Thursday, February 25, 2010

Popping the Vancouver Real Estate Bubble

After my last post, a friend of mine suggested that the housing market in Vancouver is about to burst. As much as I've been curious about the concept of over-inflated housing prices, I've avoided the subject because its been a great mystery to me. With my friend's comment though, I decided it was time to peer into the depths and contemplate the consequences.

The first thing I discovered was that bubbles are often discovered only after they pop. In other words, it's very hard to say with any certainty whether the market is currently in a bubble or not. I'm sure we all get the sense that housing prices in BC are incredibly high, but are they high due to natural supply and demand, or is it far more sinister? Some economists even argue that "bubbles" don't actually exist.

In order for there to be a bubble, people would have to be paying more for a home then they feel it is worth. I have to ask the question. Why would anyone do that?

I think the truth is that many of us have been told that renting is throwing your money away. We feel that we don't have any choice but to pay whatever price the housing market is asking. We also have a consumer driven mentality that pushes us to buy the biggest home we can get. Even if it's outside of our current means.

Vancouver is the most expensive city in the most expensive province in Canada to live in. Yet, most of us don't see moving as an option. We love it here and are willing to pay the price. Even if we grumble about it.

Speculating investors can force the prices up faster than we're doing on our own though. Hopefully the changes recently made by the government will slow this down and not crash the market. I'm not sure the exact percentage of speculators in the Vancouver market or the effect this will have.

Sure there will be corrections as the economy goes through its various ups and downs. Housing shortages and surpluses occur from time to time affecting the market pricing as well. In the end though, I think we're doing this to ourselves and don't really see this as a bubble. At least not one that will burst.

Living here is a choice. As long as we are willing to pay whatever it costs us to live here the prices will continue to rise. Only when we change our choices as a whole, will things change. I wouldn't hold my breath waiting for the world to change around us. If you're waiting for that crash to buy into the market, I predict you will be waiting a very long time.

Our best defence is to live within our means, pay off the mortgage quickly and move up slowly. If you're willing and able you could even move to a more affordable place to live.

If you're not in the market, you might want to wait for a market correction. Buy when everyone else is selling. However, I don't think even then housing here will be considered "affordable."

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