Quote:
Originally Posted by cmyden
Yeah, it seems people are either in the bubble camp or the non-bubble camp.
Reasons why I think we're in a bubble....
1) The price to rent ratio for a SFH in Calgary is currently around 250-275X. The long term average is 200.
2) Historically, home prices increase at about 1.5% above inflation in Calgary. In 2010, we should be at about 300k for an average home. Right now we're at 2020 house prices.
3) Everyone and their dog has been talking non-stop about where real estate prices are headed for the past 5 years. This might be the most telling of all.
One day when this has finally run its course, Calgary will be back at a 200X p/r ratio, as the just fine second-tier city in the middle of the Canadian prairies that it is.
People will no longer want to talk about real estate, or why they tied up and leveraged all of their money into a single asset class. Just like nobody wants to talk about Nortel or their dot-com portfolio of '99.
Granite counter tops, hardwood floors and stainless steel appliances will mark that ridiculous time period where everyone seemed to be manic about real estate.
|
I agree with what you're saying to a point, but what happens when a city reaches a significant population milestone like 1MM citizens? Is there a critical mass there that helps support a higher average price and p/r ratio? With inflation adjusted commodity prices being higher than long-run historical levels, is there enough to support a shift in the economic fundamentals of property values in energy focused urban centres like Calgary?
I don't know where you got your figures, but I think an interesting study would be to look at other Canadian cities like Vancouver, Montreal and Toronto to see what their p/r ratios and average SFH levels did when they hit different population milestones (might tell you what milestones are significant, and what are not i.e. 1MM might be signficant, but the 2MM level might not be). It would also be interesting to compare other energy cities stats in the past 6 years -
http://www.energycities.org/partnership.asp
I think that high p/r ratio is a strong argument for council to approve secondary suites. The ability to generate rental income would increase, and it would help support the house prices that we are seeing.
All of that said, your stats are very much focused on Calgary and would speak more to a Calgarian house bubble, not a Canadian House Bubble.