Readers we respect have pointed out the trollish nature of some of rusty’s comments here, and we’d agree. Having said that, rusty’s position does genuinely reveal beliefs that are shared by many buyers/owners of Vancouver RE, and for that reason, we have headlined this response, for the record.
Here’s the question that Rusty has posed:
you didn’t answer this question:
“what about when prices break with fundamentals? How do you explain Hong Kong, Manhattan, London, Singapore, Rome, Tokyo, Paris, Moscow, Monaco, Sydney, etc? They all easily eclipse Vancouver in $/sqft and price/income? If prices “always return to fundamentals”, why haven’t prices followed this path in the aforementioned?” – rusty 12 May 2011 6:43am
We will magnanimously put aside the many questions that rusty himself hasn’t answered (most pertinent, his degree of leverage net-worth:local-RE), and also put aside the fact that price ($/sqft) is not a fundamental, and answer thus:
80% of Singaporeans live in public housing, so how can we begin to compare that market with Vancouver’s?
Manhattan has lower ownership rates than Vancouver, and has price:GDP and price:rent ratios that support prices far, far better than similar ratios in Vancouver. We’d argue that Manhattan hasn’t really ‘broken’ with fundamentals.
The city you list that is arguably most comparable to Vancouver is likely Sydney, which is, like Vancouver, still in a large RE bubble.
The city that best supports your argument is possibly Monaco, a tax haven/resort town/plaything for Europe’s wealthy (which, BTW, really has run out of land. Visit and you’ll see.)
We see and understand the argument you are making. You’re saying that Vancouver has moved from being a town in which, prior to 1995, or 2000, or 2003, housing prices tracked fundamentals such as income, to being a town where externally generated wealth is driving prices up beyond local fundamentals, such that local incomes don’t matter any longer (Rents should still matter, but let’s put that aside for now). This is essentially the ‘Limitless Demand Argument’.
In prior discussions here we have weighted the possibility of this being the case (Vancouver = ‘New Monaco’) as low (we’d say less than 5%). So, yes, we’ll give you that there is a small chance that we transition to become China/Asia’s Monaco, with Vancouver becoming a resort town/political haven for thousands of millionaires from elsewhere, but we rate that possibility as much lower than you do, for various reasons (China is less robust economically than people imagine; there are many alternatives to Vancouver; the foreign buyers are momentum players who will desert the market; etc).
So, that is the essential difference in our positions: You say “New Monaco”, we say “Not”. OK?
You should realize that, making an ‘all-in’ bet on “New Monaco” being the case (as you have, with leverage) is very gutsy because such an event only happens once in a town’s history, if it ever happens at all. In other words, it is a very low frequency event, and you are betting that it’s happening here and now. For every city that you list above where such a distortion may have occurred, there are thousands of others where such a distortion has never occurred and will never occur. So, you’re betting that this is ‘it’ for Vancouver. We see the Vancouver market action as being far, far more likely to be the result of a far, far more common occurrence, that of a speculative market bubble.
Either way, we have little alternative other than to wait and see how it plays out.