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Tuesday, September 13, 2011

Tues Post #1: Some reflections on our Housing Bubble


Yesterday we referenced a Vancouver Province article that trumpeted our "Housing Bubble about to burst"

That outcome is not universally accepted and poking around the local blogosphere turned up a couple of items worth passing on to you.

First, over at VREAA, they picked up on a great commented posted in reply a CBC article about the dilemma being faced by the Bank of Canada over interest rates:
  • “The housing bubble in Canada is fictional. … If you can’t afford $500K for a 600 sq ft condo, can you afford $450K? Can you afford $400K? The difference is only $400 to $500 a month which in downtown Vancouver is not a lot of money … If you want to live in one of the world’s most densely populated areas, then you pay the price…”
There are a number of 'myths' that get repeated over and over as we try to rationalize and justify our housing bubble. 

They include the idea that our area is different.

That Asian money will support our housing prices even when those prices surpass the ability of local incomes to support it.

There is also the idea that our hamlet is the next Manhattan, the next New York City. It isn't.

The idea that we are running out of land is also repeated ad nausem. Vancouver is NOT one of the most densely populated area's in the world.  As VREAA succinctly notes,
  • “This is the kind of throw away comment that is accepted as correct and perpetuates the mania... There will always be some weather/beauty premium on Vancouver over other Canadian cities, but this is currently disproportionately high. Property prices are two to three times fair value determined by fundamentals... In doing so [people] omit the most important cause of the 'insane' RE prices: a massive speculative mania driven by debt."
And evidence of that massive speculative mania driven by debt grows more obvious with each passing month as we compare what you can buy in Vancouver with what is available elsewhere in North America, especially the United States.

Over at Vancouver Condo Info, we get another recent example of this insanity.

Check out this home for sale in upscale West Palm Beach, Florida. It's a 6,898 sq. foot 5 bedroom home on 2.5 acres with a guest house and five car garage (click on images to enlarge).



It appears to have an average kitchen...


But I don't think you can find a theatre room in your 'average' home...


Nor will you find a beautiful pool like this with giant glass enclosure over it...




The price for this palacial hut? $925,000.

Hmmm....

Okay, let's check out Vancouver.  What can you get on the east side in Killarney for $978,000?

How about this 1,958 sq foot, 3 bedroom home on a 41.6x131.8 irregular lot.





Is this what the CBC commenter meant when he says you pay the 'price' to live here?

I would suggest that far more than above average 'price' is being sacraficed to live here right now.... so is rationality.

This will not end well for anyone foolish enough to plunge themselves into massive debt to buy here. How can people not see this?

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1 comment:

  1. A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real.

    ReplyDelete