11 Mar 2016
Myths, Analysis and Emotion in Vancouver Real Estate
- Emotion drives our real estate market, but should it go unchecked?
- There is no metric for emotion.
- Emotion does not always equal logic.
- Interest rates play a small role in Real Estate pricing.
- Foreign buyers play a small role in Real Estate pricing.
- Beware of ‘watercooler wisdom’
- Beware of media hype
I am the last person to call for more Government regulations generally speaking, but…
Would a mandatory seven day clause, much like the seven day rescission clause in new development contracts, be beneficial to the Vancouver and Toronto real estate markets?
Would such a fixed breathing period for inspection, appraisal, financing if required, not give far more clients a fair shake? Perhaps it might curtail frenzy of the moment bidding, and lower the blood pressure of many clients, Realtors, Brokers, and Underwriters alike.
More than a few clients have sat across from me over the years with their decades’ worth of market analysis logged into Excel spreadsheets, making the case for why the ‘market fundamentals’ make no sense, and in fact have not since 2002, 1992, 1982. Take your pick of the year.
These people have been locked in analysis paralysis.
No way they were going to pay $168,000 for a detached Port Coquitlam, BC house in 1995, $95,000 for a Gastown condo in 1997, or $455,000 for a home in Anmore, BC in 2004. All of those prices represented a point in the market where prices had risen to ‘unsustainable’ levels in too short a time.
The aforementioned $168,000.00 house was one my wife and I bought. We were cautioned against this aggressive move — after all the seller had paid just $42,000 for it eleven years earlier. Clearly a 400% gain in the market over 11 years represented a bubble about to pop. The seller was ‘cashing out’ at the top, and we were getting ‘suckered by the hype’.
Actually, the seller had recently divorced and was moving to be closer to her family. We were buyers why? We were engaged to be married, and what do you do once you fall in love and pair bond? You build (or buy) a nest of course.
Emotion drove the seller, emotion drove the buyers.
At this point in the story I usually look at the individual across from me and suggest that although their spreadsheets have always said not to buy, and likely always will, now there is a new variable in the mix — and this is why they are sitting across from me.
That new variable then usually smiles, reaches over and folds their new partner’s laptop closed, and makes it clear they will not be renting, the new variable wants the stability of ownership. Stability is often desired on the housing front when starting a new family. Again, more emotions driving the transaction.
So we review a plan for taking action, not a plan for sitting on the sidelines. Nobody has ever won in sport, business, or life by sitting on the sidelines.
In many cases the analytical person’s new partner had purchased one of the aforementioned condos years earlier, and their question is how to access the equity without selling in order to access down payment monies. They want to retain the original property as a long-term investment.
The analyst’s eyes bulge at the thought. Owning not one but two properties, in a market clearly about to collapse… at least according to their spreadsheet.
Disaster is imminent, it has been for decades… well at least on their spreadsheets – just not in reality.
In these instances two brains are better than one. They balance each other out into taking steps that, while perhaps lacking Spock-like analytical backing, are not exactly head-in-the-clouds either. The analyst is slow to adapt, calling the market crazy. Others are more able to quickly recognize that what seemed crazy yesterday is normal today, and what seems crazy today will feel normal to many tomorrow.
What is driving this new normal?
Quite simply, there are far more (emotional) people for whom there is no doubt they will buy at current market prices, than there are sellers willing to sell, even at current market prices.
Supply is short. (People are rightly afraid to sell and then not find something to buy)
Demand is high. (There is no shortage of prospective homeowners)
This will continue to be the story of Vancouver real estate for 2016, and many years beyond.
What might curtail todays emotional bidding wars and subject free offers, even just slightly?
Perhaps extending the mandatory 7 day rescission clause that exists on new builds to apply to all real estate contracts.
This is just a thought triggered in the brain of a Broker working 80hr weeks to keep up with a market full of highly stressed buyers, sellers, Realtors, and appraisers.
What do you think?