Fail

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Forget the markets. It’s human nature that’ll kill ya.

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This is why people bought raging dot-com stocks with no earnings in 1999 or bailed out of their mutual funds at horrific losses in March of 2009 – because everyone else was. It explains bidding wars for homes in Toronto last March, when prices peaked, and empty open houses now when they cost 15% less. It’s why we wanted Bre-X, RIM, or Nortel at nosebleed prices. Why condo sales just fell by a third. Why Richmond real estate was torrid, but now languishes.

People abhor losses more than they enjoy profits. So fear trumps greed. We hold onto a losing investment, rather than sell and admit we bought out of idiocy. Human nature makes us value things other people want, no matter the cost. The same lack of confidence keeps us from buying or investing because others don’t. Being humans, we trust those we know – mothers, brothers-in-law, hockey buddies – and distrust those we envy. We loving taking advice from people we agree with.

So, we usually buy high and sell low. Making money’s almost always an accident. Losing it’s the norm.

And this brings us to Trish.

Many on this pathetic blog have speculated how it will be when former property virgins (a) realize what nimrods they were to buy a first home in the last few years, (b) understand why microscopic condos are a really, really bad idea, (c) face selling at a substantial loss or (d) wake up to the fact their own greed and fear screwed them.

Sweet little urban-suburban Trish may furnish some insight:

I’ve been enjoying your informative blog for some time now, so thank you for that!

I unfortunately, seem to be one of those people trapped with an overpriced condo in downtown Toronto. We had a friendly realtor, seemed to know what she was doing. It wasn’t until months later that we learned that she had bent us over and had her way with us. Being completely green, we stupidly trusted her.

Six months after we moved in, we realized living in an area that small wouldn’t work, so we started house hunting (this was all in 2010 by the way). Only then did we find out exactly what the realtor neglected to tell us (the condo seller made a killing off us). So we used a different realtor and assumed we could at least ballpark break-even on the condo (we had put 20% down). Listed it 30k under what we paid, but not a single offer.

Eventually we found a house out in the distant burbs. We paid just 10k more than what we paid for the condo and put down another 20%. Three weeks later, we realized the commute was killer, bought a car and ploughed on. Two years later, the 2.5 hour daily commute into the city is driving us to the brink. Unfortunately, of the areas closer to the city, East York seems to be the most affordable. The prices were mainly in the 450/490k range, but they have been steadily falling to the 350/450k range.

My long winded question is this: With 20% down, the bank has preapproved us for 450k, I don’t want to go that high, but staying here isn’t an option unless I want to go postal. The condo has finally gotten to the point of breaking even with the tenant, and selling it and walking away with a mortgage owing isn’t going to happen, so the bank hasn’t included it in the preapproval. But now I’m scared to death of having a(nother!) mortgage that high on a property that we wouldn’t be able to sell without taking a huge hit on.

How much do you think that an SFH in the East York area will fall in the coming years? Would it be worth it for us to ride it out for another year or two? Hell, even six months? I’m not too worried about selling the current house at a loss, this seems to be one of the only areas where houses are still moving – something to do with the majority of houses going for under 300k would help I think. Any advice would be greatly appreciated! — Trish

Hard to know where to start, Trish. The fact you bought a tiny condo when you could have rented it for half the cost, then walked away at will? Snapping a house in the burbs without doing your homework, because it had big spaces and deep granite? Not bailing out of the downtown property because you feared a loss, only to incur a larger one? Spending tens of thousands on realtors and closing costs you’ll never see again? Blindly believing lenders who want to indenture you with greater piles of debt? Buying real estate with less thought and research than you’d put into a new Lululemon yoga mat? Thinking bankers and realtors are your friends, rather than agents who profit from your naivety and greed?

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You ask when Toronto prices will fall so you can do it all again. That’s not the right question. Rather, ask, how can I rescue my financial future from my own appalling decisions?

The easy answer is to dump the condo before the market deteriorates further. Sell your moose pasture house if you can escape with your downpayment intact (or even a small loss). Rent for five years and repair your finances by saving and investing. Reflect on your stupidity, catalogue it, and swear to learn from it.

As a reader of this blog, you fail. Bad Trish. I recommend more time with non-humans.

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avatarGarth Turner - The Greater Fool posted Sunday, November 18th, 2012.

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