Everybody loves a winner…. and nobody more so than momentum traders. Most Vancouver RE speculators were locals, but as the bubble inflated, and as the loonie simultaneously strengthened, our RE must have looked irresistible to foreign ‘investors’. Particularly when it seemed bullet-proof, while other RE markets rolled over and died.
Mo’ players buy assets with high and rising prices, with the aim of selling even higher. But they try to avoid holding anything that’s dropping, and they certainly wouldn’t dream of stepping in and buying low. Foreign buyers dried up completely through our minor 15% pullback (late fall 2008 – early spring 2009), but apparently didn’t have the time (or the buyer demand) to dump their holdings. The RE market is illiquid, remember.
We strongly suspect that, when prices start to drop steadily and in earnest, foreign momentum players will add to supply; they’ll try to dump assets dropping in value.
This is contrary to the buy-low/sell-high strategies of value investors and contrarians. Foreign speculators who have participated in this bubble are no smarter than all of our local amateur speculators. They bought the mo’ on the way up, and they’ll sell the mo’ on the way down, on average at a large loss. Perhaps articles like the one below will start getting them ready to reach for the trigger. “Bubbles burst”, “could drop by 30%”, “settling down”… None of these terms sit well with a momentum investor. -vreaa
From ‘After Frenzy, Vancouver Property Sales Slow’ at the ‘International Property Journal’ [8 Sep 2010], by Kevin Brass, a ‘global property analyst’ who has written for ‘the International Herald Tribune and the New York Times’.
“Vancouver real estate’s record-setting, economy-defying sales surge may be drawing to an end. In August, Vancouver area sales declined 36 percent from the same month of 2009.”
“International buyers helped fuel the surge, especially investors from mainland China.”
“Not everyone is so sure the market is stabilizing. A recent report from the Canadian Centre for Policy Alternatives warned that Vancouver’s real estate market could be a bubble ready to burst. Values could drop by 30 percent if interest rates rise, according to the report.”
“The real question is how long prices grind lower after that phase, and how many years it will last,” former MP and author Garth Turner told a reporter for ctvbc.ca. “Those who thought real estate would always rise in value were blinded by the industry and by the cheapest mortgage rates ever. All booms end badly, and all bubbles burst.”
“I think [the market] is settling down more,” Tsur Somerville, director of the centre for urban economics and real estate in the Sauder School of Business at the University of B.C., told the Vancouver Sun.