Victoria Watercooler #1 - Wealth Effect
I'm hoping some readers will take the time to make a comment or two on this post, I get lonely writing this blog sometimes, and it's hard to tell if the blog is having any impact, good or bad, with a lack of commentary.
Okay, shameless begging for commentary will end there. The reason I am begging for commentary is due to some comments made over at Vibrant Victoria. I am wondering whether the blogosphere accepts and agrees with these comments, or not?
The gist of it is, I posted a question about whether or not a housing bubble currently exists in Victoria. Several different responses were made, but the one that interested me most was posted by Derf, who said:
Affordability has little meaning in Victoria. The amount of wealthy people here far outweighs other comparable cities. Those who can't afford to buy will rent, and those who wish to own but can't afford it move to the Cowichan Valley and commute into town. The real-estate market here is not unlike the market in southern California where homes are expensive but people are somehow demanding them and buying them for whatever price is listed.
Since 2003 we've been hearing one bubble burst theory after another. People have been absolutely convinced that the crash was just around the corner. Now moving onto 2008, we're still fine.
Now I don't know if I agree this is true. As I pointed out in the thread, if the large number of wealthy people in Victoria are creating a unique property market, why is the inventory increasing steadily in the last few years, along with prices? In other words, why haven't those wealthy people bought up all the available property?
Derf responded to the observation about the increase in inventory by remarking that the market has become "more balanced".
I wonder whether the current trend of ever growing inventory is about to become unbalanced. If those wealthy people who allegedly make the market different here are not going to buy any more than they have already, while interest rate increases result in further housing inventory, but at sky high prices, can this erosion of affordability continue forever? What do you think?
Feel free to share your thoughts about the wealth effect on the local market. Pretty please with sugar on it, give me some motivation to continue this lonely blogging mission....
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Alas, I have no thoughts. Sorry. :) At least, not any particularly interesting ones - though I do wonder about Derf's assertion that Victoria has a significantly higher percentage of wealthy people than other cities, and I'd like to see some kind of statistic to back that up before I believe it (though I'm not sure such info is out there; my cursory Googling didn't find it). As far as median income goes, Victoria certainly isn't anything special...
Besides that - even if there is a higher proportion of rich Victorians than in other cities, that doesn't explain the property boom in all those other places. One can't just look at Victoria in isolation, and assign purely local causes to its real estate boom, unless it's clear that it is a local phenomenon that isn't shared by the rest of the province or country or world...and it's pretty clear that it's not local. I'd say that having more wealthy residents (if true) might be a contributing factor to high property values, but I can't see it being enough of a factor to prop up Victorian real estate if the bubble bursts for, say, Vancouver.
...Okay, maybe I did have a few thoughts once I got going. :) I do enjoy reading your blog, even if I don't usually say anything (I admit it, I'm a lurker!)
Thanks for unlurking Laura,
that's a good point about the boom existing in all those other places - not all have the same wealthy citizens we count on here in Victoria, I'm sure...
I too am a lurker - I enjoy your blog immensely - thoughtful posts! Keep up the good work. As for the eroding affordability - something's got to give sometime. I know this is not original or anything, but I don't believe the jobs in Victoria can support the prices of housing forever, as things are ... And though I have no stats to back this up, I am sure most people living here work here as well. As the stream of people moving up in the market with their newly realized equity dries up, it's got to normalize somewhere. Even the new condos are pushing it for a standard salary of a first time homebuyer!
I too have felt something would give for a long time, focusing on unaffordability, increasing inventory etc, but the madness continued ever upwards. Once problems started in the US in 2005-2006, I thought the spill-over would be quicker. Reading some of the stuff on Mish's and Charles Hugh Smith's sites has helped put things in perspective, I really think interest rates are going to be the final straw. Thanks Jason for the feedback.
Americans were buying up property because it was cheap. Now it is not. They have stopped coming. The $ is high. There is no point. Victoria was a trend. I believe it is over. Some Albertans bought property. it is ending. The weather is not as great as it was hyped up to be. Many people are afraid to go downtown with all the druggies. ie) friend parents came here for 4 months. It rained every day. They rented a lovely condo downtown. There was a guy shooting up every morning and using it was toilet. They left early. As we are looking to "move up" I get private client services e-mails sent. Any homes over a million are just sitting. If all the wealthy people are moving here then why are the properties not selling. Toronto has more wealthy high income earners than Victoria (you just drive around and look at the neighbourhoods) and property is less. Anyway, I think it is a blip and it is ending.
Hi Greg, more support from me: I quite appreciate your blog.
Regarding derf's comment, I think it is an urban fantasy to think VIctoria is becoming a rich person's playground. It may have been more attractive for Americans to buy here 5 years ago when the Canadian dollar was worth $0.65 (U.S.) but I just don't see it now. WIthout rich Americans we have to assume that it is rich Canadians that are driving up the market, but why would they come to cold and quite dreary Victoria when they could go to warm and sunny Florida or Arizona?? Of course, what I think and what is reality can be quite different; I would despair to see that Victoria become another wealthy-only community (which do exist despite economic fundamentals) like Aspen, Santa Barbara, etc.
Keep up the good work!
Thanks StargazerXL for the kind words.
Maybe now that the Canadian dollar is close to par, and the US Housing is in the doldrums, the reverse trend will start to be noticed - Canadians going to Florida, California, Arizona etc.
I think prices there still are a bit bubblicious for Canadian wallets, but that seems to be changing.
Good point.
Another thing that occurs to me is, for Americans who bought a few years ago, now that prices in Victoria have gone up so much, and the Canadian dollar has gone up so much, isn't now the logical time to sell, and take those profits back to the plunging US market?
Just a thought...
How many people really want to live the 'Bear Mountain' lifestyle? And what is that anyway, other than just more grandiose marketing blather.
Are there so many people who can afford a house for 800k? For that kind of money why choose a postage stamp of a lot? How many of the developer's buddies 'invested' and want a return soon?
And how full are those quarter share condos up the hill running? Do they have guests all the time or are they sitting empty?
I also wonder how traffic in that region will develop over time. I think that can devalue the properties.
The biggest things running this boom are cheap money and low unemployment. We're starting to see more expensive money, and that may put a mess of currently employed people out of work. If that were to happen then we'll see a mess of zero-down people walk.
I'm seeing a lot more reduced and below appraisal prices these days compared to even a few months ago. I think there a few small time developers very worried right now.
BTW thx for your kewl blog
Why would anyone want to retire and live in Bear Mountain. There is no infrastructure - just big box stores. I can't figure it out. I think when all the Americans were coming a few years ago people became excited. "Everyone in the World wants to live Here". We must be lucky because "We Live Here". "Rich People Want to Live Here" so this place must be Great. Has the Greatest Climate in the World!!!! They Like Us. They Really Like Us! Moving from Paris France and then to Toronto we found this quite funny and a bit bizarre. Also a bit sad.
Thanks for being one of the few sane voices in this insane market.
American's and Albertan's are not buying property in Victoria? Aquattro in Colwood sold 50 properties in its first sales day of its first phase to local, BC, Albertan, American and even European buyers.
More at: http://vibrantvictoria.ca/forum/viewtopic.php?p=28281#p28281