“A Chinese family I know just sold their east van plot to a developer who is buying up the whole block. The extended family have lived under the same roof for 20 years, so the whole house was mostly paid up. They bus everywhere, haven’t owned a car… About a month ago they netted 1.2 Million clear from the sale. They have until January to move out.
Their 13 year old son has been BEGGING them to rent for a while, to buy a car, take a holiday, and enjoy not feeling poor for a change. The grandparents/parents/aunts say that 1) renting, you will get ripped off and 2) the home prices will keep appreciating; if they don’t buy back in immediately, they will be poor forever.
They are currently in negotiations for a $1.4 Million East Van house; they will mortgage the 200,000 difference. Poor kid. He is a smart young man. He says that it is impossible that prices will not go down significantly at some point in the near future, because they have gone up to such ridiculous levels.
Just thought this gives an idea about how people can afford the current prices, and how so many homes continue to sell.”
- TPFKAA at VREAA 24 Oct 2011 9:55pm
So, the $1.4M market is dependent on the $1.2M market.
“..and so on infinitum.”
House of cards.
- vreaa
Comments already made on the thread:
“Game theory says it’s almost impossible for this family to end up renting.
Door #1: By continuing to own, if prices go down, the worst that can happen is their peers lose the same as they, if prices go up everyone’s a winner.
Door #2: By renting they either lose if prices go up, or win while everyone else loses. Further it’s unlikely they will find somewhere desirable to rent given the family size.
This family will choose Door #1 every time to align with their peer group, and will likely ride the bubble all the way down for the same reasons.”
- jesse 24 Oct 2011 10:58pm
[Well put. And, BTW, mutual fund managers underperform the markets by choosing Door #1 every time. -vreaa]
“who is this kid? Manny from modern family?”
- matt 24 Oct 2011 10:19pm
“If these rates of appreciation continue your school age children will not earn enough money in their lifetimes in any job to ever buy real estate and you’ll want them to move out at some point. Buy condos for all your unborn descendants!”
- rp1 25 Oct 2011 12:04pm
$1.2 Million jackpot but…. like many lottery winners, they find a way to blow it all away only to be worst off than before winning the lottery.
Man I wish a developer would buy up the entire block I’m on because my extended family refuse to sell…..*sigh*…no jackpot for me.
Here is an article on the consequences of a real estate collapse…
http://www.nytimes.com/2011/10/25/us/suburban-poverty-surge-challenges-communities.html?pagewanted=1&_r=1&smid=fb-nytimes
Housing going for $10,000… cash!
http://www.nytimes.com/imagepages/2011/10/25/us/SUBURBS1.html
I clearly don’t wish that kind of future for Vancouver, but I’m not sure whether we are really immune to it.
Not that this is a defense against paying high prices but there are reasons this family will pay this amount. They want security of tenure for their retirements and will likely live off OAS/CPP and potentially remittances to fund ongoing expenses. Many people in this position will look for basement suites to provide supplementary income above government/pension.
Add it all up and you can live a basic life in a secure location; many will want to buy new to help ensure few repairs as they get older. Kind of weird — living off OAS in a $1.2MM house! Don’t hate the playah.
Jesse – do you know this family??? You are so astute it’s creepy. The house IS quite new. It has one basement suite occupied by a tenant family they will keep as a mortgage helper, and a second smaller basement suite they will be occupying.
You know what’s creepy? There are thousands of families in the exact same situation.
One person I know lived in a big house with a rented-out suite but she was getting old and house prices were very high. Her kids thought prices were way too high and due for a drop and convinced her to sell: she was alone living with 4BR up. She sold and ended up renting for a few months only to buy a townhome (no suites) in the same area. She pocketed hundreds of K in tax-free cap gains.
But her complaint after moving was that the interest on her net proceeds after downsizing (say about $20K/year income) are increasing her reported income so now her OAS is being clawed back. In terms of finances, based on her cursory analysis (which may or may not be correct) she would have been better off staying put and taking undeclared (or written off) rental income which wouldn’t affect her OAS eligibility.
Angry? Good. But don’t hate the playah.
Hmmmm. I sense a pattern here… would it be wise for us to stop fighting the tide and just buy?? seems like the game of life in Vancouver is entirely loaded in favour of home”owners” from start to end.
Jesse, I usually agree with your comments, but this time I have to nitpick. The use of the term “game theory” seems inappropriate here. Game theory is about analyzing the behavior of multiple rational, strategic agents. In your comment you suggest that the family will not behave strategically, they simply want to do no worse than their peers. Maybe “sheep theory” is a better term?
Jeff fair point, in this case I think there are mores at play that guide behaviour. They are incorporating cognitive biases and (perceived) social pressures into their decision making structure.
The family isn’t playing by the textbook “rational actor” set of rules but they do have rules they are following.
This may help…
http://tinyurl.com/33rc49
Nem, I like this: “rational players repeatedly interacting for indefinitely long games can sustain the cooperative outcome”
It’s always a good time to buy and sell real estate.
The example of game theory is the pirates with the coins problem we all hear about from Microsoft interviews. Game theory can and does involve artificially-imposed constraints.
In real life, ahem, a prisoner’s stochastic options in ‘interview’ are frequently conditioned by the virtual certainty of ‘infinite nocturnal a** poundings’ cheerfully administered by his adversary’s currently incarcerated ‘extended family’ and/or their retributory capabilities/potential on the ‘outside’… Most ‘pros’ just ‘lawyer up’.
Of course, the preponderance of academic GameTheorists conveniently choose to ignore ‘real life consequences/variables’ when composing their monographs/designing ‘thought experiments’.
Speaking of GameTheory (a la Herman Kahn); UncleSame started de-commissioning the very last StrangeLovianFreeFall B53 atomic munition, yesterday (a private contractor, of course). Closest thing to ‘good news’ in this week’s stream, I’ve yet encountered (depending on big you like your BlastRadius/ThermalShockWave).
I read that too, you mean this?
http://www.calculatedriskblog.com/2011/10/more-on-harp-and-housing.html
It won’t be the last proposal in the coming months. The problem is too few bums and too many boxes. The US needs more bums.
Actually, Jesse… CalcRisk used to be one of my ‘must reads’… but as the ‘day-job readling list’ grew longer… I had to winnow a lot ‘o good ones…
My earlier remarks were predicated on, for better or worse, the ontology of ‘presence’ (BeingThere – which, as it happens, is also a great movie featuring ShirlyMacLean’s best ever ‘saucy’ scene and Sellers’ final performance before – lucky bastard – finshing up ‘in the saddle’)…
These days I regrettably have to spend more time contemplating Herman than Madeline…
Speaking of which… Ever wonder what goes on ‘behind the scenes’ @ VREAA??!….
http://tinyurl.com/3z5sbqk
Seller’s ‘Being There’… one of the greats; wonderful movie, all about the stories that people like to tell themselves; about illusion. See the movie (even if you’ve seen it before); find the common theme with bubbles everywhere.
BTW, ‘Nem’ brings up so many rich allusions here, so many of them resonate… and, as librarian and archivist (“I like to watch”), I find myself driven to hold him to the rigorous standards of fact to which he holds himself, and others.
So, in the spirit of truth rather than of nit-pickiness:
Unfortunately, ‘Being There’ was not Peter Seller’s last movie. (I have always wished that it had been the case, it would have been so apropos… recall the last scene.) No, unfortunately, he followed it up with one last movie ‘The Fiendish Plot of Dr. Fu Manchu’, a complete dud.
Life is seldom symmetrical.
Even ‘Nem’ can’t remember EVERYTHING, IllustriousEd! That’s what Ed’s/Librarians are for. Right?
Did ‘die in the saddle’, though!
For VREAA (and Custodians ‘O Wisdom, everywhere)…
http://tinyurl.com/2pwvwt
Hahaha
Yes!
Maybe now we’ll get some respect.
My favorite is http://ftalphaville.ft.com/
Alas Nemesis the UHF band is destined for arcana; the necessary hardware needed to wield it in a modern city of glass would violate a few by laws, never mind the magnetics. Finding good ARRL black art is sadly word of mouth.
Weird Al came to Sick and Twisted a few times, I remember lining up to meet the then moustachioed one, my brother was so excited that Al asked if he was always so depressed. That was back when it was an event to screen animation in a public forum. These days I needn’t venture out of my room.
That’s like saying you can’t calculate the travel time for flying from Vancouver to Toronto because the equation doesn’t take into account the probability of Air Canada stewardesses going on strike.
You can’t calculate it because there are known unknowns and (more importantly) unknown unknowns.
COMRADE FLAHERTY SEE NO RECESSION FOR CANADA
ANCESTORS ARE PLEASED
PROSPERITY AND WEALTH GUARANTEED
http://www.cbc.ca/news/business/story/2011/10/25/flaherty-economy.html
Smart kid.
from Roubini – the global economy in a picture with China at the bottom:
“The iceberg the global economy Titanic is cruising to…
http://yfrog.com/hspwfbogj