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Vancouver real estate and 2013: proceed with caution

Recently @DouglasCoupland quipped on Twitter  that 2013 was a very bad name for a year, so he was going to rename it Tammy. "Tammy" sounds like a hurricane name, if you ask me.

But then again, perhaps that's what we can expect. We have entered uncharted waters, and there are as many reasons why this state of things can go on much longer as why it can end tomorrow.
 
China has taken more people out of poverty in the last few years than anyone could ever fathom, and has produced a lot of millionaires lately. Much of this has been on the backs of some large corporate brands. 
 
It is a vicious cycle. Our companies are tightening spending so people are working more and (maybe) getting paid less, so as a result, they have as a whole started buying cheaper stuff. That 'stuff' is now predominantly made in places like China. If we buy Chinese-made goods, we raise their wealth, which they in turn invest here, driving up our home prices and forcing us to buy more inexpensive goods: it's a circular wind, like a hurricane. 
 
Here is an interesting graph showing the psychology of investing. This was done by Dr Rodrigues of Hofstra University.



Let me follow that with a graph of Real Estate trends since 1977.
 


If you scroll to the right, you see the similar double peaks. Scary, isn't it? Coincidence?

I don't predict the massive drop with rates still so low. If I can borrow at 3 per cent interest, eventually a significant drop in prices will mean I can rent cash positive, and I would do that over paper stocks any day. I prefer to be able to walk through and touch my investments, since I feel like I have more control -- naive as that might prove to be.

In some less desirable areas, yes, I think prices will go down. 
But if we treat real estate investing as an emotional, confidence-based type of investing (and isn't all investing that way?), then I would proceed with caution in 2013. As always, get very good advice before any major purchase. Don't get involved in the hype, buy what you need and can afford.
 
After all, we are talking about buying 'shelter',  right?


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Comments

We need to raise our wealth

We need to raise our wealth but not Chinese. Why can’t we produce our goods and create new job places? Instead of this our companies try to fight the crisis, cut spending and fire people. I think that it’s necessary to find a way which will help the economy to recover. China is on top of world’s economy, they produce cheap things and people all over the world buy it. It’s just like a circle but I am sure that there should be a way out. Some people in our country live below the poverty line and take out online loans to stay afloat because they can’t get a well-paid job. It’s important to get success of others as an example and learn from them trying to build our wealth.

Nonsense!

Yikes! You've created this narrative that seems so elegant/compelling (about us fueling the Chinese in a vicious circle) that you've fallen in love with that theory. Firstly, any economic system is complicated and composed of many players and I think there is more than enough blame to go around for the rising home prices (cheap loans, marketers, other none-Chinese speculators, people selling their home for retirement). Another article on this site quotes Bill Binnie as saying that, at worst, the Chinese are only targeting select areas and they only make up about 7% of investors. How big of a contribution does Vancouver speculation make to the Chinese economy. Hardly a rounding error. Secondly, divining patterns in graphs is like astrology. When I looked at the two graphs it looks like (to me) we are past the two peaks which means we are in the "Blow off Phase". Does that mean that prices are going to take a nose-dive? Isn't that contrary to what you predict? Thirdly, foreign investment here isn't as simple as taking homes away from people. It's adding to BC's economy as well. As you pointed out in a previous article, BC is getting tax revenue from such sales, not to mention juicy commissions for realtors. Also, new housing developments result in jobs for the construction industry and that has positive effects for other industries in BC.

Denial

Sales volumes are now lower than early 2009, yet we're supposedly in a recovery. 2008 was the flash crash that crippled the economy, the next one will be the killing blow, as we've pulled all the levers and nothing is working.

Historically low interest rates? Check

Rampant money printing? Check

Cheap, easy credit? Check

 

Yep, that about covers it. All these in place yet the market is still dropping. Our author doesn't seem to understand the importance of this, but soon will.

Lets Raise Wealth Then

Chinese products are actually dominant globally. This is because they are able to manufacture products at cheaper price!! Another agreeably fact here is that employees are less paid because of which they are attracted towards Chinese products. This all leads to increase in Rise in prices of everything including Real estate. All we can do is use national products and help country to raise.

 

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