Thursday, January 22, 2009

Denial - It's Not a River in Egypt

The Nile River is a long river, in fact, it is generallly regarded as the longest in the world. It represents a very large drainage basin, covering much of North Africa.

Likewise, DE-NIAL can be the drainage basin of your finances if you aren't careful. According to Wikipedia, denial is a defense mechanism in which a person is faced with a fact that is too uncomfortable to accept and rejects it instead, insisting that it is not true despite what may be overwhelming evidence. The subject may deny the reality of the unpleasant fact altogether (simple denial), admit the fact but deny its seriousness (minimisation) or admit both the fact and seriousness but deny responsibility (transference).

So today, many of the people you see around you are in denial about the reality of the Canadian real estate market. They are so uncorfortable with the fact that prices have fallen and are falling further that they outright deny the fact. Sometimes they admit that prices have fallen but minimize the impact that it will have on Canadians or themselves. Sometimes they just admit that prices are falling and that it will have a big impact but walk away from their 3 spec condos.

Yes folks were are in the denial stage. Next stop 'fear' - - I'm scared.

Good luck!


Robin said...

I seem to have friends in all different stages.

-My most pro-real estate family member advised me not to buy in 2009
-the newest member of my family to buy (1.5 years ago) has been expressing regret about his market timing
-the family member who bought a house in 2003 and then borrowed from that equity to buy 2 other places told me, "well, Ella, we all knew it was going to crash" (yet she's not getting out of any of her places, waiting for the rebound)
-my friends who haven't bought are wait-and-seeing
-my friends and family who bought 4 or 5 years ago still feel like they made great decisions, and the market won't touch them.

The term "before the crash" is coming up, too. I just don't know if they are thinking this was the crash. I think maybe they are.

I have been offered new investment advice from the ex-RE crowd, though: buy gold.

AndrewJ said...

What is it with gold anyway? I know people talk about it but I only have a vague understanding of how it's supposed to protect you. Is the general idea that if inflation rockets off and your money gets devalued (although won't interest rates go up to slow inflation cushioning the effect on your bank account a fair bit?) gold will roughly maintain it's value. Gold's fundamental value is based on scarcity and utility as opposed to a fiat currency? Although some of the utility goes away since in a severe recession there won't be a lot of people buying jewelry.

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