Quote:
Originally Posted by Lubicon
When I graduated university in 1989 Vancouver was one of the places several of my friends moved as it was the centre of hard rock mining. At the time houses were something like $300k (I don't recall the exact about but probably double or more what they were in Edmonton/Calgary.) We couldn't fathom how anyone could afford to buy a place there or live there. There was no way housing prices could continue increasing, there would have to be a crash eventually. That was 30 some years ago.
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Interest rates.
In the summer of 1989, a 5-yr mtge rate was 11.75%. A $250,000 mtge resulted in monthly payments of $2,523.
Today, mtge rates are 2.09%. Let's say wages over that 30 years have doubled (I think that is conservative). If we then double the mtge payment from 1989 to today, we can borrow $1,350,000, resulting in a mtge payment of $5,050 (compared to $250k)
In other words, a house that costs 5 times as much ($1.5M vs $300k) results in a mtge payment that is twice as much.
Housing prices have outpaced wages by a significant margin over those 30 years because interest rates have plummeted over that time. However, interest rates are not going to keep going down forever. That same $1,350,000, if interest rates were 5%, would result in a monthly payment of $7,247, which is a 50% jump, and the same increase we saw from the first two sets of numbers 30 years apart.
Housing prices simply cannot continue to outpace wages the way they have for the past 30 years. Someone mentioned earlier in the thread that buying a house was a better investment than putting your money in the markets. That may have been true in an environment of declining interest rates, but it will not be true with rising rates.
Note: someone else mentioned that Vancouver demand is more about foreign interest to come to Canada, and I agree with them that this will keep pushing up the market in Vancouver specifically. Beyond that fact however, the head winds for home prices will be enormous over the next decade.
