There are also huge differences between New York and Vancouver.
In addition, Manhattan is NOT New York. Most people in search of livable property don't live in Manhattan, unless they're in the projects in the Lower East Side or in a Rent-controlled building.
Here's an apartment in Queens:
http://realestate.nytimes.com/sales/...UEENS-NY-11414
You won't even find prices like that in an old place in Surrey or Langley.
If everyone started selling, you're right, there would be short-term pain for those that are over-levereged. Who are those people? Many of the people who are bought in recently for almost nothing down. It's pretty hard to find an investment property in Vancouver that'll be in the black once you purchase it. Many mortgages hold a 200% premium over renting, even with a sizeable down payment.
You'd be a pretty poor businessman to buy a property only to rent it out in this market... unless you were trying to carry a loss and holding the property. And that really is the key. Vancouver, for the past several years has been a speculators paradise. Low-risk, low-interest easy to flip properties.
A lot of people have made a lot of money during this time. Housing, like all other assets don't ascent forever. They fluctuate.
The problem with many people is that they're not buying because they want to invest, they're not buying because they can afford it. They're buying out of fear of being priced out of the market forever. When you do that, you start to justify buying a smaller, hard-to-sell place because you just gotta get into the market.
Your friend sounds like a reasonable guy. My guess is that the same place would rent for about $600, but that's just a guess based on the price. That's about right.
Those properties, however, are the exception not the rule.