Quote:
Originally Posted by Tapioca
Although I'm not employed in the finance industry, I understand what 4444 is driving at. He's right about markets and diversity in one's portfolio.
But, where I think he is misguided is that the real estate market in Vancouver has truly become detached from fundamentals. He has argued that the fundamentals are never wrong because they're inherently fundamentals. This market, at the high end, is driven by investors who have a different perspective than the typical rational, Western ROI-chasing investor. This in turn has driven wealthy people, or their children, who have been displaced (whether financially or culturally) to other areas of Metro Vancouver. Others, such as first generation immigrants, who paid off their houses long before the boom started have borrowed against the value of their homes and funded acquisitions of other housing for themselves or for their children.
If housing in this market crashes, say to the tune of 50%, the people who borrowed against their homes would still be okay because their homes were likely paid off long ago. They would still be able to service the interest payments on their home equity loans from CPP, OAS, and any pensions they have (the baby boomer generation has benefited from pensions that were much more common). They can defer payment on property taxes indefinitely and even if they find themselves in a position where they have to sell, they will likely be okay as the sale, even in a fire sale environment, will cover any loans remaining on the property. Or they will die knowing that the estate sale will take care of any loans on their property.
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it is a fair point, absolutely there is a large portion of the market that is driven by international money (not just vancouver).
the reason I suggest this will not last forever is that at some point the bottom of society will fall out.
If the current rates of increases continue, driven by only rich foreigners (and select locals) buying (which is the hypothesis thrown around here, as otherwise it makes no financial sense to buy), it will result in people leaving (we see this happening now in the millennial segment). If this effect gets so large, the fundamentals of what make a city good will change.
You also have to admit that there is no way this situation is sustainable. Canada cannot keep on taking in rich foreigners, give them access to healthcare and cheap/good education when the tax base is being eroded (these foreigners are not paying income tax).
Governmental change will come. Societal change will come. Crazy house price increases are not good for society (there are papers written about this).
Timing of these are unknown. But, hey, if not, fucking awesome for those that own... i've made money on housing all over the world, i've won on investments, i've lost on others, but the obsession in real estate in vancouver is just stupid. Whenever I return to vancouver to visit family, old friends, people on the street, it's all they talk about. it's boring. (and most are complaining they can't afford - society gets hurt)