Higher prices begat higher prices; a classic sign of a speculative bubble. The quote below touches on one of the mechanisms that add to that superficially ‘virtuous’ cycle, namely move-up buying. Note that the argument has implicit in it that when prices drop, the converse will be true: wannabe move-up buyers will not be able to make purchases because they will be disadvantaged by the decreasing equity of properties they already own. And leverage that worked magic on the way up, will turn demonic on the way down. A factor that contributed momentum on the way up will do so on the way down. – vreaa
Ozzie Jurock, as quoted by Larry Yatowsky at yattermatters.com 8 Oct 2010 – “The much-covered RBC affordability index, which not surprisingly this week said Vancouver has the least affordable housing in the country, has to be compared against market reality. Vancouver house price have always been unaffordable when compared with the rest of Canada and likely will always be. According to a study at UBC, Vancouver’s affordability has been over 60% for some 22 years. Also RBC’s conclusion, that it takes 74% of a buyer’s income to cover a typical mortgage ignores the fact that most buyers are selling a home to buy one and have benefited from the increased equity. Thus, the average B.C. mortgage is likely not that much higher for most owners than anywhere else in Canada.”
Close eyes, stick fingers in ears, and repeat after me:
“It’s different here. It’s different here. It’s different here. It’s different here. It’s different here. It’s different here. It’s different here. It’s different here.”
The move up market falls squarely on the back of the first time buyer. To get on the bottom rung of the ladder first timers have had to sacrifice more and more of their incomes to smaller and smaller condos further and further out from where they want to be. When first time buyers throw in the towel and refuse to buy 400 sq ft condos, for $600k, an hour and a half from where they work, the fat lady will have sung.
I commented on that post but got censored. There was nothing insulting nor controversial in my comment, just basic facts about economic theory that were just undermining what his post was saying.
I got so angry that I posted the message below on the very same day on Garth’s blog:
Today, I was reading realtor’s blog, Yatter Matters, and got censored…
Here’s what he posted on his blog:
“The much-covered RBC affordability index, which not surprisingly this week said Vancouver has the least affordable housing in the country, has to be compared against market reality. Vancouver house price have always been unaffordable when compared with the rest of Canada and likely will always be. According to a study at UBC, Vancouver’s affordability has been over 60% for some 22 years. Also RBC’s conclusion, that it takes 74% of a buyer’s income to cover a typical mortgage ignores the fact that most buyers are selling a home to buy one and have benefited from the increased equity. Thus, the average B.C. mortgage is likely not that much higher for most owners than anywhere else in Canada.”
When you don’t have any more arguments, you make stuff up like “the average B.C. mortgage is likely not that much higher for most owners than anywhere else in Canada”
Yeah right, say that to a first time buyer…
I made the comment that this analysis just forget about the basic economic principle that determines price: supply and demand.
For Vancouver, on the supply side, we have 700+ units sitting empty waiting for buyers at the Olympic Village (by the way, they are going to decrease the prices…), plus so many condo towers under construction or recently completed in downtown and all over the Lower Mainland.
Moreover, once BOC raises interest rates, a lot of the first time buyers that have bought there house with 0/40 or 5/35 in recent years will have to sell because they won’t be able to keep up with mortgage payments. There will be a massive flow of new houses for sales when that happened.
There is no downward pressure on supply for sure.
On the demand side, most of the first time buyers have been kicked out of the market already. And, with foreign investors, first time buyers are the only source of new demand. That’s why we’ve seen a huge decrease in sales recently.
More supply & less demand => price decrease
As prices decrease, more people will be forced to sell, with less people willing to invest. It’s a vicious circle.
I found funny that I got censored for more or less stating basic facts. It surely doesn’t paint a rosy picture of the market this realtor wants his reader to believe in…
LOL what a joke. In theory, there are the same number of move up buyers (per capita) in every other major city. Also, someone has to buy the move up buyers old place. Who’s that gunna be? The FTB of course! No matter how many times someone moves up there still needs to be new buyers to keep the cycle going.