In fact most are fiscally careful people...they save money, buy things on sale and won't over-pay for something because they 'just have to have it right now'.
For these folks Vancouver RE hasn't made sense for several years now. The widely accepted, often quoted ratios are...keep your mortgage to 3.5 X your total income and keep your house expenses to 40% of net income. Vancouver has been well over these numbers for a long time.
So they have patiently waited, like the counterparts in the US.
The US bears have been richly rewarded for their patience, as the housing crisis struck and foreclosures mounted. They now have their pick of properties and a low mortgage rate (assuming they still have a job!)
Here in Vancouver (in fact in all Canada) it looked like the bears were about to get their moment in the sun as well. As you can see from the graph below, sales completely collapsed last year.
The rate of collapse was unprecedented. The bounce up was also unprecedented, even faster than the preceding bubble. Enough to make a bear's head spin. No wonder the bears are downcast.
Who would have forecast an instant rebound back up to pre-crisis sales levels. It was like Vancouver hit a trampoline.
So why were so many caught off guard by this rebound. Here are some reasons:
1) Firstly there was the interest rates. The BOC dropped the rates to 0.25%. Never before had they been so low. As I posted at the time the drop in mortgage rates was like a 30% drop in prices.
2) The drop in interest rates not only made mortgages cheaper, but rates on deposits dropped encouraging those with a large down-payment to put it in property. Both 1 and 2 helped move the equation in the direction of buying versus renting.
3) Those of us who have a lived here a long time time failed to understand the allure of our city. This is particularly true for retirees, who come here with funds. The last that apartment sold in my building was to a retired dentist from out east. He also bought another apartment and a commercial property for investment. He admits the cap (returns) rates on both are minuscule compared with what he could get out east..'but I can keep an eye on them here'.
4) The drop in interest rates and Federal and Provincial crisis spending came at a time when we already had a boom from construction, both Olympic related and residential, commodities were still pretty solid eg gold and oil, and so we just bubbled some more.
Ok so that is what happened -what now?
I will give that my best shot in the next post.
