Fixing a Demand Issue with Supply
Has anyone ever built their way out of a housing bubble? The narrative across the real estate industry is we have a supply issue. However, a supply shortage is really just a symptom of an underlying disease, demand. The root cause is cheap and easy credit, this makes real estate attractive, hence influx of foreign capital, speculative behaviour, and over leveraged buyers. The result, demand explodes, everything sells, prices go up, banks lend more because prices can only go up, supply becomes extremely scarce as real estate becomes the most sought after asset. Sellers watch their equity increase every month and think why sell when I can make more next month. So sellers decide not to sell making it even harder for buyers now competing for the same scarce inventory, bidding wars, prices shoot up, a vicious cycle ensues. This is why prices shoot up 31% in 8 months in areas like Abbotsford and Mission where land is plentiful and supply has never historically been an issue. Let’s look at a few examples. Langley townhouse supply hits a record high in May 2014. As of March, 2015 supply is still above normal levels. Hence why prices were completely flat over the previous 5 years. As the market starts to heat up, inventory drops almost instantly to record low levels. From March 2015 to December 2015 townhouse inventory falls 78%.
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