO. Those are the people that really have a bias to say it’s always a good time to buy, it’s going to be some of the most positive spin you can find. They tend to use year-over-year increases/decreases as their preferred stat to report. They have a point: spring/summer sales tend to be higher value, so it doesn’t always make sense to compare say January sales to May sales. However, that means that any flattening/downturn won’t be seen for nearly a year due to the lag of reporting year-over-year numbers. July average price was below the June average price, as you can see, with the year-over-year increase at just 1%. Since that was into the double digits and even high single digits last year and the last few months, that to me says that there was some major downturn in the last few months to wipe out the 12-month growth. Even the TREB is predicting house price increases to come in barely at inflation this year. Even the people who are most optimistic on real estate are saying that there’s no harm in waiting — you’re no longer in any danger of being “priced out forever”, so tell your friends to take their time and build up that down payment.

  3. Ben Says:

    Thanks Potato, sorry to make you have to repeat yourself!

  4. Potato Says:

    It’s my job to be repetitive. Reptitiveness is my job. My job. Repetitiveness is my job.