Anna’s story as told by Garth Turner at greaterfool.ca 20 Apr 2011 -
“Two years ago Anna and her husband decided to sell their house on the west side of Vancouver. “At the time it seemed like a good idea,” she says, “because interest rates were forecast to rise and we were seeing a housing recovery here after the global recession. Our goal was sell high and buy low, anticipating a decline in the market.” The five-year-old house went for $1.2 million. They were ecstatic. That was $1.1 million more than they had the day before. But joy has turned into gut-wrenching, debilitating stress.
The same house today sells for $1.4 million. Meanwhile Anna, her husband and 15-month-old daughter have been living in a 500 square foot suite for $1,100 a month – with $1.2 million sitting in cash in the bank. Idling. Coiled. Waiting to pounce. In their minds only one asset class exists – a house.
“We are getting very claustrophobic. My husband is getting anxious and wants to re-enter the housing market. I want to wait. However I am also very scared because it seems the market keeps rising. There seems to be no end in sight for increased prices.”
The ‘buy now, or buy never’ fear has etched their minds and strained their lives. The clear logic they felt before – sell high, buy low – has been replaced with an icy, pervasive terror that real estate will rise forever, and a confused couple with only $1.2 million in cash will be locked eternally in a basement suite. Deprived. Wanting.
Yesterday Anna wrote: “This afternoon we are putting in an offer on a 1979 boxy Vancouver Special listed for $1,328,000, in the same neighbourhood as where we sold. We already have the inspection lined up before the offers are presented. I can’t believe we are doing this, never did I think I would get caught in this frenzy of bidding wars. I’m scared and confused about our decision. Not able to sleep, so here I am writing my thoughts to you. I’m really confused what to do. And how long will we have to wait before the market comes down. Any ideas? We are already at a loss of $200,000,000 and can’t afford any bigger loss. Anna.”
Isaac Newton held shares early in the South Sea Company Bubble. In April 1720, seeing and understanding the nature of the bubble, he sold his £7,000 holding of shares. The bubble continued to inflate. Newton couldn’t resist, he bought back in, heavily. The bubble collapsed. When all was said and done, he had lost £20,000.
Anna and her husband made a wise decision two years ago. They are about to reverse that. They are buying out of fear of being ‘priced out forever’. They are, also, speculating on ongoing rising prices, even though most would not label their buying ‘speculative’. -vreaa