the boom provides fuel for the boom

There’s an article by Bob Ransford in Saturday’s Vancouver Sun titled ‘Its hard to pin down what’s fueling the boom’. Unfortunately the online version of the article is only available to subscribers (here), but I found this section interesting:

It seems like the economic surge that we experienced this last year was almost wholly driven by a real estate-based frenzy that perhaps peaked over the last twelve months but remains the only visible engine of economic growth in these parts.

It was easier to make sense of earlier real estate booms in Vancouver when our resource-based economy used to go through cycles of expansion and contraction tied to commodity price fluctuations. It was even easier to make sense of the record setting real estate boom of the mid-1990’s when a new international market discovered Vancouver as Hong Kong’s sovereignty was about to be handed over from Britain to China.

So that was then, what’s driving the boom now?

Pinning down what exactly fueled our latest trend-setting real estate boom is harder. Job growth is certainly one fundamental driving the market. Many new jobs created by the institutional projects that are part of the pre-Olympic period provided the wealth that brought new home buyers to the market.

The residential construction sector itself also was a significant job creator. Kind of like the chicken and the egg. It is somewhat scary that we have little more than this to point to as our engine of growth.

That got me thinking: In previous booms once demand was absorbed or the driving economic factors were removed the market went through a down-turn with lower house prices. People that needed to sell were faced with a depreciating asset, and it wasn’t uncommon for people that bought at the peak to owe more on their mortgage than their house was worth.

So what about now? If the only driving force behind the boom is the boom itself then we never have to worry about a downturn! If the boom is providing the underlying economic factors for the boom then perhaps we’ve attained the real estate equivalent of perpetual motion!

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fgah
fgah
13 years ago

This is the most ridiculous statement I have ever heard in my life time.If such theory holds true there,God will be out of work.The current upsurge of RE in Vancouver is fueled byvvarious reasons which are sustained by greed,ignorance and self-delusion that every single house in Van will be worth one million as starting price.

loki
loki
13 years ago

This belief in perpetual motion belies a certain lack of education on basic universal principles. So the thing that makes it different this time is the fact that there is no clear reason that prices have risen like they have?Scary!

betamax
betamax
13 years ago

But for some reason he can't see the Elephant in the room.LOL. That's about it. I read that article yesterday and was amazed how Bob circled around the issue but couldn't quite grasp what was going on. I couldn't decide if he was being deliberately obtuse or not.

digi
digi
13 years ago

Solipsist: You forgot about our reliable drinking water and laid-back life-style.

digi
digi
13 years ago

for some reason he can't see the Elephant in the room.Its the rose colored glasses – they make giant pink elephants difficult to see.

patiently waiting
patiently waiting
13 years ago

Bob complains about the noise of the Elephant, the smell of the Elephant and the crowding of the Elephant. But for some reason he can't see the Elephant in the room.

digi
digi
13 years ago

It is…..or was being fueled by the notion of making a lot of money and fear of being priced out of the market forever.I agree – most people are looking in a rear view mirror and wanting to not 'miss out' when they already have. If prices keep on dropping it will still take a while for the idea that 'prices always go up' to work its way out of the general consciousness. Once we start seeing news stories reporting YoY price drops, and you know someone who's upside down on their mortgage then its likely we'll see an overcorrection on the way down.Its why we tend to overshoot on the way up and the way down, we're too busy looking back and thinking thats an indication of the future without thinking about the fundamentals.

Uncertain Buyer
Uncertain Buyer
13 years ago

It is…..or was being fueled by the notion of making a lot of money and fear of being priced out of the market forever.I still hear from friends and co-workers that they are thinking of buying an investment property. I never try to talk them out of it but I do suggest that they go online and do some research. Sure enough it takes a bit of wind out of their sails.

solipsist
solipsist
13 years ago

I saw that coffee shop the other day, and couldn't believe my eyes.Vancouver's hallmarks of culture -Stanley Park – toastedMild winters – toastedVSE – toastedThe mountains – haven't seen them for months.Coffee – too many crappy coffee shopsRE – mix with coffee, and stretch it out as long as you can.La La Land indeed…

the pope
the pope
13 years ago

Towards the end of that article he also mentions that there is a new coffee shop opening up on Commercial drive – the catch? It's being run by a Realtor and a mortgage broker and will be used to display listings.I wonder how their coffee will stand up to the already excellent options on the drive?