Bear capitulation occurs when a long term RE bear gives in and buys.
Yelling “That’s it, I’ve had enough, this market is absolutely crazy, I resign myself to renting for life!” doesn’t count. Also, leaving Vancouver may seem like capitulation but it isn’t. The bear has to give in and buy. One of the laws of bubblology states that the bubble is over when the very last bear that is going to buy throws themselves on the frenzied pyre of the market and is consumed in the flames. When that happens, we can get on with the crash, already.
Here are two (rare) anecdotes of bear capitulation, but they are both ‘qualified’ capitulations, and we thus don’t present them as evidence of a top. Our brief comment follows at the end of this post.
We don’t see very many stories of bear capitulation: if you know any, please send them along. – vreaa
Lost Soul gave an account of their purchase on two threads at RE Talks, 8 Mar 2011 and 25 Mar 2011. Excerpts from Lost Soul’s comments:
“This loooooong time bear likely will be an owner soon (accepted offer).
Please don’t categorize me as a bull. I’m buying with the expectation that we will take a financial hit for it.
We didn’t all of a sudden grow horns and start snorting. But something did grow and popped out after nine months and we needed more space. It’s not all about money.
Could we have just found a bigger rental? — I suppose, but we just wanted a place to settle into and be able to do what we wanted with it without worrying about what the landlord would think.
Do we think this is a wise *financial* decision? — not a chance — this is pure consumption in our view. If by some bizarre happenstance the value of our place goes up 50% in the next year, we will not all of a sudden start crowing about how we were so brilliant to buy.
What if the market gets halved? — Bring it on! The loss on this purchase of course will be unpleasant but it also means that the next place we buy will have dropped twice as much in absolute dollars so net we’d still be ahead (if not by so much as not purchasing at all now). And ‘No’, the loss on the current place would not wipe out our dp for the next one — contrary to the beliefs of some here, bears are not necessarily on welfare living in their parents’ basement.
(Still) My advice to others: *We* are fortunate to have the savings and income to pull this off. If *you* are purchasing a place you’re not happy to live in for the next 35 years and buying it means Kraft Dinners, you might as well wait and pray for a crash — the “buy small and climb the property ladder” approach isn’t going to work.”
[In response to a comment "Lost Soul Buying..."] “Yeah, if there was ever a clearer signal of the top of the market. I’m also the guy who enters the shortest cashier line-up at the grocery store but still manages to exit after everyone in the longer ones.”
And a related story from enki at RE Talks 26 Mar 2011 8:47pm – “I totally sympathize; I am a longstanding bear (and still am), and finally bought a townhome in Abby in August . I didn’t want to buy, but I was tired of waiting, and wanted some stability. Living across the street from some very good mountain biking didn’t hurt either. I bought the cheapest thing I could tolerate, and resigned myself to losing some equity while keeping my wife.”
These stories don’t really qualify as complete capitulation, as the protagonists remain mentally bearish, and actually anticipate a drop in prices. In complete capitulation the bear overextends themselves as much as other current buyers, and emerges from the experience as a born-again bull.
The anecdotes above are perhaps best seen as stories of ‘partial capitulation’. They are of interest, because, for a prospective buyer, the ‘partial buy’ and ‘renting’ are both compromises, but with different inconveniences.
For the record, we don’t think ‘partial buying’ is a good idea. Moving up during a crash may be more challenging than one expects. – vreaa