Is Vancouver's Housing Bubble Finally Popping?

[whatnext]

Mayur Arora is seeing something few would have expected in Vancouver’s real estate market – people walking away from deposits on houses, convinced prices will fall further.

“It happened twice in the last month. One [deposit] was $75,000 and one was a $20,000 deposit, the guys just walked away from it,” said Mr. Arora, who runs Oneflatfee.ca in Surrey, B.C. “They are going to wait it out. So they lost $75,000 and $20,000, but if the market comes down $150,000 on a $1.5-million house, that’s not uncommon.”...
http://www.theglobeandmail.com/repor...rticle2433053/

And hidden underneath the developer-driven hype over projects like Telus Garden and Marine Gateway are the facts like the myriad unsold units at OV, projects like 999 Seymour that still have @20% of the units available months after presales launched...

Is sanity finally returning to the market?

[s211]

My guess it will get more insane while potential vendors think they're still sitting on a gold mine, putting the market into a stall.

[easy as pie]

http://thethirtiesgrind.com/2012/06/...-june-27-2012/

[trofirhen]

Originally Posted by easy as pie

http://thethirtiesgrind.com/2012/06/...-june-27-2012/

totally unreal

[jhausner]

Vancouver's is definately going to have to come down at some stage. It's just insane. That web site you link goes to exotic places to make a point about how crazy prices in Vancouver are. But they don't even need to do that.

You take a look in White Rock or even South Surrey and you can find houses with amazing views near Crescent Beach or White Rock that are in the $1 million range and are 4000 square feet, 5 bedroom 4 bath, big garages and land.

That's in your own back yard.

Vancouver's prices are just ridiculous. And the 1 thing you notice on nearly every listing... "redevelopment possibilities"

That's who they are targetting. 1) developers who want to stick in condos/appartments, or 2) wealthy Chinese who want to get their money out of China.

[whatnext]

June sales out and the market continues to drop like a stone. Just wait for prices to start falling:

Sales in Canada’s most expensive housing market continue to plummet with the Greater Vancouver area hitting a 10-year low in June for activity.

The Real Estate Board of Greater Vancouver said there were 2,362 property sales in June, a 27.6% drop from a year earlier and a 17.2% decline from just May.

Overall, there are 18,493 properties for sale in the area through the MLS, a 22% increase from a year ago and a 3.7% jump from May...
http://business.financialpost.com/20...r-low-in-june/

[whatnext]

I'd say we're exactly at the point this analyst describes:

...David Madani, economist with Capital Economics, said on Wednesday that Canada’s housing market is currently experiencing what appears to be a soft landing, but is, in fact, a bubble in the process of bursting.

“There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the price of sellers, who refuse to drop the asking price,” he said in a note. “Eventually it begins to dawn on sellers that the market has shifted and, as they become more desperate, they eventually agree to lower their asking price. But until that happens, any stagnation in prices can be misinterpreted as a successful soft landing...”

http://business.financialpost.com/20...tal-economics/

[Hed Kandi]

Vancouver is still very affordable - perhaps no longer for a single buyer but as a couple making a combined income of say $120k, entry level condos of ($300,000 - $450,000) are still well in the range of affordability.

Once entry level condo prices reach a point where they become out of reach for the average dual income, then and only then will market prices subside. Until that time prices will continue to rise...

[whatnext]

Originally Posted by Hed Kandi

Vancouver is still very affordable - perhaps no longer for a single buyer but as a couple making a combined income of say $120k, entry level condos of ($300,000 - $450,000) are still well in the range of affordability.

Once entry level condo prices reach a point where they become out of reach for the average dual income, then and only then will market prices subside. Until that time prices will continue to rise...

Except a couple making $120k is no way "average". The average household income in Metro Vancouver is @$51k

[Alex Mackinnon]

Originally Posted by Hed Kandi

Vancouver is still very affordable - perhaps no longer for a single buyer but as a couple making a combined income of say $120k, entry level condos of ($300,000 - $450,000) are still well in the range of affordability.

Once entry level condo prices reach a point where they become out of reach for the average dual income, then and only then will market prices subside. Until that time prices will continue to rise...

Why should it take somewhere near 6 years of a pretty well off couple's expendable income to buy an entry level condo? $120,000 per year is also quite high above the average. You're basically saying a pair of yuppies with no student debt should be the demographic by which we set out standards. We're not Alberta, there aren't that many high paying jobs.

The real obvious sign that owning is ridiculously expensive, is that for the most part renting is currently cheaper. Assuming real estate doesn't continue to appreciate like mad, it will be cheaper even with all cash purchase relative to purchasing and not putting money into relatively stable investments.

[Hed Kandi]

Originally Posted by whatnext

Except a couple making $120k is no way "average". The average household income in Metro Vancouver is @$51k

That stats must be skewed by all of the city's SRO's.

If you take $51k and divide that by 2 people, that's just over $25k per individual per year. That's $12.25 per hr. Minimum wage is $10.25.

Buying a house is the largest investment most will make in a lifetime and almost no one can do it on minimum wage. Owning a home is something you work hard and save for.

[WarrenC12]

Originally Posted by Hed Kandi

That stats must be skewed by all of the city's SRO's.

If you take $51k and divide that by 2 people, that's just over $25k per individual per year. That's $12.25 per hr. Minimum wage is $10.25.

Buying a house is the largest investment most will make in a lifetime and almost no one can do it on minimum wage. Owning a home is something you work hard and save for.

All true. But if you don't think housing is extremely overvalued in Vancouver, you're delusional.

Rental rates reflect income very accurately, and they haven't moved a whole lot in the last 10 years. RE prices have gone through the roof during the same time period. Classic bubble.

[Klazu]

Anyone saying that the real estate or rental prices in Vancouver are not on ridiculous level, is either lying or has never been to Vancouver. I am lucky to make more than the Average Joe, but even I find living here very expensive. I have absolutely no idea how people earning average salaries (or less!) can afford to live anywhere in here.

[Zassk]

People with less income typically rent rather than own... in this city the dividing line is different from a place like Winnipeg, but the principle still applies. It is silly to think that someone should be able to buy a home in a desirable part of the region on a low income. Imagine the economic conditions that would make that possible. I would not wish that upon our region.

How do younger people manage to own? The ones that I know make one kind or compromise or another, but those that want to own, all manage it:

- they give up the car and own a small place near transit, or
- they live farther out (e.g. Cloverdale or further) where ownership costs are lower, or
- they pool incomes (via roommates, mortgage helpers, and/or being a two-income couple)

... and ...

- they typically accept the compromise of a small home in a better location.

Can a career McDonald's worker afford to own here? Probably not, but should we expect them to? Just because they could afford to own a home in Sydney N.S., why does that mean they deserve to own elsewhere? I would say that low income and unskilled jobs are exactly why a rental market exists. In my opinion, it is fair to expect a university degree or trade ticket is necessary to own your home in a major city.

[b5baxter]

Originally Posted by Klazu

... the real estate or rental prices in Vancouver are not on ridiculous level, is either lying or has never been to Vancouver...

I agree that both RE prices and rents are higher than other Canadian cities. But home prices and rents have not both inflated equally. RE prices have increased much more than rents - see: http://theeconomicanalyst.com/sites/..._vancouver.png

This is the classic definition of a RE bubble and indicates that we are due for a significant correction.

[twoNeurons]

Let's do the math

Here's a charming place @ $350,000.


Built in 1981 (31 years old).
2 bedrooms, 1 bathroom.

So, say we've saved our pennies and got a chunk of change as a wedding present from the bank of M&D (mom and dad) for a down payment.

We have $50,000 to put down, so that leaves us with a mortgage of about 305,000 after various fees.

$305,000 over 25 years @ 4% (4 year fixed)

Monthly Payment: $1578.06
Maintenance: $427.58/mo
Property Tax: $118 /month ($1417.77 / year)
Misc fees/Utilities: $150/month (conservatively)

Total outlay: $2273.64/month

A bonus is that it has a wood-burning fireplace... so if you can't afford to pay the electric bill, you can go out and collect firewood and keep yourself warm and cook your dinner!

Here's a somewhat comparable rental apartment.


It's also an older building and for a 2 bedroom and 858 sq. ft. it's $1400... including heat and hot water.

Your electric bill will add maybe $50/month.


Let's compare:
Buying: ~$2273 ( after $50,000 deposit)
Renting: $1450.

Assume prices will stay more or less flat for the next 8 years.
The renter saves ~$850/month and puts it in some kind of investment that earns 4%/year on average. he also puts the $50,000 in the same place. Of course, in 8 years, your rent will probably increase. If you're in the same place during that time and the rent is increased substantially, you'd be paying about $400 more 8 years from now. However, chances are you'll also earn more, so you can probably still afford putting away $850/month.

The owner pays off his capital. After 8 years, according to this site the owner has:

Cum. Principal paid: 66,987.05
Cum. Interest paid: 87,563.35
Principal Balance: 238,012.95

Assuming a relatively flat market you sell the house for $375,000. Realty fees are around $15,000

OWNER nets $121,987

The Renter:
After 8 years, the initial $50,000 and monthly deposits of $850 @4% interest


Renter Nets $165,505


source

With less risk, more freedom (to move), even at a relatively low 4%/year, you'd be $45,000 ahead if you rented.

To put it another way, the owner threw away $906/mo ($87000) to the bank in interest (aka renting from the bank). You'd need that 31 year-old property (which will be almost 40-years in 8 years) to be worth over $420,000 to break even. When you consider the risk involved compared to renting right now, I think you'd have to believe it will sell for $460,000 in 8 years for it to be "worth the risk" of being tied a huge asset that has a chance of declining in value within the next few years.

Unless the definition of affordable means: "I can afford to throw money away" Vancouver is NOT affordable, even if you have a combined income of $120,000.

[Porfiry]

Originally Posted by twoNeurons

With less risk, more freedom (to move), even at a relatively low 4%/year, you'd be $45,000 ahead if you rented.

...what are you buying that is zero risk and returns 4%?

[trofirhen]

Sorry to sound naïve, sour-grapes, or anything else, but having grown up in Vancouver, I want to see that real estate bubble go " *BANG* .... ffssssssssssst "....... Excuse me to all of you who have a lot of equity tied up in your homes .... that's how I feel. (I very much doubt that'll happen anyway)

[Pinion]

You wish for the misery of hundreds of thousands of people in your home town? Really?

[twoNeurons]

Originally Posted by Porfiry

...what are you buying that is zero risk and returns 4%?

A diversified portfolio should give you a stable return of at least 4%.

I never said no risk. However, purchasing a house is a far cry from no risk. You have to factor in:

• What if the market turns
• What if we divorce and we have to sell suddenly?
• What if there's a major problem with the place (special assessment)?
• What about unexpected repair bills?
• What happens if I lose my job?
• What if my office closes down and I have to move to Edmonton?
• What if health problems force me to move?
• What if my family grows?

Sure, some of those affect renters, however, they can move to a less expensive property and have a lot more freedom.

That being said, even something secure like a 5-year GIC can be found at around 2.5%. You'd be silly to compare a GIC (almost no risk) to buying a house which is a considerably large risk, especially if it's a cash-flow negative property from day 1.

It's all about weighing the pros and cons of buying right now.