Market Savvy Prospective Buyer Patiently Watches a Bubble Peak and Begin to Implode – “I’ve sat on my hands and waited for the market to come to me.”

‘Taipan’ is an Australian commercial real estate developer who is looking to buy a recreation property in a ski resort in BC. Here is part of his story, one of a market savvy prospective buyer patiently watching a bubble form a peak and then begin to implode. -vreaa

Taipan at RE Talks 24 Jul 2010 10:53 pm

“I’m looking to buy a ski chalet in the interior of BC. In 2008, I started looking seriously. It took me only a week or two to shake my head and say that Canadian prices were nuts. It’s like that saying that “If you drop a frog into a pot of boiling water, it will immediately leap out. However if you add a frog to a cold pot of boiling water, and heat it, it will die before it realizes how much trouble it is in.” People, including bank managers, real estate agents etc., looked at me as if I had two heads when I told them they were in trouble, and the market was a bubble. So I’ve sat on my hands and waited for the market to come to me. But I’ve never stopped watching that market and watching the emotion of the vendors. And that is best represented by the drop in asking prices and the sale prices. Every week or two I sit down and go through all the listings, price changes, sales, etc. and keep it in a database. (Eg get yourself informed – and don’t rely on others to feed you what they want to tell you.)

What I’ve seen is three kinds of actions:

In the first group, a vendor will place the property on the market and it will sit and sit and sit. There is no variation in price and after around 300-500 days it is just taken off the market. Most likely that vendor still wants to sell, and harbours the belief that some how, some time in the future, the market boom will return and they will get paid their asking price. (Well it could be a very long time!)

The second group, who must sell. You will see prices dropping and dropping and dropping. Like these examples below. Just remember this is a ski resort and all of these properties are pretty well within eye distance of each other.

House 3127 sq feet, 4 bed, family room, flat
reduced from 865000 to 799900 11october2008
reduced from 799900 to 744900 5/4/09
reduced from 744900 to 699900 on 10/04/2010
reduced from 699900 to 649900 on 31/05/2010
Time on market 708 days – been with 2 agencies remains unsold.

Townhouse 1555 sq feet. 3 bedrooms
reduce from 639000 to 629000 1/3/09
reduced from 629000 to 598000 30/09/09
reduced to 589000 30/12/09
reduced to 559000 15/3/2010
reduced to 539,000 on 10/04/2010
reduced from 539000 to 529000 on 24/07/2010
Time on market 571 days Unsold

House 2802 sq feet 4 bedrooms
originally listed at $1,590,000
changed agencies and relisted at $1,425,000
reduced to $1,200,000 15/3/2010
Sold for $1,050,000 after 523 days on the market.

Townhouse 1461 sq ft 2 bedrooms
reduced 22/02/09 from 529000 to 499900
reduced 499000 to 479000 27/07/09
reduced from 479000 to 449000 15/3/2010
reduced to 429000 on 21/5/2010
Sold June 2010 for $409,000 after 540 days on the market.

The third group. People who have bought places during the boom and now facing the harsh reality of taking a bath, when they want to sell. For instance a house bought in Sept 2007 for $1,225,000 has this week been relisted at $999,900. No multiple offers, just a steady increase in the amount of stock, properties sitting and not selling, while others are sold at dramatically reduced prices. Those that have met the market have sold on average in 210 days.

Welcome to how bubbles deflate! And the bulls can’t understand how patience can be so rewarding.”

3 responses to “Market Savvy Prospective Buyer Patiently Watches a Bubble Peak and Begin to Implode – “I’ve sat on my hands and waited for the market to come to me.”

  1. Think or Sink

    This is a painful and harsh reality that will be hitting many people across Canada who have purchased a property over the last year or so. The ones who actually got sucked into bidding wars will feel the most pain.

    It’s almost inexcusable that so many Canadians put on the blinders and believed that things were different in Canada. When I say put on the blinders I mean PUT ON THE BLINDERS. How could they have watched the housing bubble than subsequent crash just across the border and not understand that we would eventually follow the exact same scenario? Unfortunately, instead of making wise decisions and actually thinking for themselves, they chose to believe the hucksters who were selling the properties, the real estate agents, real estate associations and developers who spun their thread of lies sales pitches and got so many to buy at what were off the chart peak highs.

  2. I agree with much of what you’ve said, Think or Sink.

    So many people were absolutely certain that property prices would continue to increase steadily and rapidly, for decades to come. Property prices have always gone up and down again over time, but this fact has been largely ignored by many.

    For us, the ‘old rule of thumb’ was, don’t buy anything that’s more than 3x household income – or finances would just be too tight for all those other living expenses. We’ve all seen the income multiples needed to buy here, it’s just horrible. Now all this speculation looks as if it’s coming to an end; those speculators who drove up the prices will be the ones who complain the loudest when prices fall.

    Homes became commodities and stopped being homes. I’m hoping that prices will drop and level out, so that homes become homes again and more people can afford to put a decent roof over their head. I’m not holding my breath.

  3. Where are you looking in the interior, Taipan? Big White? I have a very good friend in Singapore who wanted to upgrade her Big White townhouse to a house. Fortunately she is pretty savvy and realized that the prices were completely ridiculous (seriously $999k for a 3 bedroom house?) and as she says better spent for return in other markets. Just curious and would like to pass your post onto her for her interest.

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