Spot The Speculator #72 – “My colleague 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.”

“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 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.
– vreaa

30 responses to “Spot The Speculator #72 – “My colleague 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.”

  1. i got to thinking last night that i am going to miss a good RE bubble. maybe vancouver could use some RE bubble tourism. so, tell your friends, tell pscyh/sociology/anthropology/business students everywhere come to vancouver. this is (and gta) may be their last opportunity to study a major urban RE bubble in vivo. sort of like discovering a tribe of stone-age modern humans hiding out the dense temperate rainforest.

    RE bulls were once like the buffalo. vast herds of them roamed throughout north america, europe and asia. and now, they’re nearing extinction. but for RE bubble students and historians, it’s not too late to catch a glimpse, feel the energy, walk with the dinosaurs. time is running out! book your flight today!

    add. when you’re done, make plans for your next vacation. come visit the sovereign debt theme parks. eu fully operational. sorry, had to close down the icelandic section. construction on japanese park nearing completion. also coming soon to usa and canada.

    • No worries. It’s always different, somewhere, this time.

      What was unique about Vancouver was the whole leaky condo thing, where you could drive around and see a not-miniscule fraction of buildings swaddled in blue tarps, like the homeless in Japan or the termite mitigation of real estate (mainly) in the Southern US, but on a larger scale.

      [off topic] one of my favourite HGTV moments is where the inspector tells the new homeowners “You’ve got TWO KINDS of termites.”

    • Great metaphor, chubster.
      This blog has previously described itself as “a labour of love and fascination”.
      Fascination with the self-deceptive powers of the collective psyche; fascination with those who, despite overwhelming evidence to the contrary, actually go on believing in the Vancouver RE bubble and acting accordingly.
      chubster’s metaphor adds wonderful details: Studying the speculative mania ‘on the ground’ in Vancouver is like actually walking with, living amongst, people trapped in an anachronism. Something like getting a chance to visit ancient Egypt, to walk with the Mayans, to sit on the Acropolis 2000+ years ago. Examining a Lost Tribe is perhaps a better analogy. You try to communicate with locals, but the gap is too large; they stare back from an abyss of understanding centuries wide.
      The metaphor breaks down, however, in that, unlike lost tribes, there will be innumerable future bubbles. Bubble behaviour is in our nature.
      Perhaps, ultimately, like ‘War’, ‘Bubbles’ could possibly be eradicated. But don’t hold your breath.

      • “Examining a Lost Tribe is perhaps a better analogy”…

        Perhaps it’s time to syndicate/recycle TheColossusOfWestbank? [PS – When the LightGetsRight, DearReaders/IllustriousEd…. BlastRadius SeasonII Episode1: RoadsToPerdition]

      • yes. come to where you can still interview business local profs in their own environment who deny the existence of a bubble. come see the 1st ham purchase – where it all began. experience for yourself the rain premium. vancouver – it’s where dreams begin

      • iworkreallyhardandi'mnofun

        its been a great litmus test of people’s intelligence too

        ‘There is no bubble, HOW DARE YOU??’ etc.

        and with that, you can strike that person from your list of people to speak to respectfully

    • Shoot a documentary and call it Homeowners in the Mist. Problem is, Sigourney Weaver’s character would show up and say, “Screw this, I’m going to go save some deserving primates. Obviously these effers want to be extinct.”

      OK, maybe that’s not much of a movie.

  2. Renters Revenge

    Think he’s scared now? What’s he going to do when the 70% off blue light special starts flashing!!!

  3. Van west homes prices ain’t holding up. What happened to people that say “a home is a place to live, not too worried about what prices are”. Well well, I’ll explain to everyone that thinks this way. When you pay a premium for your home with low interest rates, its more of an investment than shelter. You can rent for much less and have no burden that a homeowner has. Look around the world at other bubbles. Don’t listen to idiots like Larry Yatkowsky. He’s dying for business as he only has 1 listing.

    • I agree with most of what you are saying. However – I have never seen Larry to be a mindless RE pumper and is someone who has for the most part “bearish” sentiment in his blog comments. He posts good stats, gives them to us timely and is very experienced. Frankly, I would almost want to go with him if I was to buy or sell right now. However -it’s not just him who is dying for business – Van-West is dead right now and without HAM, will have zero support through the spring. Zero.

    • I do wonder how a slow-or quick- market decline will affect people who hold a “not too worried about prices” mindset. We’re told by economists and behaviourists that losses are felt more powerfully than gains; I imagine that this loss aversion model would be true of imaginary losses as well. A person may have been content with the gains of a few hundred thousand dollars and felt it was a minor pleasure, but if those same gains become losses?

      I think a quite a few people will suddenly start to care about prices if they start slipping.

  4. he must really be shifting nervously, laughing uncomfortably, smiling cautiously with his 1/2 million equity gain.
    Maybe that white shade you were seeing was a reflection of you standing there across from him glowing white like a 1000watt bulb.

  5. I’ve run into 30-year California homeowners who tell stories of the offers they turned down and wistfully say, ‘yeah, we could have sold and rented and hell, bought the same house back again because it would have been foreclosed on.’

    *Everyone* will notice the change in “wealth”, but on the upside they don’t know it yet.

  6. That rumbling freight train is getting a heck of a lot louder. Seriously… this blog is going to be mainstream soon:

    “Housing market shows signs of slowdown”

    Even the CREA is in on the quotes:

    “Momentum for national sales activity and average price remains positive but is slowing,” CREA chief economist Gregory Klump, said. “National average price momentum may wane further over the next few months.”

    • From that CBC article:
      “We look for both sales and prices to be roughly flat this year,” BMO chief economist Douglas Porter said. “That could be just what the policy doctor ordered, allowing incomes to catch up to higher prices.”

      Right, we are all expecting that 300% raise this year, so flat housing prices for one year will bring everything back in line, sure Chief Economist Porter, problem solved.

      • -> BM: lol… the policy doctor screwed up in the first place. The remedy is actually to get rid of the policy doctor and let the market forces do what they do, aka balance.

    • IMO house prices are a sidebar from the real risk to the economy: debt accumulation. The Bank of Canada will be watching house prices with some interest but even if house prices start falling debt levels cannot increase from here.

      Relative price weakness in the late fall and early winter is a seasonal phenomenon. I highly doubt policymakers will be using CREA average price forecasts as the major lever for setting lending policy. But I guess you never know.

  7. From the House Hunt Victoria blog:

    “So 2200 Kinross has officially sold for $525K. It was assessed at $644K.”

    Victoria is clearly ahead of Vancouver…

  8. Dr Housing Bubble looks at our madness…
    “Real estate values in Vancouver have shot up by 142 percent since 2002. There is absolutely no justifiable reason for this except for massive speculation. (…)
    The median household income in Vancouver is $67,550 yet the average detached home price is above $1 million. That is simply madness and even makes the California housing bubble look modest in comparison.”

    Interesting read come from our southern neighbour 🙂

  9. I love this anecdote. Something special about it. I’m having flashbacks to 2008/09, when everyone had that feeling of “I shudda sold. I shudda sold. How could I be so stoooopid!”

    Today there is no excuse for being caught holding valuable residential real estate after the lessons on 2008/09.

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