Do we need to worry about "Housing Bubble"?
Please click Podcast listen to Cantonese interview
What is the definition of Housing Bubble? A real estate bubble or property bubble (or housing bubble for residential markets) is a type of economic bubble that occurs periodically in local or global real estate markets. It is characterized by rapid increases in the valuations of real property such as housing until they reach unsustainable levels relative to incomes and other economic indicators, followed by decreases that can result in many owners holding negative equity (a mortgage debt higher than the value of the property).
It is in our Chinese blood & nature that we like to flip/speculate real estate & stocks to make quick money. In my opinion, housing bubble more likely to happen in Hong Kong, China than here due to the on going speculation.
Since I got into the business in 1992, the longest period for Vancouver real estate to rebound from the bottom was between 1996 to 2000. The housing value went up significantly in the early 90's due to the Hong Kong immigrant wave after the China Tiananmen Square protests of 1989. Hong Kong Chinese bought without putting the local economic environment into consideration. Instead, we only compared what we could get in Vancouver vs what we could get in Hong Kong with the same amount of money so everything was a great deal in Vancouver. When the transfer of sovereignty over Hong Kong from the United Kingdom to the People's Republic of China on July 1, 1997, Chinese immigrants saw everything was going strong both real estate & stock market in Hong Kong, they started moving back & make quick money. However, In Oct 27, 1997, Hong Kong experienced a stock market crash and those new immigrants who bought from 1989 to 1996 had to sell and move their money back to Hong Kong in order to keep their business alive. They were willing to take a lost of up to $300k when selling their property so they could return to Hong Kong to recovered their losses through Hong Kong stock market. This created a huge correction or in other words "housing bubble burst" and the Vancouver real estate market dropped 18%.
Since then, our housing market has been sustained by local buyers and from 2003 to 2008 we had increases of 40% caused by strong migration globally. During the Global economic crisis in 2008 prices dropped average 20% but it only took us 6 months to rebound to the highs of early 2008 which out perform any economists prediction. Had a "housing bubble" existed it wouldn't rebounded in such a short period. It was very much due to media doom & gloom coverage in the States and Canada's close ties to the U.S.. 3 Years later, people finally realized Canada's banking system is secure and stable. A good example to follow by the rest of the world. We can't resist that we now have PRC immigration wave. Let's hope we can educate them so they don't pay ridiculous price for any property.
Net immigration for B.C. is projected to be 50,000 to 60,000 annually for the next 25 years which bodes well for house prices in Vancouver.
There was a headline on the news few days ago said "Buyer's market is over". We can understand that this is due to the low listing inventory. Supply & demand determine the price movements in the housing market. I always said Summer is the best time to buy, I predict we are going to have a strong Fall season with the record low mortgage rate. I'm already feeling it from holding opens & going to opens with my buyers in the last 2 weeks.
