This exchange regarding personal knowledge of former bears buying, at mohican’s Housing Analysis blog 9 Nov 2009, starting 11:34 am -
M- : “I’m wondering who’s left to buy– in my group of friends and acquaintances, my observations on who has bought are:
-2006-2008: non-bearish friends and acquaintances who could really (or in two cases couldn’t) afford it, bought.
-2009: bearish friends and acquaintances bought (all of them).
Yep, in my circle of friends and acquaintances, all of my bearish friends (with the means to buy) have bought. There are two exceptions: myself, and a couple who just returned from overseas. Aside from them, the only other renters work low-wage jobs, or are recent graduates.”
mohican: “I have observed the same thing within my circle as well. Including myself, most bearish friends have purchased already. They largely took advantage of the winter 2008 price dip and negotiated hard to get a decent deal. Many are still bearish – including me – but just wanted a little lifestyle certainty and were willing to pay for it. I don’t know where the future buyers will come from – overseas? The ownership rate is at an all time high right now as per statscan.”
david: “When bears capitulate isn’t that the sign of a market peak?”
4 responses so far ↓
Nelson Yee // 15 November 2009 at 7:01 am |
I find it interesting that real-estate “bears” would buy at a market peak, because I can’t think of an equivalent in other types of markets, like more liquid stock/futures/derivative exchanges. It’d be the equivalent of a guy who was willing to short Nortel buying into it after a while, just through psychological exhaustion. I wonder if it’s partly due to the slowness and duration of cycles in real estate, that a typical person will have a hard time waiting it out.
vreaa // 15 November 2009 at 7:41 am |
Nelson, thanks for the comment.
Actually, this phenomenon is common in all markets.
The bears capitulate at tops, and the bulls capitulate at bottoms.
In the example you give, the guy who is short Nortel capitulates and buys (covers his shorts) during a ’short squeeze’. The psychological ‘exhaustion’ at that point is usually largely fear.
In a similar fashion, you could see Vancouver RE bears as people who are RELATIVELY short RE, in that they would like to own. The capitulating bears ‘give up’ and buy despite rising prices.
When the last bear who is going to capitulate does so, the peak is ‘in’. The theory is that at that point the pool of buyers has been depleted.
Nelson Yee // 15 November 2009 at 1:11 pm |
It’s a good attempt at an analogy, comparing this to a short squeeze, although structurally I think it’s a little bit different — in a short squeeze, the buyback is required, whereas in the real estate market, there’s no actual requirement except psychological factors. But again, it’s in that difference where real estate and more liquid markets diverge, since real estate as an asset gets conflated with the requirement of an abode.
vreaa // 15 November 2009 at 6:25 pm |
Nelson, thanks for the discussion.
Although the ’short squeeze’ analogy is arguably worthwhile, you’re technically correct that the two situations are not absolutely identical. A bear can rent for life, but somebody short shares has to cover one way or another, eventually.
So let’s put this analogy aside, it’s distracting us from the point that many bears capitulate at or near tops. It’s a behaviour seen in all types of markets.