Excellent article. Good find FG. Firstly, I’m not absolutely certain what the author means by “[It] doesn’t necessarily mean there’s a bubble”. If he means that local conditions aren’t the cause of the high home prices, then he is probably right to an extent. If, on the other hand, he means prices aren’t in a bubble because foreign buyers are aware of the risks or losing capital, and for them as a group prices are not out of reach, I’m not sure the statement stands up. There are so many definitions of bubbles, but I like the one that apparently gave rise to the term. Air! That sums it up really. It certainly sounds like prices are being highly inflated in Vancouver, over and above what you’d normally expect given incomes, rents etc, so I’m going for bubble, or bubbly/frothy.
Asians do seem to favor RE over stocks, probably because their own stock market is not as developed, and they mistrust it. I’m married to an Asian so I have some insight. But this is true for many countries, and I expect that what we are seeing in not just capital flight from developing countries in search of bricks and mortar in developed economies, but rather a lack of understanding of financial products and few investment opportunities in their own countries. You can argue that since many foreign-buyer purchases are with cash, there is less chance of a spiraling crash, but nobody likes to lose money so there may be a pull back if prices reach a tipping point. Presumably the other 50% of buyers have been local and likely have used mortgages, which could be enough to put downward pressure prices.
The more interesting question is what can be done, or should anything be done? If lenders get nervous then it’s probably time to run for cover. If is threatens to derail fragile economic recovery then it poses a threat, and you might expect taxes become the weapon of choice. I hope fingers get burnt, because it is pricing out people who work for essential services in cities, and FTBs. The central bank of England, the Prime Minister, and one of the biggest UK lenders recently made public statements about their concerns over high prices in London. That must be the first time that our ‘leaders’ are calling it what it is before it has happened. Perhaps they are trying to preempt a pop by creating a self-fulfilling fizz.
