Vancouver Real Estate 'Bubble' at 30-year Peak

[WarrenC12]

Originally Posted by Pinion

Haha yeah, and people are the trees. What good is a strong economy if it doesn't benefit people?

That's a pretty horrific analogy.

Perhaps we should have a system that doesn't require infinite growth to be sustainable.

Ask North Korea how that's going.

[phesto]

Originally Posted by b5baxter

Of course a bubble really doesn't start popping until foreclosures skyrocket.

Good thing that is not happening here yet.

Oh, wait.....
http://www.cbc.ca/news/canada/britis...eclosures.html

Thread is about Vancouver, not Kelowna...

[b5baxter]

Originally Posted by phesto

Thread is about Vancouver, not Kelowna...

So, Vancouver is in a specail protective force field that prevents it from being affected by macro-economic trends in the rest of BC or Canada?

[Yume-sama]

Originally Posted by b5baxter

Of course a bubble really doesn't start popping until foreclosures skyrocket.

Good thing that is not happening here yet.

Oh, wait.....
http://www.cbc.ca/news/canada/britis...eclosures.html

That article has absolutely nothing to do with Vancouver. But, Kelowna's real estate market is quite interesting... mainly driven by Albertans. If you buy a house in Kelowna and ever have to sell, it'll take years and you'll have to accept an offer at below replacement value. Most typically "vacation" areas in North America are suffering, as people may have money for their first home. But not their second.... or third.

Actually, the article itself makes a good point that Canadians are now buying dirt cheap vacation homes in the USA, and not anywhere else in Canada.

That said, 165 is a relatively tiny number, and tells you the strength of the Canadian economy in general when 165 being foreclosed on is big news.

[b5baxter]

Originally Posted by Yume-sama

That article has absolutely nothing to do with Vancouver.

I am afraid that I can not be so confident of that. I see a few connections:

- Speculative markets are greatly influenced by sentiment. And significant changes in a market geographcially close to Vancouver will have some affect on sentiment. Many people I know in Vancouver and other parts of BC do have connections to Kelowna (family, land, etc).

- Kelowna is a market for the same banks and insurance (CMHC) that operate in Vancouver and every other city in Canada. A significant increase in foreclosures in one market may cause these insitutions to tighten rules (which they have been starting to do even before this news came out).

- I have not seen any data to suggest that the foreclosures are 100% by Albertans. I suspect that there would be connections to homeowners in Vancouver. Even if they are vacation homes it does affect the owners net worth and their ability to finance or re-finance other assets they own.

- It is likely that a trend on one region may also be playing out in other regions. We just don't have the data yet (please feel free to repeat the refrain "...but it is different here....").

Originally Posted by Yume-sama

Actually, the article itself makes a good point that Canadians are now buying dirt cheap vacation homes in the USA, and not anywhere else in Canada.

That was the opinon of one real estate agent and was not backed up by any data.

Originally Posted by Yume-sama

That said, 165 is a relatively tiny number...

You are correct. In abosulute terms it is small. But it is a 1,000% increase over 3 years ago. Isn't that significant?

Originally Posted by Yume-sama

...and tells you the strength of the Canadian economy in general ...

Again I am afraid I can not be so confident about that strength. Our personal debt to income ratio is now HIGHER than it was in the US before their buble burst (http://www.theeconomicanalyst.com/si...-canada-us.jpg). If you look at real estate fundamentals they are similar or worse than countries such as Ireland, Spain and Japan that experienced significant corrections.

Which is why more experts are discussing the bubble situation:
http://www.moneyweek.com/investments...e-bubble-20700

[Yume-sama]

You could very selectively pick out some parallels (It's in British Columbia!) but you can't completely ignore the causes that make the outcome what it is.

The article actually gives a pretty good hint if you read it.

It's a summer vacation destination, and Canadians are purchasing vacation properties at 1/10th the price in Arizona.

It would be like saying, "all of the auto plants have shutdown in Detroit, causing house prices to plummet. That must mean San Francisco is screwed."

[Hed Kandi]

..

[cc85]

A bubble exists, plain and simple.

[Zassk]

Seems to me that the "bubble" will end when the mountains and ocean disappear.

[SpongeG]

even if house prices "drop" the people who couldn't buy before would than buy and the prices wouldn't have a chance to drop that far as there would be demand to keep buying

[cc85]

Originally Posted by Zassk

Seems to me that the "bubble" will end when the mountains and ocean disappear.

Where would we be without that mentality? I know, we would be a less stuck-up city.

[squeezied]

Originally Posted by SpongeG

even if house prices "drop" the people who couldn't buy before would than buy and the prices wouldn't have a chance to drop that far as there would be demand to keep buying

Theoretically.

Demand evaporates if there's a belief that prices will continue to drop.

[Alex Mackinnon]

I think a lot of you guys underestimate the impact fear can have on a market. Right now I think most people are blindly confident in real estate as an investment. If people are fearful I don't see why things couldn't overcorrect.

Just think, when the stock market starts to drop, it usually absolutely tanks as people sell in fear. I know houses are less liquid, but the same principal applies. Once fear selling gains momentum it usually causes the market to overcorrect, then rebound.

Just look at most minor stock market crashes. When fear is added into the market it usually eclipses the original issue, then once the panic selling stops the real market value of things becomes apparent again.

[whatnext]

Originally Posted by Zassk

Seems to me that the "bubble" will end when the mountains and ocean disappear.

As they say, God isn't making any more land, but environmental degradation and labour exploitation is creating lots more Chinese millionaires, so I don't see the market in Vancouver crashing any time soon.

All these pundits don't seem to get what is driving price in Vancouver and Toronto. The country isn't one monolithic housing market. Like Doctorhousing bubble thinking So Cal's experience equates to Vancouver's:
http://www.doctorhousingbubble.com/c...estate-canada/

[phesto]

Originally Posted by b5baxter

So, Vancouver is in a specail protective force field that prevents it from being affected by macro-economic trends in the rest of BC or Canada?

Definitely not, but there are unique factors within the Vancouver market, and many outsiders trying to explain the Vancouver market in a generalized comparison with the rest of the country just can't seem to grasp them.

Take one example - Chinese buyers inflating the value of Westside homes. This trend is definitely not sustainable (already appears to have quieted), but can you honestly see these buyers pulling their money out and going back to China? It isn't speculative buying, they are buying because they want to park money in a safe market here long-term and send their kids to the best schools.

I want to believe there is a bubble as much as anyone. As I said before, shocks to the system such as negative job growth or interest rate increases, both which may be on the horizon in the next 18 months, will only have a negative influence. I just haven't seen a lot of substantive evidence that the activity that has driven values is largely speculative and due for significant correction without the above-mentioned trends.

[dreambrother808]

The housing market in the Okanagan has been stagnant for years now.

Thinking that this NOW somehow relates to Vancouver is ridiculous.

[Zassk]

Originally Posted by cc85

Where would we be without that mentality? I know, we would be a less stuck-up city.

It has nothing to do with being stuck up. It is a fact that people who live elsewhere in the world want to move here, and high prices appear not to be a deterrent (in fact, they seem to give further motivation). I doubt that any change in behaviour amongst us locals will change that external demand.

Every time my house rises in value by another 10%, people and "experts" claim the bubble is going to burst. Guess how many times it has risen by 10%? Aside from one plateau in 2008, the house's actual value has been immune to all claims of doom and gloom. It outperformed Apple stocks from 2006-2012. If it fell by 50% tomorrow, I would still have to be pleased with the overall 10-year performance of the investment.

Is it really a bubble, and will it ever burst? I will believe it when I see it.

[twoNeurons]

Originally Posted by Zassk

If it fell by 50% tomorrow, I would still have to be pleased with the overall 10-year performance of the investment.

Is it really a bubble, and will it ever burst? I will believe it when I see it.

Agreed. However, one must remember that there is a LARGE subset of people who did NOT enter the market 10 years ago (before any escalation in perceived valuation).

Remember, houses are not priced on actual value. They are priced on perceived value.

Let's be honest. A large percentage of people were able to enter the market based on speculation, not on whether they could afford the mortgage. It's easy to convince yourself to buy if you think that the house will continue to rise indefinitely. If house prices start to seriously drop, people will think twice about purchasing. Why would you buy a depreciating asset?

As long the public still think that buying is a good deal, they will continue to buy. You'll notice that there is a lot of boosterism in the media... which makes sense when you consider that real estate advertising is a signigicant contributor to advertising revenue.

[mr.sandbag]

anyone check the census stats that just came out... ofcourse we did. Where do you put 197k people (thats roughly the city of Richmond added in 5 years or put another way 20% of Calgarians decided to move here ), in housing , add this to all the other factors and we get what we have. There is no bubble.

Before interest rates and speculation changes we need to stop the immigration first, no demand for new housing. prices stabilize or a small correction happens.

[b5baxter]

Originally Posted by mr.sandbag

anyone check the census stats that just came out... ofcourse we did. Where do you put 197k people (thats roughly the city of Richmond added in 5 years or put another way 20% of Calgarians decided to move here ), in housing , add this to all the other factors and we get what we have. There is no bubble.

Before interest rates and speculation changes we need to stop the immigration first, no demand for new housing. prices stabilize or a small correction happens.

Census data actually supports the view that we are in a bubble. Population growth has been at a much lower rate than increases in real estate. In last 10 years Vancouver's population growth averaged 1% per year. Home prices grew much faster.

If were really bringing in more people too fast and running out of room we would see rents increasing at close to the same rate as houses but we haven't.

The issue of immigration and real estate prices has been analyzed here:
http://www.theeconomicanalyst.com/co...globe-and-mail
and here:
http://housing-analysis.blogspot.com...o-q3-2011.html