Local condo salesman Bob Rennie describes how speculators have deserted the market for the Olympic Village condos, The Province, 8 Oct 2010 –
“We have a huge problem with the Olympic Village that it’s not for speculators, it’s for a community of homeowners. I’ve lost that buyer who says, ‘I’ll buy it today and over the next two or three years I’ll figure out whether I’m a passive investor or whether mom lives in it or whether we live in it and sell our house.’ ”
What Mr Rennie is saying is that when people stop buying Vancouver RE simply for the reason that they believe that prices are going up indefinitely, he (and by inference the whole market) has a problem. An interesting observation. One that local RE bears have been singing from the roof-tops for years.
We’ve previously described how almost ALL Vancouver RE purchases over the last 5 years (or more) have had a speculative component woven into them. People have only paid higher and higher prices under the assumption that prices would continue on their upward trajectory, regardless of their value by any fundamental measure. That is the very essence of speculation.
Well, speculation in Vancouver RE is now over, for perhaps a decade or two. Volume is down and prices are going to drop from these giddy heights. When that starts happening, prices will drop further and further, possibly on increasing volume, as weak speculative hands exit the market. These players will rush for the exits as the only factor that kept them in the market, namely rising prices, disappears. Price drops will beget price drops. At 25% off, we may get a bounce, but when we eventually get below that level, the drop will be even more precipitous.
We’ve seen speculative evaporation in the periphery, and now in the ridiculously overpriced Olympic Village condos mentioned above. But speculation will soon leave ALL areas of the market. We think that the most devastating aspect of this process will be when COVERT speculation disappears, meaning that those innocent looking first-time-buyers and move-uppers, who in recent years were merrily signing their lives away with background expectations of price increases, will freeze their buying intentions when they realize that the market has reversed.
What will prices be when people are buying homes without the expectation of price gains?
What will prices be when people are buying homes as shelter (+ modest ownership premium) and not as ‘investment’ (read: speculative) vehicles?
Certainly far lower than they are today.