Investor amnesia ignoring signs of housing market trouble – analysis

“Memories are wiped clean, allowing individuals to make the same mistakes over and over again.”
Thus wrote Canaccord Genuity Wealth Management vice president and senior adviser Bob Thompson in an analysis for Maclean’s, pointing at the lack of awareness that is causing market players in the housing sector to ignore signs of possible trouble down the road.
Thompson noted that the mad dash evident in Canada’s most overheated markets—namely, Vancouver and Toronto—today is no different from the purchasing euphoria that portended meltdowns in other countries in the past.
“During this phase, caution is thrown to the wind, people’s hard-wired desire to ‘not want to miss out’ comes into full play: ‘I have to get in now, my next-door neighbour is making money and I am not,’” Thompson explained.
“[Are] there irregularities going on right now in the real estate market? Of course there are. Is there some form of fraudulent activities going on or at least a massaging of the truth? The answer is most likely—it is a necessary component of the bubble, an effect of the euphoria,” he added.
The analyst stated that such amnesia would prevent investors from taking corrective action until it’s too late.
“This panic buying can suck anyone into its vortex. During this phase, even the smartest believe that we are in a ‘new paradigm’ and the old ways of valuing things are thrown out. Whatever the asset is, it becomes too expensive for the average investor, which is especially true of real estate,” Thompson said.
The hysteria is also contributing to the overall drop in quality of existing and upcoming supply, with market players solely focused on the price arms race and not on what one actually gets for the money spent.
“When an asset is overly popular, it is most likely overvalued. You can’t find value in anything that is popular,” Thompson concluded.

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