“When my family and I were pondering a move out of Vancouver, the line I heard more than once was “Don’t sell your house, you’ll never get back in.” It almost made sense, until I looked at the mountain of cash we would be leaving town with. For now I remain a Vancouver homeowner. The abstract concept of my net worth remains a fictional number.”

“Real estate is a hot topic these days amongst my neighbours. We’ve all heard the stories of little bungalows along the Cambie corridor selling for north of 2 million dollars. These were homes you could buy for a third of that before the construction of the Canada Line system was announced.”
“Where does it end? That unfortunately is a scenario we humans are not all that good at seeing. If it is indeed a bubble, it will remain invisible to all those but a chosen few. Those few will be madly blogging about it and preaching their gospel of “sell now” at cocktail parties, desperate to be proven right. And even if history does prove their predictions about a real estate crash to be correct, we’ll still find them annoying and usually find a way to avoid them at the party.”
“The cruel truth is that a bubble does not become visible until that bubble has popped, leaving drops of soapy fluid on the ground that we will be slipping and sliding on for years (as we make our way to the bank to renew our mortgages at a higher interest rate, realizing just how much money we owe on a property that suddenly doesn’t seem as sexy as it once had).”
“Last year, when my family and I were pondering a move out of Vancouver, the line I heard more than once was “don’t sell your house, you’ll never get back in.” It almost made sense, until I looked at the mountain of cash we would be leaving town with. Thankfully I haven’t had to make that decision yet… and the abstract concept of my net worth remains a fictional number.”
“So for now I remain a Vancouver homeowner. At least I know where to buy a carpet for cheap. [See body of article for context.] I should ask why they’re shutting down the business though. Maybe they know something I don’t.”
– from ‘The Persian Rugs Going Out of Business Sale!’, Martin Strong, at City Caucus, 30 May 2012 [hat-tip Nemesis]

Many Vancouver homeowners ‘know’ that this is a bubble; they see that the price run up is just too ‘good’ to be true; yet only a very small percentage will capitalize on this windfall before the bust. Most will be unable to overcome the inertia and the inconvenience of selling. And, that aside, it’d only take a relatively small percentage to try to sell at the same time for the market to collapse.
It is very, very difficult to run against the herd. On the way down, of course, the herd is selling…
Martin is correct about the bears being seen as irritatingly annoying by the general citizenry. Witness Larry MacDonald’s article in Canadian Business that we headlined yesterday, where Larry asks the bears to simply go away. As today’s anecdote shows, it’s irritating to have people tell you something that pertains to your circumstances, that you know in your heart is likely valid, but that you can’t bear to act on. Like a large version of being asked whether you shouldn’t get that overdue term paper finished when the big game is on television.
And for how long is the “can’t-tell-its-a-bubble-until-it’s-popped” canard going to be in such wide circulation?
It is very clear that you can identify a bubble from the inside: a market is in a speculative mania when prices clearly divorce themselves from fundamental values, and continue upwards solely because new buyers expect ongoing price strength. That’s a bubble. Capisci? (The bears do!)
Anyway, Martin shows that he has a remarkable amount of understanding about what’s going on, even to the point of talking about what it’ll be like after the bust (“realizing just how much money we owe on a property that suddenly doesn’t seem as sexy as it once had”). He also shows excellent insight in referring to his current perceived wealth as an “abstract concept” and his net-worth a “fictional number”. After the pop, he will doubtless say that he “knew” it was a bubble, and he actually ‘did’. But his own wishful thinking and the seduction/threats of the herd (“you’ll never get back in”) will have prevented him from acting on that which he knew. This is how bubbles work. Powerful, eh?
– vreaa

21 responses to ““When my family and I were pondering a move out of Vancouver, the line I heard more than once was “Don’t sell your house, you’ll never get back in.” It almost made sense, until I looked at the mountain of cash we would be leaving town with. For now I remain a Vancouver homeowner. The abstract concept of my net worth remains a fictional number.”

  1. Powerful stuff indeed. The lure of real estate is incredible. The way it baffles and confuses even good minds is even more amazing. Maybe a little math will be helpful to encourage the few sane people remaining to get out before its too late.

    The warning comes from economist Gary Shilling in the US where property prices have again resumed their downward trajectory. “Sell your house yesterday” he says.

    http://articles.businessinsider.com/2011-05-05/markets/29955940_1_house-prices-investment-themes-homebuilders

    And from a related article about Gary we get this gem…..”Back in the salad days of 10% annual price appreciation, a homeowner and/or investor who put down 5% enjoyed a wonderful 200% return on his investment per year, neglecting taxes, interest and maintenance. But that hapless homeowner who bought at the peak lost all of his downpayment six times over as prices fell 30%”.

    http://www.businessinsider.com/gary-shilling-house-prices-2011-3?op=1

    Yes, the lure of home ownership is quite a powerful attraction for the unwary who would be trapped by the siren song of easy money. The greed factor can never be underestimated. Neither should the prospect of sudden losses. But should we feel bad for the army of Vancouver buyers who will almost certainly lose their homes in the coming few years as the correction proceeds despite thier beliefs in ever rising prices?

    As a bear I would just say…. Grooooowwl.

  2. “realizing just how much money we owe on a property that suddenly doesn’t seem as sexy as it once had”…. DJ MightyStrong

    [G&M] – Land-rich boomers buying nests for their young

    “Vancouver is extremely expensive, so most young people buying are doing so with assistance from their parents. A lot of companies, like ours, are advising baby boomers to set up a succession plan, and part of that includes saying to your kids, ‘We don’t want to waste our inheritance, so you buy real estate with it’.” – Ross McCredie, president of Sotheby’s International Realty Canada

    http://tinyurl.com/d4ppawy

  3. thanks a lot for this link, nem … especially enjoyed ’74 bicycle ride … lg bridge sidewalk is how i remember it, in rain, with crosswind 🙂 … my cousins lived a short walk from this corner and that ugly-ass bldg used to be a small white spot (and family grocery, i think) … we were there often enough – pirate pak!

  4. Funny thing. Marty Strong was a local morning DJ on CFMI before he was let go probably for restructuring purposes as traditional radio becomes more and more obsolete. The previous post was about a DJ at Chilliwack station leaving town.
    Have we misunderstood our morning radio DJs as poor joke writing over the top caffeinated aggravation machines and not see them as the canary in the coal mines they appear to be? I will not make a final conclusion until Larry and Willie come down from the Mount and tell us the 10 Rules for the New World Order. (please insert slide whistle sound bite here Mr. Morning Show DJ)

  5. “the abstract concept of my net worth remains a fictional number”
    ….that’s funny, because the bank employee running the HELOC desk doesn’t see it that way.

    … here’s a quote, just made today, from MarketSnipper over at Slope of Hope…
    ” Your mondey (sic) in real estate is made on the BUY, not the SELL. The sell is just the realization of the gain you made when you bought”

    • “that’s funny, because the bank employee running the HELOC desk doesn’t see it that way.”

      hahaha
      well said.

    • Ralph Cramdown

      It’s true, you do make when you buy, not when you sell. It’s a lot easier to buy real estate for less than market than to sell for more than market. And of course, you choose the location when you buy, which can make a big difference in your gains.

  6. suddenly sexy! … i know i just saw that somewhere … yes indeed, http://tinyurl.com/8xqj4d8 … be sure to read excerpt …
    “She took a deep breath and stepped into Eric’s tiny office, dodged a pile of clothes on the floor and firmly closed the door. Heat tingled along her skin, stung with awareness. She needed to control the excitement stirring deep in her belly.

    Julie smoothed her hands against her turquoise blue wrap dress and nervously cleared her throat. She might not have the courage to sweep her tongue along Eric’s golden skin, but she could act like she saw practically naked hot guys every day.

    Just not ones who were that ripped.

    “Eric,” she said in a brisk I-am-so-not-looking-at-your-boxers tone. “You need to get up. The meeting is about to start.”

    ps. royce … http://tinyurl.com/42ubpwj
    ps. fred … v bear bloggers groop (vb^2g) are on the job .. we use v-brand 444 failmode elixir w/ monkey madness melange … we will get everyone down safely … bernanke soon to pad ground with $ bills for your 3rd storey jump … don’t worry, we are professionals … no humans or monkeys will be licked or harmed … except for ritual sacrifice

  7. “Can’t tell it’s a bubble until it’s popped.” That’s only for those who choose not to see it. When prices have no justification, it’s a bubble. Whether that’s Internet stocks, houses, or tulip bulbs.

  8. Just looked at a rundown sfh rental. 2000/month, 700k value, 3% yield. I asked why don’t just sell. Said taxes would have to be paid on gains and money would have to be invested at low rates. Actually they’ll owe taxes even if they move in to it for a while before selling.

  9. No bubble yet for van east. It’s so hot here and inventories are low. West side needs to come down a little. It’s not dooms day for real estate. 20-25% correction. Thank you and have a good weekend.

    • Jeff Murdock

      “It’s so hot here and inventories are low” does not mean that there is no bubble. It means that it hasn’t popped.

    • Van East is a far bigger bubble than Van West. A couple of years of living there is all you need to be able to see that one.

    • Didt people flock from West to East because of the huge rise in the West, if the West dropping wont they be going back to the West?

  10. Somebody’s having a PartayRoyale! today… It might have something to do with their property portfolio… (it’s true by the way, HM simply adores renters)…

    [FT] – Queen’s property revenues rise 9,200%

    …”Queen Elizabeth’s rental property empire has survived the peaks and troughs of the market to return a 9,200 per cent increase in revenues during her 60-year reign, more than three times the rate of inflation. The Crown Estate, the company that owns the sovereign’s land and property in the UK, produced rental income of just £2.5m in 1952 – enough to buy a mid-market central London house today. In its results for the year to the end of March 2011, the company reported revenue of £230m. The portfolio, which belongs to the monarch for the duration of their time on the throne, comprises large swaths of the UK’s beaches and the seabed for 12 miles (19km) from shore; the Royal Parks and 263,000 acres (106,000 hectares) of farmland. It does not include Buckingham Palace, Windsor Castle or the Balmoral estate in Scotland, which are owned by the Queen herself.”…

    http://tinyurl.com/7g67xfr

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