Real estate markets have become just as interconnected as financial markets, so they can be equally vulnerable to volatile swings in global fortunes, argues Michael Goldberg, dean emeritus at the Sauder School of Business at the University of B.C.
“Local housing markets are certainly very open to invasions of capital from abroad, and these can be disruptive,” Goldberg said in an interview.
“When money flows in, people say, ‘Great, we’re on the world map, isn’t that terrific?’”
However, just as easily as it flows in, Goldberg noted that capital can flow out “as somebody finds the next hot place where you simply have to have a condo in the global marketplace.”
In the case of Metro Vancouver, Goldberg said he sides with those who do not believe the city is in a bubble, and he is doubtful that the capital flowing into B.C. from investors, such as wealthy buyers from Mainland China, is cause for concern.
“If it’s at the high end of the market, where much of this foreign stuff is, I don’t care,” Goldberg said. “That’s not a social issue.”
1. We agree with Michael Goldberg regarding potential for foreign outflow. These foreign speculators are dumb momentum players (buy high, hope to sell higher) and they’ll bail as quickly as the local specs when prices start their inevitable plummet. And, yes, they’ll add to the volatility.
2. We disagree with Goldberg regarding side of the bubble divide. We are, most definitely, in a RE bubble. [We'll list his assertion in the 'What Bubble?' sidebar, for future reference.]
3. We disagree, too, most strongly, regarding inflated prices at the high end of the market not being a social issue. Sure, nobody is out on the street because a home that should sell for $1M is selling for $3M, BUT there are social consequences, most importantly, that a whole segment of educated individuals are avoiding or leaving Vancouver because they are unable to afford housing commensurate with their income and educational level (whereas they can afford such housing, almost everywhere else in Canada and the US). The consequence of this drain is the dumbing down of our culture, the underdevelopment of our legitimate industry, and the conversion of our city into a centre for the fast-and-loose industries that include gambling, porn, tourism, the drug trade, and selling real estate to one another. And that is not even to start to describe the terrible social effects of the misallocation of resources that a RE bubble induces.