The Trials Of Trying To Trade Your Vancouver Home For Profit

It is not easy to trade markets for profit, and even more difficult if you are trying to do that by trading the Vancouver RE market with your personal residence. If you make a bad trade in stocks, you lose money. If you make a bad trade with your home, you literally have to live with your error each and every day. In normal RE markets, people do not think of  their homes as potential trading vehicles, but in Vancouver we continue to live under very abnormal market conditions. The following story comes from someone who tried to profit by selling their Vancouver home during the drop from the summer 2008 peak. Essentially they were trading using a trailing stop: “when the market drops by ‘x’, I’ll get out”. They ended up being ‘whipsawed’, in that, almost immediately after their sale, the local RE markets turned around and rallied through 2009, purely (and with perverse irony) because of the free money brought in to rescue the world’s stock-markets. Now, with housing at a second peak (a likely ‘double top’), our protagonist is in the depths of remorse; they are very despondent about having traded out. Yet, note that their assessment still seems to be that the market is overheated. In vreaa’s opinion, if they simply hold steady with their renting, they will see properties like their original home drop back through the Jan 2009 trough and plummet down further. Their trade will end up being a profitable one, even though they will have been sorely tested by market volatility along the way. To realize their ultimate profit, they have to have courage to hold with their original conviction that housing in Vancouver is very overvalued and is set for a fall. And that conviction is tested when you are living in sub-optimal digs, with the reminders of your bad trade around you every day. Of course, the classic trading error in this situation is for ‘badkitty’ and her partner to panic and buy back into the market just in time for the second price descent, the ‘crash’ proper. Don’t do it, ‘badkitty’! -vreaa

This from badkitty at greaterfool.ca 12 Mar 2010 3:01 am, in response to someone wrestling with the owning or renting dilemma –

“We, sadly, listened to the contrarians in November 2008, sold our home in Vancouver when the market crashed and lost 30% of equity. That pathetically amounts to at least $300,000 of tax free money. We are renting right now and it sucks large. You want to make sure you are on the same page as [RE contrarians]. They make you feel like you are some sort of leper for wanting to nest and make a home for yourself – insisting that you are yuppie scum who have bought the lies of HGTV instead of recognizing that you just want what your parents wanted and their parents wanted..a home… They tell you to that you are a fool to want to live somewhere with a pulse like Toronto or Vancouver and you should be content with living in RR#5 Newfoundland or Jacksonville Florida for 1/100 of the price. Sorry guys, Life is too short to live in the burbs and the city comes with a price because everyone wants to live there (and the fact that eveyone wants to live there raises AND sustains prices). So, selling our house was the WORSE thing we ever did – once you are in the market, DO not leave it, hedge your bets if you must and move to a more affordable property in case things go south. Who cares if prices come down 20% when they already went up 30%? you need a place to live for heavens sake- real estate is cyclical it goes up, it goes down…follow history. However, the damage is done.. we know we screwed up with selling. However, I think we would be fools to buy in this sellers market..we have no choice but to wait for awhile…Like you, however, I just hope it is not the wrong choice. It is the supply/demand thing that speaks the most volumes for buying now – if there is no supply how can there be this monumental crash about to happen? A correction yes, but bollocks to a crash. Don’t look at a home as an investment, look at it as a place to live.”

badkitty added the next day, 13 Mar 2010 8:51 pm

“I saw my house as an investment which is the dumbest mistake a person can make -then, because I saw the house as an investment, I acted out of fear and greed when I sold it (the second dumbest mistake a person can make). So, I alone have knocked myself out of the ability to ever own again in Vancouver.”

12 responses to “The Trials Of Trying To Trade Your Vancouver Home For Profit

  1. “I alone have knocked myself out of the ability to ever own again in Vancouver”

    Comments like this, and their emotional effects on those who read them, are the penultimate reason why the market has been, and continues to be, overvalued. Poor badkitty, living in a world in which she will never be able to be properly fulfilled. We will pray for her soul.

  2. I kind of agree with the sentiment of this one. Once you own a house that you like and can afford then there really isnt a reason to sell regardless of the market. As long as you are happy there and can afford the payments the value of the place shouldnt really be of much concern.

    When you start thinking of it as a stock you get in trouble pretty quick. And now this person thinks they will never own again when really the sale could turn out to be a good thing. Sure he/she could still be owning today but then I doubt he/she would want to sell now. Interesting how a dropping market makes people panic even though it shouldnt affect their day to day lives.

  3. pugnacious.serf

    One thing to remember is that emergency interest rates initiated this current market otherwise your timing was excellent. Sales dropped 50% in the fall of 2008 because of the market crash and removal of the 40 year mortgage term.

    However, you treated your home the same way a day trader treats a stock and thats where you went wrong. You let greed and fear get the better of you.

    The good news in about 6 months there should be sufficient supply again in which it should give you an opportunity to get back into the market.

    NEVER treat your primary residence as anything other than shelter, and a home.

    Good luck.

  4. Oi:

    Who cares if prices come down 20% when they already went up 30%?

    Someone who can do a bit of math?

    Say, you have $100 and magically they become 30% more (== $130), then drop by 20% (130 x 0.8) you are left with $104 or just a 4% increase (which will be eaten up by associated costs).

    Meanwhile, presume you only started out with $70, they then increased in value again by 30%, you now have $91, now it loses it’s value by 20% and you’re left with $72.8, or 2.8% in “profit”.

    The reason I point this out is because it exemplifies the utter lack people seem to have when it comes to finances and money.

    I do agree with her sentiment that she made a mistake by seeing her home as an investment, but the reality is that almost all people I know see it that way. They always go back telling me and others how much more worth it is now if they’d sell (forgetting all the external costs).

    This is, of course, by far not the worst blunder people make, the forgetting of things like “Maintenance Fees”, repairs and taxes is another one.

    It would probably be best if people would take basic personal finance courses before they decide to buy into (any) market.

  5. if you start with 70 and end up with 72.8 isn’t that 4% in “profit”. The reason I point this out is because it exemplifies the utter lack people seem to have when it comes to finances and money 😉

  6. If the Conservative government would have acted like conservatives, they would have said… “Oh well, there’s a recession.. The automatic stabilizers in our economy (EI, welfare) will do their job and buffer the worst of the consequences. Our job isn’t to artificially inflate asset prices in the market. The market for stocks, bonds and real estate will find its own level.”

    Instead, we are left with pseudo-conservatives whose “dirigiste” fiscal and monetary policies have flooded the market with cheap dollars, artificially low interest rates to prop up prices and sky-high deficits.

    All in an effort to keep sub-urban proles happy enough to provide the Conservatives with a majority Government during the next election. Tempory housing asset inflation at the cost of future higher interest rates and servicing costs for our federal debt.

    Well Done Messrs. Flaherty and Harper.

  7. Dear Badkitty,

    so sorry for your current predicament, it is a painful sensation to see the country going mad over a basic necessity. Knowing this is madness is often even more painful. I certainly don’t blame you for wanting a cosy home of your own, and by all means ignore the misanthropes.

    However, I think Davers has unwittingly hit the nail on the head: “Once you own a house that you like AND CAN AFFORD then there really isnt a reason to sell regardless of the market.”
    Who can afford the current prices in Vancouver? Your friends and relations have either bought a decade ago, or are leveraged to the hilt. Interest rates and house prices are inversely related: if you buy at the lowest rates you will see in your lifetime, you will pay the highest price you will see in your lifetime. A very small reversion towards the mean interest rate will bankrupt enormous numbers of recent buyers, as the principal of those loans will not be reduced just because interest rates are crushing them.

    I would calculate it this way: assume your income will fall at least 20% (allow for possible deflation, lay-offs, … children??), and for interest rates to double at a bare minimum. If you can afford to buy, good for you. It will be an appalling financial decision, but if it is really necessary to your peace of mind you had better buy. However, before you do, consider the peace of mind that comes from liquidity, being able to pay your bills, no gigantic “sword of damocles” mortgage hanging over your head, no late night stressed conversations over how to make ends meet, being able to see your friends, family, children (if applicable). Imagine the number of relationships that will fail due to crushing weight of debt over the next few years, and count your blessings yours won’t be one of them.

    We are on the verge of a complete change of direction from the last 50 years of increasing debt to GDP ratio. Be patient two or three years and you will get your buying opportunity. If you truly believe you will never have the opportunity to buy in Vancouver again you have been listening to far too many delusional and rabid friends, and criminally manipulative spruikers. I really hope for your sake you avoid the debt rabies, and come to realise the blessing of seeing a cliff before you run over it. Debt can not increase faster than income forever, eventually you hit the wall as a mathematical inevitability. Government idiocy can stave off the inevitable only so long, and we are really quite close now. Baron de Rothschild supposedly said when asked about the key to his success: “….I sold too early”

    Whatever you decide to do, good luck and God speed.

  8. @Ulsterman

    Touche 🙂

    M.

  9. A happy renter

    Why does renting suck? I don’t understand comments like that. often in overheated markets like that it costs much more to own than to rent. It sounds like bad kitty sold a nice SFD nd then moved to a dumpy condo, of course I’d be depressed, why not rent a nice place.

    Second point, so what if you house is worth a million dollars, it’s not an investment (maybe for kids yeah) sure it feels good have a big house but it still costs you money. If you sell you still have to buy another place

    Pesonally I’d rather be a renter with a million dollars in the bank than a home owner with a million in equity and no money in the bank.

  10. Happy renter, let us know how close you are to that million …

  11. A happy renter

    Hey Big E, Just checked on my savings…tally is $937,233.37…thanks to some luck!

  12. A happy renter

    …and I just found some change in the couch! 🙂

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