| "That means only 1 out of 8 homes were bought by a foreigner and 7 out of 8 were purchases by resident Canadians." 1 out of 8 is more than is necessary to create a massive bubble, and is the driving factor - along with low interest rtes. In a housing market - nobody knows for sure which direction it's going to go. So how do they price? They price on 'similar properties'. So when 'the similar house down the street' sells for '5% above asking' that sends a 'validating pricing signal' to other buyers of homes in the neighbourhood. It's not so much that it's 'foreign buyers' - if they were normal buyers it wouldn't have much on an effect - it's that they are generally 'price insensitive'. They need to get their money out of China and into something and they generally com e in and buy above asking, and out-bid everyone or whatever. In a 'normal situation' a house may not sell for some time, it gets buyers skittish, and they wait, and maybe give low-ball offers. Sellers may be weary and then sell it. But all it takes is for a few 'over asking bids' to come into an area and it props ALL of the homes up in price. Local buyers feel confident taking out their massive loans because 'that's what the house is worth, i.e. it's an investment'. Without some upward driver on prices, they'll collapse to a different level - and guess what that level is? The level that people earning the local Houshold income feel comfortable buying at :) given all the variables. Especially when the word 'bubble' is floating around, it means the only way local buyers will buy is if there is the 'up signal'. So - no 'foreign inelastic buyers' -> 'no up signal' -> depreciation. As for: "What people seem to ignore is the absolutely shocking way that Canadians are overextending themselves when it comes to real estate" This is rational behaviour. If the market is going up-up-up - and you're a family in Van - you either buy a home now while you can barely afford it - or be left out of the housing market forever, and rent - and within a few years, rents will be too much - and you have to leave Vancouver! So the effect of 'price inelastic foreign buyers' is forcing otherwise normal people into a serious economic quandry - the system is forcing them to gamble their entire life of 'net worth' in a crazy crapshoot - when people just want a place to live. Globalization is having a crazy effect on real estate - and outside of maybe a few 'globalist' cities like London and NYC - I believe that every nation should have a 15% tax on foreign buyers - so that local citizens are given a kind of advantage - or rather just a 'protection' from foreign blips of money coming and ruining them all. The local banks will pay a price as well. A serious Vancouver housing crash could kill a bank, in which case taxpayers have to come in and bail it out. When the entire world is interconnected, the bad decisions of one government can send shockwaves through the world. That's why 'some kinds of walls' are good. Think 'economic firewall'. |