“He has been infected with this way of thinking from MSM and friends. Hard to blame him as he has seen his house triple in value in 15 years, he is a simple hard working man, somehow always lucky with real estate.”

4SlicesofCheese at VREAA 29 January 2011 at 12:59 am
“My father tells me buy now price does not matter.
If you don’t like the place move in 2-3 years and it will be worth 60-70k more.
If you cannot pay the mortgage just sell it and buy a cheaper place with the money you made from selling it.
He is not only giving me advice he actually wants to give me 200k for downpayment, even with that and my own I would still not even consider it.
Everytime I visit my parents, first thing he asks me is have I looked at any new houses. I just have to say “Yeah I am going to an open house this weekend”. I tried once to tell him I think there’s a bubble, that did not go well haha I will just stick to my “Yeah I am going to an open house this weekend”

He has been infected with this way of thinking from MSM and friends. Meanwhile not listening to anything his family says, including a nephew that works at Goldman Sachs who called the bubble in the states years ago and says the same thing is going on here now.
Hard to blame him as he has seen his house triple in value in 15 years, he is a simple hard working man, somehow always lucky with real estate.
At the same time a few of my aunts have lost ALOT of money in the past investing but that does not seem to take that into account.”

10 responses to ““He has been infected with this way of thinking from MSM and friends. Hard to blame him as he has seen his house triple in value in 15 years, he is a simple hard working man, somehow always lucky with real estate.”

  1. This is known as the “Recency Effect”. The events in our life that happen directly to us and form our most recent experiences become our view of the world. It is that simple.

    This is why people who have never experienced a housing down side are the same ones who are most likely to miss a bubble. This includes people like this person’s father and most people under 40. Regardless of the warnings from experienced people or the examples of other places we tend to see what we want to see in the world. We simplify and justify instead of analysing.

  2. The reality is that most people think RE in Vancouver is “guaranteed money”. There’s really two factors at play:

    a) The “recency effect” as mentioned above, and

    b) Misunderstanding of risk.

    Alot of people would consider putting 20% down on a Vancouver house or condo as a responsible thing to do. A “smart” investment since real estate always goes up.

    However, if you ask these same people to invest in something else such as REITS or bank stocks, etc. at 3 or 4 to 1 leverage, they would say that is CRAZY and stupid risky!

    Imagine, buying a single property using leverage is “smart” but buying a REIT that diversifies risk over many properties is “risky”.

    That’s the consensus in Vancouver. RE = Easy/Guaranteed safe profits.
    Stocks = High Risk

    We deserve to be in a bubble

    • “Imagine, buying a single property using leverage is “smart” but buying a REIT that diversifies risk over many properties is “risky”.”

      I still believe people misunderstand risk because, with an asset like real estate, risk behaves like a “reverse lottery.” The vast majority of people buying even at today’s high prices will emerge in 30 years in tact, if a bit poorer than those who wait for lower prices. However there are an “unlucky” few “losers” who get hit with some black swan event:
      – major repairs, job loss or other financial hardship, injury or disability, relocation, divorce, etc.

      For these unlucky people, owning will be a horrendous decision if they buy at high prices as they get cleaned if they have to sell with unfavourable market conditions. There will be relatively few of these people but the results for them are catastrophic. Add up the expected value of the “losers” and everyone else and the returns in real estate must be worse than what your Realtor or REIN insider will calculate.

      I had a post to this effect over at vancouvercondo.info. Try reasoning with someone to account for the “black swan” or long-tail risks. It just doesn’t register with them but we know the risks are there, and all owners have bought their lotto tickets whether they know it or not.

      • I still believe people misunderstand risk because, with an asset like real estate, risk behaves like a “reverse lottery.” The vast majority of people buying even at today’s high prices will emerge in 30 years in tact, if a bit poorer than those who wait for lower prices.

        I would disagree. This would firstly require people to be able to actually finance the debt they have loaded up on by buying into an inflated market.

        Secondly, there is also the presumption that rising energy costs etc. will not have a negative effect on the property. This huge house that is affordable now while energy etc. is cheap may not be carriable once the energy costs increase without some serious retrofitting.

        As an example: A friend rents a condo where all the heating is electric. He told him in the (mild) Lower Mainland Winter the electricity bill is at $250+ while during the rest of the year it’s around $50. That’s a small apartment, a large house will probably have an even wider spread.

        Third, the way houses are being build these days you’d be lucky if it still stands in decent condition in 20 years, if not thirty.

        Lastly: If you see your house as an investment and justify the high cost because of it and if you’re down in even 1 cent after 30 years it was a lousy investment.

        However there are an “unlucky” few “losers” who get hit with some black swan event:
        – major repairs, job loss or other financial hardship, injury or disability, relocation, divorce, etc.

        For these unlucky people, owning will be a horrendous decision if they buy at high prices as they get cleaned if they have to sell with unfavourable market conditions. There will be relatively few of these people but the results for them are catastrophic. Add up the expected value of the “losers” and everyone else and the returns in real estate must be worse than what your Realtor or REIN insider will calculate.

        Take a look at historic numbers, until a decade ago real estate never appreciated more than inflation rate. So, at best land did not lose value, but more realistically: It’s a lousy investment if you solely rely on the property value for your profit.

        People who have gotten rich off of real estate did so not by buying and selling the property but by having a monthly income stream through the property that added to their bottom line.

        I had a post to this effect over at vancouvercondo.info. Try reasoning with someone to account for the “black swan” or long-tail risks. It just doesn’t register with them but we know the risks are there, and all owners have bought their lotto tickets whether they know it or not.

        True, but I would still say that it doesn’t matter if fate will screw a few over, pretty much everybody who lives in their investment is going to get hosed, they just don’t know it yet.

        The black swan event that will catch up to us will be much more than just a correction in housing.

      • “Third, the way houses are being build these days you’d be lucky if it still stands in decent condition in 20 years, if not thirty.”

        I think that’s a bit of hyperbole. I’m sure some houses will have significant problems after even 10 years but that’s nothing new. Any look at 40 year old stock in East Van shows significant structure depreciation.

        I’m sure we can agree people are overpaying for housing. A concerted look to the US shows it’s not “blood on the streets” save a few specific areas. The vast majority of people, even in the bubbliest of cities, are still plodding along, making their mortgage payments, and getting on with their lives. Foreclosure activity is elevated but it’s not like 30% of homeowners are being thrown out on the streets.

        I’d love to see some blood in Vancouver just to ensure I don’t have to discuss RE ever again at cocktail parties but I don’t think it’s going to be on the scale of bread lines and food stamps.

  3. This guy is playing it smart. I am vacationing on Maui and want to see what happens when the party is over….check the REO and foreclosue numbers here. The saps that own the condo we have ented pay, ae you reay, $2300 a month in maintenance fees, and within 10 mile radius there are nearly 700 REOS. You can by a condo for 16 thousand bucks right on the beachin Honokawai. Still nothing sells.
    The rates should have gone up this week, but Carney is holding off, if he can, til July. That won’t help, just get more poor folks thinking that the game is still on.
    Believe me, this is going to destroy a ton of people, and in a most grisly fashion. I sold my considable RE in the last 2 years, took thw profits and ran.
    The pace we RENT in Vancouver is owned by an ‘investor’ from Taiwan who also owns two other units in our very tony west side complex. Te unit we wee in was on the market for a year, and she pulled it and offered us a two year lease at under 2 K, not even close to covering the fees, and mortgage.
    How many people have leveraged temselves o the ears?
    This blog has been full of warnings, and still only just now is fear starting to creep into Vancouver. Half of te listed places in te last year have zero offers….and it will get worse, and fast.
    What is happwning in Egypt will affect the market too. People are herd animals, and when theae lemmings get spooked, it will be a stampede.
    Sitting here by the pool on Maui, sipping my bottled water, yes, there are guests here, and on the surface everythng seems ok. It isn’t.
    In the lineup at Walmart it is Spam and foodstamps for the locals. Time share sales people just about tackle you at the Mall.
    Take my advice. SELL. Get an offer and go.
    The door has closed, but many fools have not gotten the message – don’t be one od them.
    Thanks for this log – useful and hones and some very smart people, that also have had a role in saving my Family. Thanks, and aloha from 85 degree Maui.
    Be well, be safe, be smart. RUN.

  4. Apologies for stupid typos on Ipad. Wee, is week, and I can usually spell. Actually kind of funny. Wasn’t meant to be. Sorry. The place we rent was on the market for a year. LOL.

    • Rlph. Dspite th tpos, we stll gt the drift. Thnkx. Enjy maui, grt plce.

    • I was looking at houses on Kauai in December. There were still a lot of distressed properties, but also a lot of recent sales. I didn’t look at condos, no interest. I need dirt. Dirt for fruit trees. I see no point in living in such a place without a year-round garden.

      The sustainability issue is a big one with me, but Kauai seems the best bet if that’s your concern. Large areas are zoned agricultural, so what the wealthy do to build a house is plant 10 acres of something. So you see coconuts and papaya just rotting on the trees by the thousands. Overall, cultivation has been increasing visibly. Also, there are wild boar and I bet you anything I could manage a wild chicken a la coq au vin. No shortage of those. So while you may be reduced to limited energy living, you probably wouldn’t be starving if all heck broke loose.

      Until the boat people from Honolulu arrived, I guess . . .

      Oh man, a year-round garden.

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