The Day Victoria's Bubble Burst

I'm taking some creative license today. My words are normal. Ben Stein's quoted words are italicized. Take this for what it's worth: hopefully an entertaining read.

My pal Pat M. just bought a bungalow on Oak Street, in Richmond, for 60 percent of what it sold for in 2007. Down the street from me here in Delta, four houses have been on the market since 2006. The asking prices now are about one-third less than they were three years ago. Up and down Yaletown in the Downtown core, apartment houses built during the great boom of 2004-2007, lie empty, boarded up, not one unit sold, in bankruptcy, with banks holding title.

Victorians do not like to believe they could learn anything from Vancouver, but perhaps in this one case they might try.

The Vancouver residential real estate boom began in about 2003. It was not just a boom. It was a superboom, with miserable bungalows in East Van running up from $140,000 in 2003 to $600,000 by 2007. Two-story wartime houses off Commercial went from $250,000 to $450,000 and then over a million.

One-bedroom condos in Yaletown were built and sold for $350,000 - what a house in Richmond had been five years before. Every day, home buyers would look at the prices and say, ''It can't go on.'' But every day, for five years, it did go on. Middle-class families were priced out of the market, and the brokers said, ''But the rich will always be able to buy.'' Ordinary rich people were squeezed out of the market in some areas, but the brokers said, ''Never mind, the movie business people will buy anything.'' The movie business fell into a depression in 2007, and the brokers said, ''The foreigners are buying. Compared with Paris or Toronto, real estate in Vancouver is a bargain.''

Everyone wanted to get in to the game, get the down payment on a condo, somehow struggle with the payments for a year, then sell out and get rich quick. Inflation pushed housing prices into the stratosphere. But even when inflation stopped, brokers said, ''The prices have nothing to do with inflation. Everyone on earth wants to live in Vancouver. The price will go up forever here, no matter what else happens in the rest of the country.''

Then the music stopped, some afternoon in late-2007. As if a spell had fallen over the city, suddenly things began to stay on the market for three months, six months, a year, two years. Buyers disappeared. Asking prices stayed high, but nothing sold.

The great Vancouver real estate boom was over. Prices had gotten so high that they could no longer be justified by inflationary expectations, or the influx of foreigners, or the climate, or for any other reason.

Now, just short days later, those brokers who are still in the game tell sellers to expect that their houses will be on the market for two years. Other brokers have sold their BMW's and are now working as "talent-finders'' or public-relations people, dreaming of the days when they worked for 6 percent of infinity.

Not long ago, I was in Vic West looking at condos, talking with recent buyers, would-be buyers, brokers. The conversation is eerily familiar. Listen to the buyers: ''Of course, we'll take two extra jobs and avoid having kids to buy this studio apartment facing a gas station for $250,000. Next year, it'll be $350,000.'' And the brokers: ''Of course, there aren't many Canadians who can afford to buy here any longer. But there will always be rich foreigners. Victoria is the most beautiful city in the world. Victoria is unique, and two bedrooms in Esquimalt should cost half a million dollars.''

Do not believe it. Trees do not grow to the sky, and the great Victoria condo boom will eventually go the way of the great Vancouver bubble. Yes, Victoria apartments were underpriced for years. Yes, Victoria is an exciting place. Yes, there are a lot of rich people who like Victoria. Yes and yes and yes. But no real estate bubble ever goes on forever, and the day when everyone agrees that it will go on forever is usually the day it ends.

Maybe this boom will go on a little longer. Maybe, as some of my banker friends tell me, it has already started to totter. Who knows, exactly? But when buyers consider tying themselves in knots to get onto the housing merry-go-round, in the certain belief that they have a sure thing by the tail, they might remember the housing boom in Vancouver and the shuttered condos in Yaletown. The only thing certain about housing bubbles is that they never last.

H/T to the anon in previous post for the link, and to Tony Danza for sourcing it out originally in comments on VancouverCondo.info

I'm sure I've broken a few creative licenses and performed several copyright infringements, so this post may disappear suddenly and without notice.

Finally, a HUGE sorry to Ben Stein for completely re-wording and ruining what was otherwise a great piece of writing.