The major driving force behind our bubble has not been absence of land, nor wealthy foreigners, nor the effect of the Olympics, nor the beauty of our city. Those factors have been more important indirectly, as stories that have driven local speculators to buy RE with extra-cheap borrowed money, anticipating never-ending price gains. Speculation has been the major engine driving the market. We believe that almost all RE purchases in Vancouver over at least the last 5 years have had a speculative component. By that we mean that the vast majority of buyers would likely not have stepped in to buy, to overbid, to take out massive mortgages, to buy second properties, if they had not believed that RE prices would continue to increase at 10% per annum or more. And that is the very essence of a speculative bubble: buyers paying higher and higher prices that are not related to the actual usefulness of the property, but rather based on the belief that prices will continue to rise. Speculation is as often covert as overt. It comes in various forms. A recent article in the Vancouver Sun, ‘Forecast is cool, but neighbourhood is hot’, by Tracy Sherlock, Vancouver Sun, 2 Jun 2010, tells a story that, on the surface, appears benign, but actually describes housing price speculation disguised as relatively normal behaviour. Spot the speculation. -vreaa
“Jan Fricker and her husband Steve Lott are confident they will soon find a buyer for their east-side character house. The house, at 431 E. 37th Ave. and listed for $899,000, is near Main Street, one of Vancouver’s hottest real-estate neighbourhoods. Fricker, 49, and Lott, 55, love the neighbourhood so much they bought an empty lot one block away in 2006 and built their dream home. Since then, they’ve been renting out the 2,400-square-foot 37th Avenue house, which also has a two-bedroom basement suite. They decided to sell the house because it is challenging to carry two mortgages and the market appears strong, Fricker said. Their confidence goes against the Canadian Real Estate Association’s lowered forecast for both sales volume and prices for 2011. Fricker and Lott have yet to have any written offers on their house, which has been listed for three weeks, but they’ve had lots of interest, with 50 or 60 people at each showing. “We’re pretty confident we’ll get it sold,” Lott said. “Land in the city is going to increase no matter what.”
They bought the house in 1996 for $270,000, a price, they say, that reflected the state the house was in at the time. “It was a dump,” Fricker said. “We’ve worked really hard on this house.”
Although both Fricker and Lott grew up in the suburbs — one in North Vancouver, the other in White Rock — a passionate commitment against commuting led them to the city. “We love living in the city. We have only one car and we ride our bikes and take transit. It’s really critical to us to live close enough in so that we can do that,” Fricker said. Fricker works in Yaletown and commutes via bus and the Canada Line, while Lott, who is an elementary school teacher, rides his bike to work.”