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-   -   Vancouver Real Estate 'Bubble' at 30-year Peak (https://skyscraperpage.com/forum//showthread.php?t=184623)

whatnext Aug 31, 2010 5:36 PM

Vancouver Real Estate 'Bubble' at 30-year Peak
 
Hmm, have they called it right, or just more chicken little reporting?

Steep housing price increases in six of Canada's hottest real estate markets since 2002 have all the hallmarks of an "accident waiting to happen" if mortgage rates rise too sharply, warns a new report.


The report by the Centre for Policy Alternatives says smart mortgage rate setting is needed to prevent the bubbles hanging over the housing markets in Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal from bursting...

...Macdonald says a housing bubble burst has been a rare phenomenon in Canada. Since 1980, it has only happened three times — in Vancouver in 1981 and 1994 and in Toronto in 1989....


Read more: http://www.vancouversun.com/business...#ixzz0yCqFn7J8

go_leafs_go02 Aug 31, 2010 6:06 PM

Secretly I hope so.

I could never afford to buy nor live here permanetly if prices stay the same or increase.

wrenegade Aug 31, 2010 7:30 PM

Chicken Little.

phesto Aug 31, 2010 8:20 PM

^Yup.

The study can be read here: https://s3.amazonaws.com/policyalter...ing_Bubble.pdf

I read the whole thing, mostly because the Sun has been reduced to mostly sensationalism when it comes to Real Estate news over the past couple of years, so I wanted to see for myself the argument being made for a "bubble".

Several of the assertions made in the study are pretty flimsy and his overall methodology is somewhat flawed. Basically he suggests that this (self proclaimed) housing bubble is different from any previous bubble, including the U.S. pre-2008 crash, admitting that comparison with the US in 2008 is difficult given that the risk of widespread foreclosures in Canada is minimal even with rate increases. Then he goes on to model "the bubble bursting" similar to US crash, Vancouver 1990's crash, utilizing methodology that completely generalizes and ignores unique factors of each particular market and factors in the rise in house prices.

I'd prefer to read about a study conducted by an economist who has actually done a lot of work in the field of real estate. But I digress, it is always a hot topic to discuss in Vancouver, so best not to get too mired in facts and detail. :tup:

For the record, I believe the market is due for a correction; it just bothers me to see an economist make bold claims to the point of predicting % price drops and then back it up with a report that would barely pass an undergrad econ class. I understand there is a political element and that it makes good news, but c'mon.

Blake Sep 3, 2010 11:40 PM

Quote:

Originally Posted by phesto (Post 4966228)
I'd prefer to read about a study conducted by an economist who has actually done a lot of work in the field of real estate. But I digress, it is always a hot topic to discuss in Vancouver, so best not to get too mired in facts and detail. :tup:

The problem is that most economists that have done a lot of work in real estate are either employed by one of the real estate boards/associations or one of the major banks - all of which have a vested interest to ensure the market stays buoyant.

I'm currently studying Urban Land Economics at UBC as we speak, and I'm finding it extremely difficult to find credible sources of information for research that are completely unbiased.

Yume-sama Sep 4, 2010 12:45 AM

Luckily the Vancouver Sun isn't printed in Mandarin so all them dern fereners won't know to stop buyin' all our condos.

mrjauk Sep 4, 2010 5:16 AM

Quote:

Originally Posted by Yume-sama (Post 4970170)
Luckily the Vancouver Sun isn't printed in Mandarin so all them dern fereners won't know to stop buyin' all our condos.

I've been looking for a source that compiles these kinds of data. Can you provide a citation or a link, please? Thanks.

Yume-sama Sep 4, 2010 5:58 AM

Quote:

Originally Posted by mrjauk (Post 4970320)
I've been looking for a source that compiles these kinds of data. Can you provide a citation or a link, please? Thanks.

:sly: For what, exactly? How many dern fereners are buyin' all our condos? :haha:

I wasn't serious... rather semi-obviously. But jlo has posted statistics in the past that peg foreign ownership at less than 3%.

The rich foreigner myth is a bit of a media-driven lie, and the ones who do come aren't usually buying homes your average person could even think of affording (multi-millions).

Sadly I'd bet their new drug money theory has more grounding in reality than rich foreigners trying to buy Vancouver.

mrjauk Sep 4, 2010 7:28 AM

Quote:

Originally Posted by Yume-sama (Post 4970354)
:sly: For what, exactly? How many dern fereners are buyin' all our condos? :haha:

I wasn't serious... rather semi-obviously. But jlo has posted statistics in the past that peg foreign ownership at less than 3%.

The rich foreigner myth is a bit of a media-driven lie, and the ones who do come aren't usually buying homes your average person could even think of affording (multi-millions).

Sadly I'd bet their new drug money theory has more grounding in reality than rich foreigners trying to buy Vancouver.

Ah, thanks. :) As for the impact of drug money on RE prices, here, I also think that it is overblown. I know that some have claimed that drug money is laundered via real estate, but is that true? I mean, if I walked up to a real estate agent and said, here's 500K cash for that condo you're selling, would that not raise a red flag somewhere?

MechMike Sep 4, 2010 9:27 AM

Quote:

Originally Posted by mrjauk (Post 4970387)
Ah, thanks. :) As for the impact of drug money on RE prices, here, I also think that it is overblown. I know that some have claimed that drug money is laundered via real estate, but is that true? I mean, if I walked up to a real estate agent and said, here's 500K cash for that condo you're selling, would that not raise a red flag somewhere?

Some real estate agents are gang members just for this purpose.

SpongeG Sep 4, 2010 10:11 AM

according to something i read the drug people just rent its easier to launder that way - it was said when they have been arrested they don't have real estate holdings and that they are renting - and from some reports that new building in surrey the tall one lol whats it called infinity? is by some residents accounts said to be full of drug dealers who are renters...

I worked with a dude who also had a grow up and in about 1997 he bought a house worth $650,000 out in the langley area which at the time was an insanely high price and everyone knew he had a grow up and used that money for the house... cause there was no way he could afford it on what he was making

LeftCoaster Sep 4, 2010 10:25 AM

Well the drug dealers' rent money still funds someone owning it, so that unit is still funded by drug money.

The simple answer is that all of these factors affect housing prices in some way, with no one factor being dominant. Some factors may be more influential than others (ie lower land supply being more nifluential than offhsore buyers) but they all play their part.

The real question we need to address is how this effects our city and what, if anything, we want to do about it. High housing, while detrimental to some, can be a source of opportunity as well.

SpongeG Sep 4, 2010 10:36 AM

yes but it's not buying the property if i bought a condo and rented it i wouldn't know it it was a drug dealer renting i wouldn't search for one to rent it - it just happens

but it explans who can afford all those condos i see on craigslist that rent for $3000 or more

they are also the reason why Louis Vuitton expanded to two levels - if its true people are using 70% of their income to pay their mortage who on earth is buying the LV?

and again i had a coworker who dated a gang guy and she had loads of LV and she said of course thats how she got it - it was all from him but she out grew that a long time ago...

cabotp Sep 4, 2010 11:27 AM

I'm starting to wonder if interest rates will rise. With it looking like the US might be going back into a 2nd recession. Although it might still turn it self around. It might put a damper on the Canadian economy. Thus forcing the bank of Canada to hold off on any rate changes. The biggest thing to watch for is the inflation rate. If it starts rising expect a rate change soon. If the inflation stays low, then don't expect any rate change.

I've been lucky as I was able to blend my previous two mortages and get a 5 year term that was 1% lower than my previous 5 year term. When I was expecting to be paying the same rate or slightly higher.

As for the number of sales, there is no doubt that has dropped recently. I've seen houses sit far longer with a for sale sign than they would of a few years ago. But that doesn't necessarily mean house prices will drop. If the owner of the home decides to be stubborn and won't sell below a certain price. There is nothing any else can do about it. So if the majority of owners decide not to sell below a certain price. You could see a drop in sales. But no drop in price as the owners won't budge.

Blake Sep 4, 2010 2:22 PM

The wealthy foreigners myth exists somewhat, albeit in a different manner than the media portrays.

I work in the RE development/capital business and speaking to the other developers, the reality is that many, many first time purchasers are buying with substantial help from their parents/grandparents who may be foreigners or immigrants. In Asian countries, home ownership is valued highly and most parents who are able to, will help their kids as much as they can (often $100 - $200K).

So although the ownership remains domestic, our market is influenced by foreign factors and family values. Unfortunately this is difficult to measure as an economic fundamental.

With that said, none of this will be enough to prevent an inevitable correction that's due, but it will keep Vancouver the most expensive market in the country for the rest of our lifetime.

Blake Sep 4, 2010 2:29 PM

Quote:

Originally Posted by SpongeG (Post 4970438)
Louis Vuitton expanded to two levels - if its true people are using 70% of their income to pay their mortage who on earth is buying the LV?

The whole 70% thing gets spun way out of context.

In the last report, it said it takes 73% of the average income in Vancouver to buy a single family home in the City of Vancouver. That's an important distinction to make as most first time buyers are buying multi family, and it does not take the suburban market into account. Many people who buy single family in Vancouver may be asset rich and not income rich, so that can skew the results.

The reality is, you can still buy condos in places like Langley and Maple Ridge for under $200,000 and anyone making about $35,000 can qualify for a mortgage on that - so there are plenty of housing options for those earning the average household income. Sure it's not Yaletown, but if we analyze human behaviour it's obvious most people would rather commute to work and own real estate where they can afford, rather than stand up and protest that they can't afford where they really want to live. (although that happens in this city more than anywhere else)

That report needs to take the entire metro into account as well as all housing types to get taken seriously.

Yume-sama Sep 4, 2010 6:10 PM

Quote:

Originally Posted by Blake (Post 4970539)
it's obvious most people would rather commute to work and own real estate where they can afford, rather than stand up and protest that they can't afford where they really want to live. (although that happens in this city more than anywhere else)

lol well that's certainly true. Our generation feels more entitled to things than any generation in the past.

I shudder to think of what the "helicopter parent" generation will be like. Buildings won't be allowed to have pointy corners, every new building in Vancouver will have to be round.

Sidewalks will need to be at grade with the street to prevent ankle injuries.

vansky Sep 4, 2010 7:00 PM

Quote:

Originally Posted by Blake (Post 4970533)
The wealthy foreigners myth exists somewhat, albeit in a different manner than the media portrays.

I work in the RE development/capital business and speaking to the other developers, the reality is that many, many first time purchasers are buying with substantial help from their parents/grandparents who may be foreigners or immigrants. In Asian countries, home ownership is valued highly and most parents who are able to, will help their kids as much as they can (often $100 - $200K).

So although the ownership remains domestic, our market is influenced by foreign factors and family values. Unfortunately this is difficult to measure as an economic fundamental.

With that said, none of this will be enough to prevent an inevitable correction that's due, but it will keep Vancouver the most expensive market in the country for the rest of our lifetime.


ya, especially true in cities like bj, which the real estate price is beyond reach for the normal kid. the ave buyer age market in bj is around 27, which is also the ave age for marrige...so u c how ppl buy before marriage, and the sad thing is that many women or their parents do not consider the guy without an individual apartment~~

and blake's right about foreign values, it could be still true here in vancouver, which a large number of foreign, asian population resides in

mrjauk Sep 4, 2010 7:43 PM

Quote:

Originally Posted by Blake (Post 4970539)
The whole 70% thing gets spun way out of context...

...The reality is, you can still buy condos in places like Langley and Maple Ridge for under $200,000 and anyone making about $35,000 can qualify for a mortgage on that - so there are plenty of housing options for those earning the average household income.

Yes, it is taken out of context and misunderstood. There are (hopefully!) few residents in (greater) Vancouver shelling out more than 70% of their income on housing. What the "70% thing" refers to is a metric: how much of the median household income in the area would it take to be able to finance a median-value house in the area--assuming a certain percentage down, the inclusion of property taxes, and at prevailing interest rates? What it does give you is some indication of how far beyond the norm the Vancouver market is right now, even for Vancouver, which has historically had the highest prices in Canada.

The second part has me scratching my head, but also confirms that it isn't drug money, or foreigners, etc., that is fueling our bubble. It is the belief that somebody making the equivalent of $17-18/per hour is able to afford to buy something that costs $250,000! That's a price/yearly income of almost 6.

Yume-sama Sep 4, 2010 7:50 PM

People don't have a problem paying for a place to live for the next 30 - 40 years.

Same as people don't have a problem with paying for a car that costs the same or more as their yearly wage. Which, is, perhaps a more egregious expense considering how fast it rapidly devalues, and its short lifespan. Given that we haven't seen tens of thousands of foreclosures, and a quadrupling of those receiving financial assistance, however, one must assume that even at these prices people are managing to live within their means, for the most part.

Even though everything costs more in Canada than the USA, the income to debt ratio is still much more favorable in Canada~

Maybe money does grow on trees in Canada :D?


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