“My colleague B. has been bragging about the price of his house for the past 4 years. On Friday, I told him we are passed the peak, and that I know of two families who sold in June and are proud of their timing. He turned white. I showed him Larry’s graph on my laptop. Sorry to say it, but it felt good to look at his face. He could hardly work in the afternoon, trying to gather data on the web. His conclusion: he is late, and his last chance to cash in is in the next two months, if there is any HAM left.
I realized that, in his mind, he did not have a 2.5 million $ home, he thought he HAD 2.5 MILLION DOLLARS (and plans about how to spend it). And suddenly, those 2.5 millions have turned into 2.2, therefore he FELT HE HAD LOST $300,000. I now understand better the psychology behind a rush to the exit.
I also realized that for 4 years, he was never living in a home, but just camping in an investment.”
– DEFAULT NAME at vancouvercondo.info 15 Jan 2012 at 9:14am
This anecdote interesting from many perspectives:
1. Schadenfreude. (Yes, it does occur in mild mannered Canada).
2. Paper profits imagined as real gains. (Many have planned their futures around the imagined values of their homes).
3. Paper losses experienced as real losses. (And, until losses occur, people underestimate how painful taking losses can be. In this case, an imagined loss, thus far, of $300K after-tax, clear profit. How long would it take ‘B’ to earn and save $300K after tax? The thought of the loss is agonizing… thus, there is accompanying fear of further losses…)
4. Fear as prices fall; Urgent rush to market. (Price drops will beget price drops.)
5. Housing as a financial instrument rather than shelter.
6. Owners are almost all speculating on future price strength.