Bears to the rescue?
Browse through blogs and forums with a local Vancouver focus right now and you’ll likely find a lot of skepticism about the current state of real estate prices in Vancouver. How many blogs are there out there now looking at the downside of our market? VHB, (Un)realestate, BC Housing, heck even investment realtor Rob Chipman seems to exhibit some bearish ideas*. Even over at the RealEstateTalks BC forum you don’t see much ‘vancouver is a great investment‘ sentiment these days.
There seems to be no shortage of people that think rent/price fundamentals are out of whack, or that the massive supply of new condos completing over the next couple of years will dramatically shift the supply/demand equation. People argue that as Vancouver gets more expensive people will move away to where they can get more for their buck reducing demand, and that if we (god forbid) see any real negative economic impact from the US housing market crash then we could be in for some big losses on real estate investments.
Through it all the common thread is people discussing the future of our real estate market, and that means one thing to me: they are interested in our real estate. And if they are interested that means they would like to buy it. They are our ‘reserve tank’ of demand.
So will the bears awake from hibernation in the spring and absorb some of the new housing stock? Will they buy some of those stale listings? Are there enough hungry bears out there to counteract all of the factors that hungry bears hold up as proof that our market is unsustainable?
*I’m sure the postings of ‘anonymous’ and ‘boombust’ will keep him from ever fully joining the bear army.
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December 24th, 2006 at 9:50 pm
Like I told Rentah. YOU implied that I said buy anytime.
No, you implied it, I said it. In fact, don’t you find it telling two people independently feel that you implied it.
How did you imply it?
>If it did, you only lose money if you sell.
That suggests that you only lose if you sell. Implicitly, it says that you win (the opposite of lose) anytime you buy. By that logic, there is no bad time to by.
On that topic, do you think right now is a good or bad time to buy?
t is the same as when your stocks take a dip. If you sell, you crystallize your losses.
That makes absolutely no sense at all. I thought we went through this a few weeks ago. And what the heck does “crystalize” mean? Do you mean actualize? Anyways, who cares, sunk cost. Paper losses are real losses. Would you argue that a gambler in Vegas hasn’t lost as long as he can get back into the casino and has a chance to win it back?
Here is my age old example:
Mr. X buys into Acme Co. at $10. Mr . Y buys in at $20. Mr. Z buys in at $30. The company slides back to $20 and change on some bad news. What should each investor do (they have identical risk tolerances etc.)
With all do respect I think this question is a little flakey,
The purpose of this hypothetical situation is to remove the ambiguity and extraneous information in order to focus on the core issue.
Perhaps I should have phrased it “if it was known with certainty that prices that prices would drop by 20% over the next 2 years and then increase by 30% over the next 5 years, what would you do?”
The UNAMBIGOUS answer is hold off buying (or sell if already an investor) and wait for prices to drop.
But still I hear people argue that it is “OK” to buy because over time you don’t “lose” anything if you just wait. That is just a plain dumb argument, as compared to a person who acted optimally you lost vastly.
If my investment properties were 3 legged dogs, with low rents, and high future repair costs, I would unload them. However, if the properties were in good shape, with good tenants, and positive cash flow. I would probably hang on, unless I needed to liquidate at that time.
Makes absolutely no sense to me, but to each his own. Wouldn’t the shape, cash flow etc. be reflected in the price? The only other person who keeps making this argument is Rob. Shouldn’t the decision to sell be based on value relative to potential?
December 24th, 2006 at 3:53 pm
Hello Aaron,
whether everyone agrees with your views or not you are %100 percent welcome here, in fact as I’ve stated I like to hear both sides of the debate.
If you sell, you crystallize your losses. If you absolutely need to sell, then it is a different story.
You toss in ‘need to sell’ almost as an afterthought here, but I think its worth more attention. The market has natural cycles that bring prices up and down, but those can be pushed to the extreme by economic factors.
One of the factors that would contribute to a BIG drop in prices would be a bad economic climate where the ‘need’ to sell becomes a lot more likely for people that are over-extended by todays prices and have no financial cushion to protect them from job losses, reduced income or other problems.
December 24th, 2006 at 3:41 pm
aaron: I’m not sure how you calculated at 50% or greater drop in Values. Can you expand on that?
Sure.
The last four major pullbacks since 1970’s have AVERAGED 28%.
The current runup has been excessive, even in historic terms, in terms of fundamentals, as well as technically.
So, I’m expecting a pullback of close to 40% peak to trough.
Add a ‘disaster’, or a perfect economic storm (or even a few components thereof), and you’ll easily see 50%.
That’s just rhyming history.
Note: I’m not naive enough to expect to time the next bottom accurately, and I’ll personally be happy with anything above a 30% drawdown, or when rents come into line with prices, whichever comes first.
December 24th, 2006 at 3:30 pm
freako: But wouldn’t the same logic extend to selling when the market is peaked?
Yes, but it’s such a drag to be bothered with selling. Much easier to close your eyes and hope for the best.