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vega

Why Do People Not Want To Sell In A Bear Market?

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hi, newbie/lurker here. There are a couple of things that have occured to me about the market that i was hoping maybe some of the veterans here might be able to answer for me -

1. when we are in a bear market, as we have been over the last year and a half or so - why do people take their homes off the market? surely it makes finanacial sense to SELL in a bear market? if you sell your house for lets say 100k - 6 months later you can buy it again for 90k. You make 10k for nothing!

2. if thats the case, then why have we been seeing a very small trickle of houses on the market?

3. additionally, why in a bull market, such as pre 2008 - do we see an explosion of houses on the market? sure it makes sense to BUY in a bull market, not to sell? if you sell your house for 100k, six months later its worth 110k - you lose 10k.

also,

4. another thing i've noted is that bears tend to be very negative when they see price ramping in the newspapers -

based on what i've said above, surely Ramping is great for a bear market? it appears the more prices are ramped in the newspapers, the more houses come onto the market.. so in theory the more houses on the market, the more prices drop?

thanks for your help anyone who can help me out with these apparent contradictions i've noticed.

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They don't want to sell into a falling market because they don't think it will fall for long, so they fear missing out on the inflation. They only sell houses in a rising market because they are trading up.

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Most sellers cant sell their properties because there arent any buyers that can finance the asking prices. Sellers wont drop the asking price so the property stays on the market ad infinitum or until the seller gets bored and withdraws it: The vast majority of current sellers believe that 'prices only ever go up' - so they wait until this happens to re-market their property.

Also a very large number of 'equity rich' baby boomer sellers cant bare the thought they arent really rich so dont sell as this gives them something to boast about at every social gathering.

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Generally they have either already mewed and spent the money or have mentally earmarked the money their house is "worth" for some future purchase and psychologically it feels like they are losing something.

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Because the vast majority of people have bought the mainstream media's line that the crash is over and prices are on the way back up. Many of my friends and workmates have given me this line recently. It really is testament to the power of the media that otherwise intelligent people can be made to believe something is true simply by asserting it. Oh well, you can only fight reality for so long, eventually the penny will drop.

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It makes no sense to fall in a falling market, sell before the market falls, or buy

1. High transaction costs

2. People cannot afford unsecured debt if selling in Neg Equity

3. The person who buys will often pay well below asking, often the trough price

4. It can take years to see

5. When you finally sell this means there is renewed interest and the market may be rising again without you knowing it yet!

6. The undeniable trend is up due to inflation and an ever growing money supply

If you have a property pay the debt down so your not in neg equity and get ready to buy a second or 3rd property in the trough

price is where supply and demand meet, if supply dries up (ie people dont want to sell), that will slow the falls as there is less property to buy If there are less buyers available the price falls.

supply_and_demand.gif

Edited by moosetea

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It makes no sense to fall in a falling market, sell before the market falls, or buy

1. High transaction costs

2. People cannot afford unsecured debt if selling in Neg Equity

3. The person who buys will often pay well below asking, often the trough price

4. It can take years to see

5. When you finally sell this means there is renewed interest and the market may be rising again without you knowing it yet!

6. The undeniable trend is up due to inflation and an ever growing money supply

If you have a property pay the debt down so your not in neg equity and get ready to buy a second or 3rd property in the trough

This answer is about buying - the OP asked about selling

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you forget that houses are also homes.

People can't just sell and move their family around at will in order to make a quick buck.

For a lot of people their house is where they live, not their investment vehicle.

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This answer is about buying - the OP asked about selling

Really, most of the points have the word sell in it, and buy is just the other side of sell.

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It makes no sense to fall in a falling market, sell before the market falls, or buy

You think people should buy into falling markets? I'm not sure the OP was asking for a good way to lose money, could be wrong though. The idea is to buy low and sell high, and that means waiting until the market has fallEN.

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You think people should buy into falling markets? I'm not sure the OP was asking for a good way to lose money, could be wrong though. The idea is to buy low and sell high, and that means waiting until the market has fallEN.

I think it is possible to buy below the trough price if you buy in a falling market. If the market has just started to turn people might have more confidence.

1. Buy at auction

2. Make very low offers to people who are terrified

If you time it right you can make money buying in a falling market, for example if you bought in 1994 towards the end of a falling market you would have been able to achieve a very good price just as long as you found a terrified seller.

Edited by moosetea

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The idea is to buy low and sell high, and that means waiting until the market has fallEN.

but, the reverse statement is also true - money can be made by selling high and buying low. In a bear market this is possible, but its clearly not happening. People seem to be taking their properties of the market instead, waiting for a market bottom.

maybe as bears we need to push forward the idea that you can make money in a bear market, but you have to be a seller, not a buyer.

maybe that way we can fool them all into flooding the market for us?

Edited by vega

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I think it is possible to buy below the trough price if you buy in a falling market. If the market has just started to turn people might have more confidence.

1. Buy at auction

2. Make very low offers to people who are terrified

If you time it right you can make money buying in a falling market, for example if you bought in 1994 towards the end of a falling market you would have been able to achieve a very good price just as long as you found a terrified seller.

Wow seems like everybody's talking about auctions these days, and when everybody's talking about something it makes me suspicious because to me it sounds like baaa baaaa. Anyway I really should get down there as it sounds like they're giving houses away. Must be because the guy's using a funny little wooden hammer, does that automatically knock £50k off the price?

We are not in 1994 or even 1992, this boom was bigger than the one in the 80s and the crash will be bigger to match.

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but, the reverse statement is also true - money can be made by selling high and buying low. In a bear market this is possible, but its clearly not happening. People seem to be taking their properties of the market instead, waiting for a market bottom.

maybe as bears we need to push forward the idea that you can make money in a bear market, but you have to be a seller, not a buyer.

maybe that way we can fool them all into flooding the market for us?

There's no need to fool anybody into anything, house prices are going to fall because people can't afford to buy at this price. No amount of game playing by estate agents or lenders can change that in the long term, though they can screw things around for a while as they have been in the last few months.

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you forget that houses are also homes.

People can't just sell and move their family around at will in order to make a quick buck.

For a lot of people their house is where they live, not their investment vehicle.

Not just that, in many areas a very high proportion of people in the demographic 'moving' category are in negative equity. Typically a flat or small house bought, say 3-4 years ago; kids are coming along and now would be a 'normal' time to upgrade, but they can't finance the 20-30K negative equity.

Paradoxically, if your finance/equity DO allow it, upgrading in a bear market can be advantageous as higher end houses are disprortionally affected. In my area, from peak 2007, the 400K house may be down to 300K while the 300K house is down to 250K. Of course prices will probably drop further, but selling AND buying is a different proposition from just buying or just selling.

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