Erroneous Theories For Falling Prices #4 – “Aye, It Was Da Strange Murmurations Wot Caused Ye Crash” – “Invisible forces which lead us to behave in ways that may not be in our best interest”

“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’.” … “Perhaps recent examples of a similar activity might be the ‘Occupy’ movement or globally we might consider how it came to be that so many countries in Europe arrived at the brink of financial disaster at the same time.” …
“At the right time of year if you were to visit Otmoor, a bird sanctuary near Oxford England, you will find Starlings performing a spectacular event known as murmurations. Some might describe these events as spectacular pulsating avian aerobatic operas. Scientists more pragmatic, note it as the Starling’s way of ensuring survival against predators and the maintaining of Starling social hierarchy.
Using murmuration as a model one asks why so many Vancouver home sellers decided to sell at the same time? Was it about survival? Are they acting selfishly in the hope of protecting themselves from the predator of financial disaster by selling their homes and escaping. What was the trigger? Was it the neighbour selling at a price much higher than they anticipated that lead them to believe they could only maintain their social status by selling their home at a higher price?” …
“It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest. While it is fascinating to observe this kind of behavior in animals, for humans it has in many cases proven destructive. You can see this in the number of sales of Vancouver homes and the frustration of Buyers not able to pay the price asked.”

– from ‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012

The theory above appears to blame market collapse on something akin to a senseless stampede. The implication is that people in a perfectly normal and healthy environment may all suddenly start behaving together in an almost insane way, all getting swept up in behaviour that “may not be in their best interest”. Actually, this better explains the START of a bubble than it does the unwinding.
Sentiment and herd behaviour is important, but it alone does not cause a perfectly healthy market to collapse. The point is that the market is deeply unhealthy; it is the proverbial accident waiting to happen. Once a speculative mania has driven prices two or three standard deviations from the norm as judged by fundamental values, a price collapse is a healthy and natural phenomenon. It’s the expanding of the bubble that is perverse and ‘destructive’.
– vreaa

Regarding this series:
There is only one BIG reason for falling prices in Vancouver RE: the speculative mania is over.
That is all you need to know to explain the price action that will play out over the next few years.
On the way up we had people attributing price strength to all sorts of bizarre and invalid causes: the Olympics, running out of land, etc. On the way down we expect similarly bizarre arguments for price drops; commentators will offer many erroneous theories as to why prices are falling. We’re already beginning to see them, and the crash has barely commenced.
We’ll collect them; please submit new examples you come across. – vreaa

#1 – Climate Change Caused The Crash
“Prices will continue to fall, as outside buyers from other Provinces such as Ontario, Alberta and Manitoba finally realize that climate change has now become an important issue in British Columbia. What was once an enviable temperature and small secret now has become a drag, as the winter, spring and summer months are now cooler and wetter than before.”
thinkandact, commenting at the Globe and Mail, 2 Aug 2012

#2 – The Conservatives Attacked The Vancouver Housing Market And Caused The Crash
“The reality is that because banks also own investment dealers, their CEOs would prefer to see more Canadian money flowing into the equity markets rather than into real estate. … I wouldn’t be surprised if Prime Minister Stephen Harper, a trained economist, has been influenced by a Zambian-born economist in crafting mortgage-amortization policies that may kill the Vancouver housing market and create significant hardship.”
Charlie Smith, Georgia Straight, 3 Aug 2012

#3 – Vancouver RE Bears Caused The Crash
“The common theme I see in your “anecdotes” is YOU! There is no shift in the “general mood”. YOU are the catalyst bringing down the mood among your friends. I can only hope you don’t have too many friends, or you will singlehandedly bring down the market.”
‘Anonymous’, at VCI 21 Aug 2012, in response to ‘Makaya’ posting two stories of people becoming bearish on the Vancouver market

#4 – An Invisible Force Caused The Crash
“An invisible force has guided Buyers and Sellers of Vancouver homes. An unprecedented number of Sellers have listed their homes for sale while at the same time many Vancouver home buyers have decided that they are ‘not buying now’. This collective behavior is often called a ‘murmuration’. It is fair to say that human behavior is at times shaped by invisible forces which lead us to behave in ways that may not be in our best interest.”
‘Invisible Force Guides Buyers and Sellers of Vancouver Real Estate?’, Larry Yatkowsky, 13 Sep 2012

38 responses to “Erroneous Theories For Falling Prices #4 – “Aye, It Was Da Strange Murmurations Wot Caused Ye Crash” – “Invisible forces which lead us to behave in ways that may not be in our best interest”

  1. From the agent’s point of view, it’s a severe case of selection bias. People who are buying and selling often tell him why, but people who have decided to stay out of the market don’t call him up to share their reasons. His phone just stops ringing. It must be puzzling and mysterious if that’s your main finger on the pulse of the marketplace.

  2. My goodness that Larry is annoying. His pomposity is positively perplexing for a poor purveyor of pooped out pads and pied-a-terres. Poor old Garth got the blame as well (for his “scribbles”) in that posting (though you didn’t post that).

  3. Also, if I may, it’s not that murmurations caused people to all list in great numbers. The numbers are fairly similar to any other year. It is that buyers alone decided that they would be victimized no longer. The unbought listings cancel/expire/terminate and relist repeatedly thereby giving the illusion that sellers are flooding the market. In reality there are simply not enough buyers to absorb what has been an average listing supply (in comparison to the past decade). We’re about 200 days in to the year. Add 80-100 sales per day and you’d strike at least 8000 listings off the market.

    Nope, not the sellers rushing for the exits… that line is full of buyers who have diligently marched away from this foolishness.

    • Something that doesn’t get talked about too much here is the possibility that we have likely exhausted the buyer pool. Rather than a buyers strike, there just simply may not be any more greater fools. Everyone who wanted (and could) get in did.
      Musical chairs. Ponzi. MLM. Pyramid scheme. Madoff.

      • +1 on that. Also add that as prices unwind, potential lateral or move up potential lateral or move-up buyers are removed, thus further exacerbating the situation.

      • I think the biggest change in the “buyer pool” in falling markets will be:
        1) Existing owners unable to scratch together enough $ to move due to lower (or negative) equity, or unable to sell due to low market volume
        2) Non-owners (first-time-buyers) unwilling to scratch together enough $ to buy because they see prices dropping and don’t want to catch a falling knife

        I don’t see the “buyer pool” expiring in Vancouver because of its positive population growth; rather, two major groups in this pool will be excluded either by choice or necessity.

      • I think this is a major contributor. There was such a panic to buy for various reasons that most of those people either have or are totally priced out such that they’re non-participants until there is a large market correction. The feedstock for the boom has run dry.

  4. Aye, Vancouver real estate bears… YA KNOW TOO MUCH!

  5. I think Larry Yatkowsky confuses his best interests with potential home buyers’ best interests.

  6. Larry has 1 listing. The one and only 8.5 mil marine dr sfh. He has had like 4 this year. I don’t know how he affords his blog.

    • It’s cheap, if not free, to have a blog…

    • Maybe he’s got savings rather than just cash flow? Anyway, it doesn’t take too many $8.5mm sales to live quite comfortably. And it’s a heck of a lot less work to sell 4 $8.5mm properties than it is to sell 40 $850k ones.

      Larry seems more forthright than some, and I like the title of his blog. Yatter Mutters? Yatter Natters? Are posters there Yatter Nutters?

  7. My dad still maintains the market is not crashing. He says prices haven’t dropped and that even though no one is willing to pay today’s prices, sellers will just hold on for years at those prices because that’s what he thinks they’re worth

    • At this point, this is a common bull hope/argument.
      Only price drops will refute it.

    • Your dad does understand not every has the luxury to wait out the market… Moves, estate sales, divorces, financial problems force the sale… and market prices are determined at the margin. Funny how some people choose to stay wedded to their delusions…

  8. Royce McCutcheon

    This’ll be an interesting category to keep revisiting.

    I still think you’re going to need another sidebar to capture the mounting “why do you hate families/wish misery on others?” accusations that are going to come in increasing numbers. Long time bulls – and new visitors to your site – may trot that one out more and more, accusing you and posters here of schadenfreude, hating home “owners”, etc. Even if it doesn’t happen here, mind-bending statements in this vein will increasingly pop up elsewhere and be worth collecting. May I humbly suggest a sidebar icon with a picture of Helen Lovejoy and the words “won’t someone PLEASE think of the children?!?” to link to the post you ultimately create addressing this topic?

    I’ve always found you to be pretty even-handed but that will matter little to desperate people who will misinterpret many sentiments expressed here. But your archive will be useful to a subset of these people who are willing to be taught the historical mechanics driving this bubble. Heck: I want them to read it so they can maybe get a better sense of where to pin the blame for this mess (besides themselves) – government policy, cheerleading media, etc. If you do write this post/create this category, I think you have it in you to explain well where the appropriate targets for anger/frustration are. Just a thought.

  9. Does it really matter what causes the bubble to collapse? It seems more important to discuss the root causes of a bubble and how to avoid it next time, not what ruined the party that must necessarily be ruined.

    • Agreed; the bubble deflation is baked into the cake the moment prices leave fundamentals (circa 2003 for Vancouver?).
      The presumed ‘triggers’ for the deflation are just a sideshow; often they are unrelated, and defined after the fact. Much like “Bonds went up today because of a tsunami warning in Sumatra.” Uncritical audiences lap up that kind of baloney.
      There are some acts that could, of course, speed the bubble’s demise…. rising interest rates is most obvious. But all bubbles collapse under their own weight eventually, they don’t really need a shove.

  10. And hey what’s with all the Little Britain?

  11. Maybe collective consciousness?

  12. is anyone else thinking man hands?

    • ErroneousTheory #5 – GlandularManipulation

      Evil Doktors InTraining single handedly collapsed the YVR RE market by surgically implanting the mysterious “Gland17″ into hitherto healthy and enthusiastic consumers… Blondes were particularly vulnerable… their HouseLust instantaneously satiated and supplanted instead with an inexplicable urge to wear cashmere sweaters and uncomfortable conical brassieres… or worse, to visit DriveIn Theatres…

      [CueSFX: BlondeScreams. ScienceRunningAmok. MutantRealtors™.]

      • Oh yes, in OtherNews “Guaranteed to Frighten!”…

        [G&M] – CREA Cuts Forecast As Canadian Home Sales Slump

        …”The Canadian housing market has indeed ratcheted down its growth pace,” TD economist Sonya Gulati wrote in a research note after the new data was released Monday. “In fact, in most local markets, it has reversed course with price and sales contractions becoming more the norm.”…

        http://tinyurl.com/93w2a76

      • ErroneousTheory#6 – GM Tomatoes Abscond from LadnerHotHouses and RampageThroughRichmond Causing CityWidePanic and a PrecipitousCollapse in WestSide SFH’s with VegetablePlots. MayorGregor is inadvertantly puréed while attending to his HeirloomSanMarzanos….

  13. Real estate stocks plummeted broader market fall…(Shanghai). 2012-Sep-17. Article is run thru the Translator:
    “Monday and Shenzhen stock index opened low, real estate, building materials and other sharp sell plate drag index, panic mood has intensified market reproduction Pudie pattern, without a rise in the industry sector, the dramatic drop in volume. Plate point of view, the the early gold military concept is relatively active, be colored by rising commodity prices, once to support the market, but Nanjing property market limit up order to reproduce a heavy blow to the real estate stocks, a number of real estate stocks presented unilateral downward trend, strokes the leading Paul Wanjin four fell more than3%, Poly Real Estate fell close7% decline in investment real estate is close8% of the market to do more confidence suffered a serious setback, also teamed up to sell into a strong early performance infrastructure section of the building materials, machinery manufacturing, plus on brokerage insurance, coal, automobile sector collective callback, market sentiment further down stock index progressively lower, eventually both Shanghai and Shenzhen stock index plunged. http://www.west95582.com/jdw/index.html?classid=000200020001

    • @yvr_j, curious … would you know if anyone ever studied initial sales volume declines as a predictor for eventual price declines … was wondering if there might show some sort of approx conservation principle at work … i.e. sales volume falling 40% with flat avg prices equates to 40% drop in total $ volume (most of which is credit) … ergo for same total aggregate buying power (credit), prices would fall ~40% to recover previous baseline transaction volume … yada yada

  14. A comment seen on a GM article about the iPhone5:
    “The iPhone is way overpriced. Think real estate in the Lower Mainland of BC … forget it!!”

    Talking about obsession…

    http://www.theglobeandmail.com/globe-investor/personal-finance/household-finances/the-iphones-sexy-but-i-save-is-far-smarter/article4550301/comments/

  15. Pingback: Bears Care, Too | Vancouver Real Estate Anecdote Archive

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