Friday, August 31, 2007
Tipping Point? and the Long View for Discussion this Long Weekend
The above chart represents the price of a Greater Vancouver Single Family Home adjusted for quality and inflation from 1975 to present. The chart clearly shows periods of wild price appreciation and periods of price declines. The average is indicated by the black trend line representing a rough 'fundamental' value for homes in the market. If values were to retreat to the black line either through price declines or high inflation it would bring the price of a benchmark home down nearly 25%. In past price declines, the benchmark has lost value bringing it far below the trend line.
The question for the weekend is:
In recognition that bubbles are inflated and deflated with psychology, have we reached the sociological tipping point in Vancouver surrounding our lurid affair with real estate values? Have we now recognized the error of our ways and are now contemplating confession? Will we look up to realize we have been staring in the mirror while the world falls apart around us? Are we ready to atone for our bubble misdeeds? The hard work in paying off that 40 year, 100% financed Whalley condo looks pretty unappealing at this point.
Case in point, I heard the 'business analyst' Michael Levy on CKNW radio this morning say that we will have a real estate correction in Canada. Previous to this reference I have not heard, aside from Victor Adair, any of the local business talking heads mention this as a possibility.
More abnormally, I also heard the sportscaster Neil McRae reference a 'so-called bubble in real estate' when discussing BC Lion's Lui Pasaglia decision to leave sports and help in his family's development company, which is developing some properties in Port Coquitlam. The station obviously has some vested interests as nearly every commercial aired on CKNW is for real estate or mortgage products.
I'll be glad when we can hear other commercials again!