Predictably Irrational Behavior

You will notice that many will rush to buy their residential properties or cars during the good economic times and end up driving the prices exorbitantly high.

But when there is an economic recession, you will find prices so depressed and yet there is hardly any buyer.

There were 5 economic recessions in 1985, 1991, 1997, 2001 and 2008 in the last 25 years averaging one recession every 5 to 7 years. Should not one buy his first residential private property or car at the next downturn to take advantage of lower prices, saving more and taking a lower loan mortgage ?

I have seen this predictably irrational behavior for the last 25 years of many people buying their properties at the peak.

Perhaps they buy because of the confidence of holding on to jobs during good economic times. But the mortgage loans taken are usually of 25 to 30 years’ duration. They will still face the possibility of losing their jobs in the next downturn while the principal sum of their mortgage loan is relatively untouched because the first few years of mortgage installments go to paying interest.

I believe the main reason for such predictably irrational behavior is more of greed or covetousness  – the fear of losing out on good deals to others.

I started my career in 1985 and many of my peers were able to save enough to buy their first residential private property in 1994 after saving up the initial deposit of 20% or more. Most bought their first property between 1993 to 1996 at the height of the property boom taking a 25 year mortgage loan.

I decided to wait till the next downturn which happened in 1997. Because I waited out, while my peers would be paying on interest for their mortgage, I would be saving up more money.

So when the prices had gone down by 30 to 50% in 2001, I was able to purchase my residential property without taking any mortgage loan as I had saved up to 50% of the peak price in 1996.

While my peers continued to worry over their mortgage loan over the entire repayment period of 25 to 30 years, I have one less worry.

Should the private property prices stay high and I really miss the chance of owning a private residential property, I will not lose any sleep because I am more than content to have just a roof over my head in public housing.

Contentment indeed brings great gain while covetousness only bring anxiety as illustrated in the above example.

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