‘jesse’, who posts frequently at mohican’s indispensable, statistically literate, local RE blog ‘Housing Analysis’, has recently begun to sign off his posts with the phrase ‘We’re all speculators now’. We agree with him on the gist of this point.
We have long maintained that almost all buyers of Vancouver RE in the last 5 years, and perhaps even for as long as the last 8 years, have paid prices that they would not have paid had they expected prices to stay flat, fall, or undulate moderately. These prices have been paid because buyers were expecting ongoing historically unprecedented price increases. In other words, almost all local RE purchases, for most of the last decade, have had a speculative component. This has resulted in much speculative activity that is thinly disguised as normal, benign behaviour. Here’s an illustrative anecdote, from jesse himself, regarding a couple who appear superficially to be innocently preparing for early retirement, but now find themselves owners of three properties. -vreaa
jesse at VREAA 8 Aug 2010 at 10:29pm -
“Couple in their fifties have two condos, one in spectrum the other just completed in building beside art gallery. Looking to retire to HK soon so both places put up for sale to fund buying property there. Mortgage on one place, the other paid off. New place 600 sqft listed at $420k or something. Rejected offer in May and now no bites. They will lose money if they drop the price more and this is assuming they can get full G/HST credit for it (which is no guarantee).
Now they are worried that they will have to keep working if they can’t sell at least one of the places. Why? They already bought a place in HK with mortgage assuming they could sell at least one of the places in Vancouver. If they sell one they can at least get out with break even cash flow if they rent the remaining unit to fund mortgage in HK.
Bottom line: their retirement depends on prices staying flat. Any fall will force their early retirement plans to the sidelines. This couple was buying and selling real estate all the way up the past 10 years, making 100s of k net fees. They know little else in terms of investing other than ING which is pretty much not more than a holding pen for a future property purchase.
I didn’t think people like this existed, putting so much into one asset class and hoping for Freedom 55. But now I met them I know how bad this is going to get.
We’re all speculators now.”