Vancouver Real Estate - Bubble or Nonsense?

[sergei_makarov]

What are people's thoughts on the real estate prices in Vancouver? With the average home price in Vancouver at $879,039 in April, and many people who rushed in before the changes to Canadian mortgage laws in March, is that market due for a big correction?

The Bank of Canada has been hinting for a while now that they will be raising interest rates soon and also received a recommendation from OECD yesterday to do it sooner rather than later. People with insane mortgages could be in for an unpleasant surprise when their monthly payments increase by $800-$1000 overnight depending on their loan.

My cousin is a surgeon out in Winnipeg and has always said she wouldn't be moving to Vancouver until after the real estate market crashes because it's simply too unaffordable and this is from someone who probably pulls in $200K annually alone (her husband is a director at a large company).

Is the market in Vancouver different simply because of the interest from Chinese buyers? What happens if China's economy dips and these investors look to cash out on their $2M investments for cash? China recently changed their own home ownership laws, tagging second properties with much higher taxation rates which has led to a dip in second-home purchases.

Home prices in Canada have gone up a lot across the country over the last 10 years, but the jump in the lower mainland is truly incredible. I can see the argument from some that a real estate crash in Canada is unlikely if they're talking about other cities, but I just don't see Vancouver sustaining these prices for much longer.

Thoughts?

[SeeBass]

the inflated vancouver market has been around a long time,
and still it goes on, like London UK propped up with foreign money I would assume

[pepper24]

Huge bubble. When rates get back to historical averages.....pop! Calgary won't be too far behind.

[J pold]

I read in article a about a month ago saying that home prices in Vancouver is something like 6-7 times household earnings, around 5 in Calgary. Historically that rate has been around 3.

[chemgear]

Recently came up in the other real estate thread as well:

http://forum.calgarypuck.com/showthr...=52710&page=98

72% of all pre-tax income just to pay for homeownership costs, including mortgage payments, utilities and property taxes is totally sustainable . . . hot asian money will save us all!

[flylock shox]

If it was going to pop, it ought to have popped the last time around.

The thing about Van is that there's a ton of foreign investment here driving up prices. And even if prices do begin to fall, there is a huge backlog of people just waiting to snap up condos and houses as fast as possible, which will simply buoy the prices right back up again.

Basically, I don't see any way Vancouver housing prices start to drop substantially until some baby-boomers start dropping off.

[pepper24]

Originally Posted by flylock shox

If it was going to pop, it ought to have popped the last time around.

The thing about Van is that there's a ton of foreign investment here driving up prices. And even if prices do begin to fall, there is a huge backlog of people just waiting to snap up condos and houses as fast as possible, which will simply buoy the prices right back up again.

Basically, I don't see any way Vancouver housing prices start to drop substantially until some baby-boomers start dropping off.

My thought is that record low interest rates have held up the market. Once they rise, I think we'll see a correction throughout Canada.

The baby boomer theory is interesting as well. I've read a few thesis' similar to your point that boomers will downsize from family homes to condos/smaller homes as they age and therefore hurt the real estate market. Same point could be made for the stock market where as they age they'll move from equities to safer investments hurting the stock market. Basically, the returns on homes and investments of the past few decades won't happen again due to the boomer demographics. It'll be interesting to see what happens.

[Clarkey]

Apparently there's a tonne of wealthy Chinese/Hong Kong immigrants moving into Vancouver and paying cash for properties. Or even buying up whole apartment blocks. So no high ratio mortgages for those guys, I don't know what percentage of the market is made up of that demographic.

[squiggs96]

Originally Posted by pepper24

Huge bubble. When rates get back to historical averages.....pop! Calgary won't be too far behind.

Disagree. There was a big drop in the last half of 2008, and since then it passed the mark before the drop and powered its way through to new highs.

There was a big push in the first three months of 2011 due to there being some uncertainty in the last month of 2010. Developers were still trying to figure out how to offer houses with the new HST rules and there were rumored big discounts from many companies coming in February. People held onto their money and then in February there was a huge buying spree. If you owned property on the west side of Vancouver, you could sell your house within a week for far above asking price.

People have been saying for decades that the Vancouver market will pop. There definitely have been drops in the market over the years, but the market is still trending upwards. One big reason for this is China has restricted the amount of property individuals are allowed to own. Since Vancouver is relatively close, has good trends, is nice to look at and has a huge Asian population, there will likely always be foreign investors and/or immigrants coming from there.

As for interest rates, they are higher or lower than late 2008 depending on what form you took. I took a variable line of credit at prime and was one of the last people in Canada given one of these. Most of these are offered at prime + 1% or in some cases prime + 0.5%. I bought in December 2008 and started at 3.50%. That dropped to as low as 2.25% from April 22 2009 - June 1, 2009. Now it's at 3%. Fixed rate mortgages were about 4.5-5.0% when I bought and I've seen five year rates as low as 3.25%. These are now around 3.7%.

In Vancouver, many houses are purchased for cash, so they are unaffected by the interest rates. There is always a ton of cash in the market and when prices are dropping, you'll see many purchases for people seeing long and medium term value. Until something upsets this trend, you'll see it continue to push prices upwards.

People can easily survive on a $200,000 salary in Vancouver. Even $100,000 is doing well. Obviously at those salaries you can't have a mansion, but there are still great properties available and you can always rent if you prefer.

[Winsor_Pilates]

I think I'm the only Vancouver Realtor on CP, so I guess I'll weigh in.

Vancouver Real Estate is crazy. Everytime I think it might come down, it goes up more. Richmond has gone up about 20% in the last year.
The demand for certain locations is always high.
When I sell new developments here, we are disappointed if it's not sold out in the first few months.
The Chinese buyer (and some others to a lesser extent) is carrying this market, and yes it is very difficult to afford for the rest of us.

Having said that, I'm not sure that means it will pop. It could just become one of those cities (like London for example) where your average local just can't afford to live in the high demand inner city area, but world influence carries prices regardless of affordability.

The stats about affordability talk about Vancouver detached home prices vs average wages; but people need to remember that is just municipal Vancouver. Not Burnaby, Richmond, Coquitlam, Surrey etc. which would lower the ratios to slightly less ridiculous levels.

So while average home prices of 800,000 something is very high, we're talking about a relatively small geographic area, with huge demand, and water, mountains or other municipalities on all sides. Also ignoring that most people here live in condos.
Vancouver can not grow land like Calgary does, and people here actually like living close to the inner city (strange to most of you, i know)

I don't claim to have the crystal ball, and am very careful not to tell my clients prices will always go up; but the factors that influence Vancouver are very unique from cities like Calgary and very hard to predict. Neither more boom or some bust would surprise me at this point.

If anyone wants any specifics on Vancouver MLS sales, stats, Vancouver developments, etc. feel free to PM.

[chemgear]

Originally Posted by squiggs96

People can easily survive on a $200,000 salary in Vancouver. Even $100,000 is doing well. Obviously at those salaries you can't have a mansion, but there are still great properties available and you can always rent if you prefer.

http://www.crackshackormansion.com/

[Winsor_Pilates]

haha love that site, I usually get about 95% right too.
Obviously those homes are being sold for land value in very high demand areas. Goes to show the limitations of land in Vancouver.
Take a look on MLS Calgary at some tear downs in Marda Loop or South Calgary. Not that different, likely around $400,000.

[squiggs96]

Originally Posted by chemgear

http://www.crackshackormansion.com/

I'm not sure where they get their figures, houses or prices from. It said I'd need $400,000 in income to buy a $1.18M house. That's just not true. I qualify for a $1.4M mortgage and make well under $400,000.

Here is an MLS listing in a nice area of Vancouver for $1,399,000. http://www.realtor.ca/propertyDetail...dKey=865217183

I looked at it during the open house and was tempted, but it was a little old for me and I didn't like how the downstairs was configured. Eventually I'll buy near or in this neighbourhood.

With Vancouver having a finite amount of ground, I'd be greatly shocked to see it ever pop.

[afc wimbledon]

My east side oldtimer in need of some TLC (100,000's worth) was just valued at 720,000. I bought it for 250,000 8 years ago. Personally I would welcome the market dropping 20 percent or so, that way my kid might have a chance of buying a place before I die.

[Loob]

^^^. I would love for the market to come down 20%. Then I might be able to buy a place before I die. My friend has a place just off of Victoria and 3rd recently valued at $780,000. In Calgary it would be around 350,000 - 400,000. This is a hard city to live in.

[MelBridgeman]

Ya like others have said, soo much foreign influence that it will be a long time before you see a burst in Vancouver.

Best analogy i heard to describe that market, is it's like art. Some people will just buy just to cash in a few years. They may never live in the place or rent it out.

[Winsor_Pilates]

Originally Posted by squiggs96

I'm not sure where they get their figures, houses or prices from. It said I'd need $400,000 in income to buy a $1.18M house. That's just not true. I qualify for a $1.4M mortgage and make well under $400,000.

Here is an MLS listing in a nice area of Vancouver for $1,399,000. http://www.realtor.ca/propertyDetail...dKey=865217183

I looked at it during the open house and was tempted, but it was a little old for me and I didn't like how the downstairs was configured. Eventually I'll buy near or in this neighbourhood.

With Vancouver having a finite amount of ground, I'd be greatly shocked to see it ever pop.

You may be interested in the Cambie St. corridor plans if you're looking in that area. Big plans to come for 16th Av and South.
http://vancouver.ca/commsvcs/planning/cambiecorridor/

[Shasta Beast]

Won't pop unless China's economy crashes, which doesn't look like it'll happen anytime soon. Live outside VC instead.

[Hack&Lube]

Vancouver's real-esate bubble will end up like Hong Kong and London's. It's just not going to pop unless the world economy and China tanks a great deal. I've seen the effect Chinese buyers have had on other cities, buying up property and condos in fashionable areas and never living in them and turning a big profit on rents or selling down the road. They also own a lot of land titles in Alberta.

[Jedi Ninja]

Originally Posted by J pold

I read in article a about a month ago saying that home prices in Vancouver is something like 6-7 times household earnings, around 5 in Calgary. Historically that rate has been around 3.

Vancouver is 9.5, Calgary is 5.

http://www.demographia.com/dhi.pdf

Anyone predicting a crash in Vancouver's RE market has long ago given up in humiliation. Probably the two situations I could see that could cool the market off are either an economic slump in China or the introduction of foreign ownership restrictions on Canadian real estate. An NDP government could do it too; in the early '90s when Mike Harcourt's goverment tried to introduce a wealth tax on property, the RE market in Vancouver pretty much halted.