“I have friends who are panicking to upgrade before the Mainland Chinese price them out and before the mortgage rules change.”

SethM [aka Greenhorn the video archivist] at RE Talks 24 Feb 2011 10:39pm
“A lot of people want to sell right now so that they can upgrade to larger, nicer homes. In a hot market, it is better to upgrade before prices increase too much as the relative difference (between your new house and old house) gets amplified. Lots of homeowners fear being priced out of their upgrade/dream home because Mainland Chinese are putting upward pressure on prices.
Let me give you an example Vanpro. You have a $700,000 home but really want a $1,400,000 home. The price difference is $700,000. Let’s say you wait 10 years. Your home is now worth $1,400,000 but your dream home is now $2,800,000. The price difference is now $1,400,000. For some upgrade buyers, they won’t be able to close the gap.
I have friends who are panicking to upgrade before the Mainland Chinese price them out and before the mortgage rules change.
You may see listings increasing, but these sellers will be buying more expensive homes. Expect to see prices rise with increasing listings in this scenario.
Make sense?
It is perverse, but this is how Vancouver real estate works. This market is different. It really is.”

Opinion and anecdote from SethM. [hat-tip to jesse].
Note that the anecdote part is about locals extending themselves even more into RE based on two beliefs –
– 1. “Prices will continue to increase.”
– 2. “The mainland Chinese are going to price us out.”
The first belief has driven almost all Vancouver buying for 5-6 years.
The second has increasingly affected buying by locals, even moreso this past 1-2 years.
Regardless, we have people buying for speculative reasons. (They are paying stratospheric prices based on the belief that prices will continue ever upwards, not based on the utility of the property.)
Note that the sentiment mentioned is now ‘panic’.
Panic buying. When does that happen in the RE cycle?
– vreaa

16 responses to ““I have friends who are panicking to upgrade before the Mainland Chinese price them out and before the mortgage rules change.”

  1. We do know it’s not just Rich Asians who are buying, it’s locals. I know of a couple of cases of this — the pangs are too strong when comparing the worst-case alternative (being priced out and accepting “substandard” neighbourhoods, not bankruptcy or foreclosure).

  2. I just came across this little nugget, it’s about LA, but hey:

    When he’s not working, he gets roughly $1,800 a month in unemployment benefits, but that doesn’t even cover the couple’s mortgage, property tax and insurance costs, which if they were paying them would amount to nearly $2,600 a month.

    The house, purchased in 2005 for $575,000, was a financial stretch, to say the least. The Furrys took out a negative-amortization loan that had an initial low monthly mortgage payment. The payment rose over time, and deferred interest was tacked on to the principal.

    “I don’t quite understand why they bought the house,” Hartman said.

    Like many buyers, the Furrys banked on appreciation and the ability to refinance. When home prices dropped, they were underwater on a house they couldn’t afford.

    The couple stopped paying the mortgage in the fall in hopes of unloading the house — now estimated to be worth less than $400,000 — and the mortgage in a short sale. That type of transaction involves selling the home for less than what’s owed, but it requires approval by the lender. That approval can take months to obtain, if at all.

    http://articles.latimes.com/print/2011/feb/20/business/la-fi-money-makeover-furry-20110220

  3. Making a decision out of fear is the worst thing you can do, whether it involves a house or anything else.

  4. Why not sell your 700K home today, if you can. Wait for 1-2 years and buy the 1.4M dream home in 1-2 years for 700K.

    • Agree.
      But the vast majority of players will not act on such sensible advice, they as see such a move as a ridiculously risky gamble.. the risk of being ‘priced out’ forever.
      Remarkably, only a very, very small minority factor in the (far, far larger) risk of a crash.
      This is always the case near bubble tops.

  5. “This market is different. It really is.”

    Ha ha ha ha ha!

  6. A colleague of mine opined the 2008-2009 bear market and subsequent rally to new highs has produced an unhealthy and perverse air of invincibility to Vancouver property prices. People “patiently waiting” 5 years or more have simply given up and confirmation of perpetually high prices has been cemented in their psyches.

    It could well be a deadly 1-2 punch.

    • I agree.
      Some “patiently waiting” prospective buyers have capitulated and bought.
      Others are demoralized, exhausted, resigned to never buying, considering moving, agitated, frustrated, angry, etc.
      It takes a Zen-like state to sit calm through this, and stare it down.
      A crazy thing about the recent frenetic action is that it is so crazy, and so frenetic, and so incongruous, that it is more obviously ridiculous than ever before. It is more obviously a speculative mania, and one can thus be that much more certain that it will fail spectacularly.

      • CanuckDownUnder

        vreaa – I don’t think resigned is the right word, it suggests that being a lifetime renter is necessarily undesirable. If I spend the rest of my working days living in cities where it’s more expensive to own than rent I will happily continue to rent. Thankfully my wife feels the same way.

        We’ll definitely buy when I’m retired but that will be to the middle of nowhere Australia/Canada/New Zealand and being a lifetime renter I’m on pace to do so by age 45. While I’m only a median wage earner I’m also someone who gave up debt a long time ago and that’s made a huge difference to my finances.

      • Canuck-> thanks for the comment.
        I say ‘resigned’ because there is a (relatively small) minority of renters in Vancouver who would, in other cities and/or in other times, be owners by preference. These are people prepared to spend a bit more for the added stability, and perhaps for the psychological effects, of ownership.
        You are absolutely correct that one can live well as a renter, but, for those in the category I describe above, there is some ‘resignation’ to foregoing the idea of ownership and getting used to the idea of long term renting.

    • The problem is that they never understood why the market never went down.

      I think a lot of people expected it but when it did a bounce they failed to realize that it was all due to the meddling of the BoC and the Federal Government.

      I also read an (old) article today, and the last two paragraphs really make the point of what is currently going on:

      This kind of caution does not seem heroic, of course. It seems like the joyless prudence of the accountant and the Sunday-school teacher. The truth is that we are drawn to the Niederhoffers of this world because we are all, at heart, like Niederhoffer: we associate the willingness to risk great failure — and the ability to climb back from catastrophe–with courage. But in this we are wrong. That is the lesson of Taleb and Niederhoffer, and also the lesson of our volatile times. There is more courage and heroism in defying the human impulse, in taking the purposeful and painful steps to prepare for the unimaginable.

      Last fall, Niederhoffer sold a large number of options, betting that the markets would be quiet, and they were, until out of nowhere two planes crashed into the World Trade Center. “I was exposed. It was nip and tuck.” Niederhoffer shook his head, because there was no way to have anticipated September 11th. “That was a totally unexpected event.”

  7. We were thinking of upgrading when we sold our house a month ago.
    Then we were enlightened and we have decided to rent for now.

    My friend has a townhouse and she’s worried that her townhouse has reached it’s max and if she does not buy now, she will be priced-out forever. She still wants to buy because of this logic but she can’t b/c all $800K+ houses out there are like crap!

  8. Pingback: Panicked Urge To Buy (continued) – “She’s worried that if she does not buy now, she will be priced-out forever.” | Vancouver Real Estate Anecdote Archive

  9. CanuckDownUnder

    vreaa – Well thank you for the website, this archive will be a wonderful legacy of the stupidity in hindsight that will reveal itself in the near future.

    It will be interesting to see what happens when the market does starts to correct. Things aren’t going to revert back to normal overnight, and how many will have the patience to ride things out if RE corrects by going down 3-4% a year for the next 10-15 years?

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