A sticky spot?

"Houses are always a good investment," said a Vancouver taxi driver to me on the weekend. The belief that house prices are a one-way bet is widespread, as is the related belief that owning is always better than renting.

“Houses are always a good investment,” said a Vancouver taxi driver to me on the weekend. The belief that house prices are a one-way bet is widespread, as is the related belief that owning is always better than renting.

Due to the strange absence of Vancouver traffic, however, my ride ended before I could ask him if his view had been shaken by the complete lack of interest in Whistle Bend lots in Whitehorse. The government opened a new wave of Whistle Bend lots to bidding last week, and received exactly zero offers.

It is remarkable that after all those articles about the housing shortage, including in this column, that not a single person wanted to build a new house to live in or as an investment.

Many people view houses as a unique kind of commodity. We all know prices for gas, gold or the Canadian dollar can go down. We see big, expensive things like cars on sale regularly. But there is a strong belief that houses are special.

Part of this is folk memory. In many parts of Western Canada where the population and economy have been growing relatively steadily for decades, house prices have indeed been a one-way bet. In the 1970s and 1980s when inflation was high, even when house prices just kept pace with inflation, it created a powerful illusion of increasing values.

And many house buyers notice a phenomenon which reinforces the belief that house prices don’t go down: even in a buyer’s market, sellers are remarkably resistant to cutting their prices below what they paid for the house. Economists call this “downward stickiness.”

It means that prices don’t adjust smoothly to supply and demand like they do in, say, the markets for corn or frozen orange juice. Orange juice traders don’t get fixated that they paid $1.25 a pound for frozen concentrated OJ, and then hold onto it if prices hit $1.20 and keep going down. If they think prices are going to fall further, they’ll sell immediately and cut their losses.

House sellers are more likely to stick to their price, even at the risk of having to take the house off the market. This is why you often see a fall in the number of house sales – but not so much the price – when the market gets weak.

There are quite a few Yukoners worried about the values of their houses right now. For them, decision-making is difficult. The house is such a big part of your net worth, but is also an asset to which we have such a strong emotional reaction. Orange juice traders selling an unlucky shipment don’t have to paint over the trim on the kitchen door where pencil marks show the kids’ heights as they grew up.

So when thinking about selling, it is good to be aware of all the conscious and unconscious factors affecting your decision-making.

One factor which any heartless orange juice trader would recognize is your belief about where the housing market is going. If you think the low offers you are getting are just a blip, and that the mining industry’s engines will roar back into life next spring, then holding onto the house could be a smart move. There’s a risk, but that’s business.

The danger comes when emotional or psychological factors are driving your decision, even if you dress them up in optimistic beliefs about next spring’s housing market.

One of these is pride. For the last decade, all we’ve heard at barbecues is Yukoners talking about how much money they made on their houses. People seldom talk about their losses. So by selling lower than hoped, today’s seller has to admit to themselves (and the spouses) that they are not as savvy as everyone else at all those barbecues.

As a trader or economist will tell you, however, this is not the right way to think about it. It doesn’t matter if you paid too much a few years ago, or if you made a good decision based on the facts at the time and just got unlucky. What matters now is maximizing value.

Sometimes to avoid a loss, people will hold onto their houses for years longer than they planned. Eventually, thanks to inflation, prices will rise to where the price you get for the house matches the original sticker price you paid. However, with inflation hovering around two per cent, it could take a decade to recover a 20 per cent drop in the value of your house.

And while this allows you to say, “We got what we paid for it,” this is only true in nominal terms. In inflation-adjusted terms you are still down 20 per cent.

Ultimately, the key factor is “opportunity cost.” What would you have done with the money if you had sold at a loss like an orange juice trader? If the answer is “nothing,” then holding onto it isn’t such a terrible decision. But if it means you gave up on a higher-paying job in Lethbridge, or delayed the purchase of your retirement home at Tagish for years, then you might be making a bad decision.

My father once advised me not to get emotional about used cars. It was sensible advice, and it applies to houses too. If you find yourself in a difficult price situation, try to channel your inner orange juice trader and avoid the pitfalls of price pride, money illusion or forgetting about the opportunity cost of holding your house too long.

Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Twitter @hallidaykeith

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

President Joe Biden signs executive orders after speaking about the coronavirus, accompanied by Vice President Kamala Harris in the State Dinning Room of the White House on Jan. 21, in Washington, D.C. The administration announced plans Jan. 20 for a temporary moratorium on oil and gas leasing in Alaska’s Arctic National Wildlife Refuge after the Trump administration issued leases in a part of the refuge considered sacred by the Gwich’in. (Alex Brandon/AP)
U.S. President Joe Biden halts oil and gas lease sales in ANWR

“Its great to have an ally in the White House”

asdf
WYATT’S WORLD

Wyatt’s World for Jan. 22, 2021

Children’s performer Claire Ness poses for a photo for the upcoming annual Pivot Festival. “Claire Ness Morning” will be a kid-friendly performance streamed on the morning of Jan. 30. (Photo courtesy Erik Pinkerton Photography)
Pivot Festival provides ‘delight and light’ to a pandemic January

The festival runs Jan. 20 to 30 with virtual and physically distant events

The Boulevard of Hope was launched by the Yukon T1D Support Network and will be lit up throughout January. It is aimed at raising awareness about Yukoners living with Type 1 diabetes. (Stephanie Waddell/Yukon News)
Boulevard of Hope sheds light on Type 1 diabetes

Organizers hope to make it an annual event

City of Whitehorse city council meeting in Whitehorse on Oct. 5, 2020. An updated council procedures bylaw was proposed at Whitehorse city council’s Jan. 18 meeting that would see a few changes to council meetings and how council handles certain matters like civil emergencies. (Crystal Schick/Yukon News file)
Whitehorse procedures bylaw comes forward

New measures proposed for how council could deal with emergencies

A file photo of grizzly bear along the highway outside Dawson City. Yukon conservation officers euthanized a grizzly bear Jan. 15 that was originally sighted near Braeburn. (Alistair Maitland/Yukon News file)
Male grizzly euthanized near Braeburn

Yukon conservation officers have euthanized a grizzly bear that was originally sighted… Continue reading

Mayor Dan Curtis listens to a councillor on the phone during a city council meeting in Whitehorse on April 14, 2020. Curtis announced Jan. 14 that he intends to seek nomination to be the Yukon Liberal candidate for Whitehorse Centre in the 2021 territorial election. (Crystal Schick/Yukon News)
Whitehorse mayor seeking nomination for territorial election

Whitehorse mayor Dan Curtis is preparing for a run in the upcoming… Continue reading

Gerard Redinger was charged under the <em>Civil Emergency Measures Act</em> with failing to self-isolate and failing to transit through the Yukon in under 24 hours. (Joel Krahn/Yukon News file)
Man ticketed $1,150 at Wolf Creek campground for failing to self-isolate

Gerard Redinger signed a 24-hour transit declaration, ticketed 13 days later

Yukon Energy, Solvest Inc. and Chu Níikwän Development Corporation are calling on the city for a meeting to look at possibilities for separate tax rates or incentives for renewable energy projects. (Crystal Schick/Yukon News file)
Tax changes sought for Whitehorse energy projects

Delegates call for separate property tax category for renewable energy projects

Yukon University has added seven members to its board of governors in recent months. (Crystal Schick/Yukon News file)
New members named to Yukon U’s board of governors

Required number of board members now up to 17

Yukonomist Keith Halliday
Yukonomist: Your Northern regulatory adventure awaits!

“Your Northern adventure awaits!” blared the headline on a recent YESAB assessment… Continue reading

Yukoner Shirley Chua-Tan is taking on the role of vice-chair of the social inclusion working group with the Canadian Academy of Health Sciences’ oversight panel and working groups for the autism assessment. (Submitted)
Canadian Academy of Health Sciences names Yukoner to panel

Shirley Chua-Tan is well-known for a number of roles she plays in… Continue reading

Most Read