If you can stand in the cold all night and don’t need to pee, I’ve got a deal for you. But only if you can drop $600,000 in ten minutes. Then you can relieve yourself. Welcome to Jefferson Forest!
Ten nights ago, in the snow, a whack of horny, delusional people stood for as long as 30 hours in front of a sales trailer in the GTA hinterland known as Richmond Hill. There was nothing being given away. No prizes for the first in line. Once the doors opened and the crowd pushed inside, camaraderie in the deep freeze outside turned into desperate competition as the hooded, jacketed suitors pushed rudely around map tables and jostled for the right to occupy a chair and scribble their names on an offer to purchase.
What did they lust after? A new release of unbuilt houses selling on average for more than $700,000 on lots as skinny as 32 feet, in a distant suburb of Toronto. The event was remarkable for the thronging, the pushing, the instant buying and the palpable desperation. “It was like everybody was crazy anxious when they got in,” one player told me. “Little women were bodychecking me to get a red dot stuck on a map square. Unbelievable.”
More remarkable was the fact anybody in the line could have booked a leisurely showing of an identical house already built, and on the market as a resale, in an earlier nearby phase of this development. And most incredible? This is rural Toronto, in a part of the country where untold thousands of new homes are under construction, where a giant supply of useless farmland is being dug up to house families who worry about food costs.
Some people suggest what happened at Jefferson Forest is proof there’s no housing correction, no bubble bursting, no reason for concern and further evidence this blog should be castrated and hung on a sharp stick. But I think not.
This actually reminds a ton of one winter evening in 1989 when I dove up to a sales trailer in a bleak, wind-whipped and blizzardy field in Mississauga. Standing amid the forest of little red stakes pounded into the frozen dirt were about five dozen young couples, shivering and waiting for their five minutes inside to buy a new house. As I interviewed a few of them (I was a swarthy hunk of a reporter at the time), the jerks in charge of the subdivision were busy hoisting a new banner on the wall behind us, jacking prices by $15,000. The crowd gasped, and pushed forward.
Five months later, the real estate bubble was pierced. A year later, the market was in tatters. It would take almost 15 years for the price of an average home to regain the pinnacle upon which it sat that night – when so many were desperate to buy.
This is what people do. They chase prices up. Crowds reach a common consensus that what happened in the last year, or the last 15 minutes, will now take place continuously. Most cannot conceive of danger, when surrounded by other people doing the same thing. It’s why there was a rush to buy Nortel or Bre-X stock, profitless dot-coms in 1999 or ugly houses in Richmond a year ago. The crowd comes to a collective decision, and then free will is lost. Almost always, the crowd gets it wrong.
It’s also why the greatest torrent of selling in modern times happened on March 9, 2009. That’s when millions of investors unloaded billions in financial assets in a wave that created its own panic. That Monday the Dow hit a 12-year low. The next day it rebounded 5.8%. A year later it was higher by 50%. The sellers had been pounded into sand. The buyers were handed opportunity.
What happened in Richmond Hill, with its unique frenzy, was a warning. A harbinger.