Seeing that real estate transactions are booming, the government is taking another big step: raising the stress test interest rate from 4.79% to 5.25%. As for the reason why the government did this, haha: There is no reason. Someone was not calm again and asked me what I thought about the real estate market. Under the original policy, a person who could borrow 500,000 yuan would be able to borrow 475,000 yuan after the stress test interest rate was raised. What impact will it have on the market? It has delayed the time to buy a house for some people. Let’s summarize the causes and consequences of this policy by quoting a sentence from the CEO of RBC Bank in response to a reporter: “We need short-term measures to cool Canada’s shousing market.”
Canada's housing prices fluctuate and rise. The fluctuations are caused by the government, and the increases are the result of market forces. The upward trend in house prices will not be shaken. The reason is very simple. 98% of Canadian real estate is private real estate, and 68% of people own their own properties. If the price is low, the homeowners will not sell. Taleb has a sentence that is shorter and more powerful: no one is bigger than the market. In one sentence, he expresses his disdain for the government. People who believe that the government can control housing prices have already gone to the Great Wall to cry.
Mature real estate investors are rarely affected by market rumors and noise, but readers who have just started investing in real estate often experience psychological fluctuations as the market changes.Market fluctuations will only affect the behavior of the trading moment and have no effect on long-term investment plans.I don't really care about the changes in the market during the transaction. If the bullet is loaded, don't hesitate when pulling the trigger. When I buy a house, I sign the contract without hesitation. I don't care what the government wants to do or whether there will be short-term market fluctuations, so I basically didn't talk about the transaction issue in my previous articles. Since the beginning of this year, the real estate market has been very hot. Some friends who are in the initial stage of real estate investment have been asking how to conduct market transactions calmly in the hot real estate market. In my work resume, I have no experience as a trading operator. I can only share some experiences and lessons based on my past life experiences.
01 It is difficult to accumulate wealth through one or two transactions.
Buffett accumulates wealth by value investing, and real estate investors accumulate wealth by holding real estate for a long time. These are obvious to all. Of course, there are many cases of huge profits made through trading. For example, Soros blocked the pound and made a profit of US$2 billion in one blockade; the four protagonists in the movie "The Big Short" became rich overnight by shorting real estate financial derivatives, etc. This method of making profits and getting rich by trading was introduced in my previous article "Two investment rules found through the ruins of "The Big Short"". Countless middle-class families have tried to get rich by trading while constantly trading stocks, and the vast majority of them ended in failure. For ordinary people,It is difficult to accumulate wealth through one or two transactions. On the contrary, the more transactions there are, the greater the transaction fees, the greater the market risk you bear, and the higher the probability of losing money.
Last year, someone sent me a link to an online audio-visual course on real estate investment. Click on the link and see that the "teacher" is telling the "students" about the K-line of housing price trends. It is said that this is a paid course, and someone asked me if it was worth the money to take it. Everyone knows the consequences for those who invest according to the K-line of stocks, so why should we still invest according to the K-line of house prices? If arbitrage could be made stably in the long term by buying and selling, would anyone still work? Just stay at home and receive the $2,000 from Trudeau while investing along the K-line.
02 you are not a trader
Many people have the illusion that they are born traders, able to control the links and steps of transactions, and accurately figure out the psychology of their counterparties, but this is not the case. When Buffett buys and sells stocks, he also uses stock brokers. These brokers are professional traders who can use their experience and methods to follow Buffett's instructions to quietly build positions without causing the stock price to rise. However, Buffett does not think that he is a natural trader and just wears a vest to appear on the stage. An excellent trader must not only have talent, but also learn and accumulate, because this is a professional job. Ordinary people should not pretend to be traders to compete with professional traders, otherwise they will suffer the loss. A Chinese trader on Wall Street once wrote a book "Wall Street in Chaos", which describes the work and life of professional traders and is very readable. After reading this book, I will never want to trade with a professional player again.
The same goes for buying a house, don't think of yourself as a trader. As a real estate investor, all you need to do is prepare the down payment and get loan pre-approval. At this time, the bullet is loaded. When you pull the trigger, you need the help of a professional trader, that is, you need the help of a real estate agent. A house with an asking price of 399,000 has attracted the attention of a large number of buyers. The real estate agent will tell you that the seller bought it for 450,000 five years ago and the current fair market value is FMV) is 600,000. The purpose of setting a low price is just to attract more buyers to bid. Based on this situation - there are many buyers, the real estate agent judges that the final transaction price will be higher than the FMV, approximately between 610,000 and 640,000. If the transaction is completed at 640,000, the bank's valuation may only be 600,000. Are you prepared to pay enough? This is typical advice and advice that professional traders should give you before real estate investors pull the trigger. Whether to listen or not and how to operate depends on your conditions and decisions.
03 Don't be a rational fool
Modern economics has an assumption that people are rational when making decisions and that every economic decision can maximize their own interests. However, research in behavioral economics has overturned this assumption of rational economic man. For this, Daniel Kahneman won the 2002 Nobel Prize in Economics as a psychologist. Behavioral economics takes the study of ordinary people's economic decisions as its research object, so it has discovered many "wrong behaviors" based on the assumption of rational people. The person who has done the most research on these “wrong” behaviors won the 2017 Nobel Prize in Economics. This man's name is Richard Thaler, which is translated into Chinese as Richard Thaler, or Richard Thaler. Due to confusion in translation, Chinese readers are not familiar with him. I will call him "Taylor" below.
Taylor has this description in his book "Wrong" Behavior. See if it sounds familiar to you.Buyers and sellers have a cooperative relationship and reach deals through negotiation; buyers and sellers have a game relationship and require bidding. But some people mistakenly believe that buyers and sellers have a game relationship, that is, I win when you lose.If the real estate agent tells you that the FMV is 600,000, and too many people are rushing to grab it, the transaction price will be higher than the FMV, and you insist on bidding 399,000, you are what Taylor calls a "sane fool."In every transaction, we aim to maximize our own interests and bid lower than the fair market price.FMV, refuse to cooperate, these people are sane fools because they can never close a deal。
There's another batch that's even dumber. The market was so hot that they felt it was too painful to have to compete with other buyers every time they made an offer, and at the same time required the seller to cooperate, so they bought off-the-plan properties after reading the advertisements. They feel that developers are more merciful in setting prices than second-hand home sellers. Even if the prices are high, other buyers will be deceived, and they are not the stupidest one. There was a real estate project recently in Vaughan City. The real estate agent listed the top 10 reasons to buy this real estate. I was curious and checked the second-hand housing prices around this new real estate. The condo address closest to this real estate is 5 Buttermill Ave. It was completed at the end of last year. The current market price is 881 yuan per square foot, while the asking price of the new real estate is 1100-1200 yuan per square foot. If this location has development potential, you should also buy a second-hand house. If you buy it now for 1,100 per square foot, how much do you want to sell it for per square foot when you sell it?Remind everyone that only a small number of real estate agents are qualified traders, and many more are sales representatives of builders.
You can't buy a house if you are too rational, and you can't buy a house if you are too impulsive. The title of Taylor’s other book is “The Winner’s Curse,” which is about the impulsive behavior of winning regardless of the cost. At that time, Qinchi Ancient Wine and Aido VCD both won the CCTV advertising bid, but they soon went bankrupt, and their lives were shorter than those of their peers who did not win the bid. This is the classic winner's curse. The real estate agent tells you that the FMV is 600,000. If you bid 900,000 to win over other buyers, you are courting death.
04 Distinguish between noise and signal
When housing prices rise diagonally, the government will come out from time to time to enhance its presence in order to create a wave effect. People often react subconsciously to policy changes by thinking: Don't let this hurt me.
On July 1, 2010, Ontario merged the consumption tax and HST. Before the new policy came into effect, the real estate transaction volume soared. After that, the transaction volume was light for the next three months. After three months, the transaction volume recovered. Before people understand the impact of a new policy, they are afraid that they will be adversely affected by the new policy and speed up the transaction. The same situation existed before and after the implementation of the new B20 on January 1, 2018.
Increasing the stress test interest rate is a short-term temporary measure and does not affect the B20 policy, so it will have no long-term impact. The contradiction between supply and demand cannot be solved by suppressing demand. Hong Kong once used land reclamation to solve the problem of insufficient real estate supply, and achieved a 70% drop in real estate prices from 1997 to 2003. However, the instigators were ousted, and Hong Kong housing prices have remained the same. The government knows how to suppress housing prices, but it cannot suppress it because too many people have vested interests in it. At the same time, the government also needs to take into account the votes of those who have not bought a house. The short-term method of boiling down the heat will do the least damage to the votes.
Immigration policy and interest rates are signals for the housing market, everything else is noise. The unemployment rate does not affect housing prices, and people who are easily unemployed will not buy a house; the bankruptcy rate does not affect housing prices, and it is difficult for people who own houses to become insolvent, so how can they go bankrupt; the debt-to-income ratio does not affect housing prices, because many high-net-worth and new immigrants do not buy houses based on income loans; tax increases increase costs and will not lead to a decline in housing prices; raising loan thresholds will only block families with weak loan capacity and force them to extend their rental time, which is good for real estate investors with strong ability; a certain property will be the future In the center of the universe, the community construction is so high-end. These are advertisements, not the value of investment. Buying low and selling high are investments; the state-owned enterprise CMHC has been badmouthing real estate for more than a year. This is chicken soup for the soul for people who cannot afford a house temporarily. People who own houses are very happy without drinking it; the government wants to make CERB permanent and issue 2,000 per person. Good thing. People who receive relief have a particularly strong marginal consumption tendency. They will spend 1,999.99 yuan, which is beneficial to economic development.
