Sunday, January 9, 2011

Tulip Mania in Richmond

Last night I was talking to a colleague about Tulip Mania.

Tulip Mania was a period in the Dutch Golden Age when the tulip flower was introduced.

A mania gripped the Dutch and contract prices for bulbs of the tulip reached extraordinarily high levels and then suddenly collapsed. The era has become known as one of the first 'economic bubbles'. At the peak of tulip mania, in February 1637, tulips known as ""the Viceroy" (which is pictured above) would fetch between 3000 and 4200 florins depending on size.

A skilled craftsman at the time earned about 300 florins a year. Thus some single tulip bulbs sold for more than 10 times the annual income of a skilled craftsman.

The term "tulip mania" is now often used metaphorically to refer to any large economic bubble (when asset prices deviate from intrinsic values).

Which brings us to Richmond.

Once most famously known as the home of former Premier (and gardener) Bill Vander Zalm and his Fantasy Gardens attraction/mall, the Vancouver suburb is now one of the Lower Mainland hotspots for what has infamously come to be known as Hot Asian Money.

So crazy is the housing market in Richmond right now, that one house near Gilbert and Francis Road at 6531 Dunsany Place recently sold for $300,000 above asking price.

From the listing description:
  • Lovely 4 bedrooms plus den, 2 1/2 bathroom family home situated in the sought after desirable "Woodwards area". Perfectly located on a quiet cul de sac - steps away from Blundell Elementary, London Secondary, and conveniently located to Blundell Elementary, London Secondary, and conveniently located to Blundell Shopping Centre. A comfortable, warm home surrounded by a community of new families. Well maintained with newer roof, exterior paint, renovated bathroom with soaker tub. Garage is wired with 220 and perfect for those wishing a workshop area.

The house was listed for $798,000 on Nov. 29. After receiving an astonishing 49 offers the house sold on December 6th for $1,111,111.

No word on whether or not the Realtor threw in a complimentary bag of tulip bulbs on behalf of the seller.

But that example isn't unique. Check out this beauty:

This little 1,100 square foot mansion is located at 7480 Petts Road in the Broadmoor area of Richmond.

It was listed at $1,080,000 and sold for $1.22 million!

A contributor to Garth Turner's blog recently commented:

  • "Buying at these prices you’d have to be the greatest fool indeed. Sorry Vancouver, but you’re just not worth it. Trying to create wealth by lowering interest rates is a short term ponzi scheme at best. This equates to printing money. Wouldn’t it be nice if governments could print their way to prosperity? You can’t fool all the people all the time. I don’t wish this on my fellow Canadians but I can smell the reckoning day.”

Looking back through time it’s easy to laugh at the foolish Dutch, paying such prices for simple tulip bulbs, but an economic bubble was nothing new even then.

We are no different. Real Estate has become our tulip bulb.

Human beings have always been prone to want things that are difficult to get, especially if everyone else seems to be doing it. Nutty behavior becomes commonplace when enough people are following along.

It’s only afterwards that we stand back and shake our heads and wonder what came over us.

And there is going to be one hell of a lot of head shaking going on before long.

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Email: village_whisperer@live.ca

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4 comments:

  1. Nah, we'll laugh when those homes fetch $10M, then $100M. Markets will never correct.

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  2. One of the areas of confusion in the discussion of "value" is the issue of nominal dollars. This issue is difficult to wrap ones head around and it contributes to the inflation/deflation debate and government/bank creation of money and easy credit. Money creation and easy credit leads to massive distortions in the allocation of capital and leads to asset bubbles and overvaluations.
    So, when someone says the markets will never correct, they may ending up being correct in nominal dollars, while filling their wheelbarrow with cash to purchase a sixpack of Ding Dongs. People in general, dot not understand that inflation of the money supply and the cheap credit that is the main driver, is taxation by stealth. Through a lack of understanding that gold is the "hitching post of the economic universe" people fail to see that in terms of real money, prices are actually falling. The problem is that gold is so vilified by government, banks and many financial commentators and this helps cover up the fact that the banks and especially Wallstreet are being bailed out at our expense, since the currency i becoming worth less. The economic and financial crisis of 2008 is being covered up with nominal dollars, which are making the original problem (too much debt), that much worse. Now instead of just a depression we will get a major depression, with an international currency crisis thrown in as a chaser.

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  3. Firstly, I am not a bull but a realist and thus am more of a bear given the economic conditions we are in. Secondly I am a realtor with a banking background.

    I just sent out an E-newsletter to my network of clients and contacts with regards to the influence of Mainland Chinese Investor immigrants on our market and more specifically on Vancouver West and Richmond. These people are not just looking at houses in these areas in terms of economic rents or even in terms of short term capital appreciation. They are seeking a way out of China for themselves and their families. So how much is it worth to them given this context? Something to ponder when you see outrageous selling prices such as the 2 examples given.

    Personally, I think that it may require a significant economic slowdown in China to stem the flow of such immigrant investors and thus the outrageous prices paid by these "greater fools". Interesting times.

    My 2 cents! Cheers!

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