Vancouver Real Estate 'Bubble' at 30-year Peak

[Zassk]

Counterpoint published yesterday and reported on various radio stations:

Two steady housing years ahead: CMHC

It seems to me that the 2.99% were an aggressive marketing ploy by certain institutions. They had unusual restrictions and were only offered for a short time. I do not read too much into them.

It may depend on where you are at, but anecdotally, there is no appearance of a slowdown here in Richmond.

[Yume-sama]

Anyone wealthy enough to be a serious speculator was never paying anywhere close to Prime, anyways, even with how low it actually is historically.

They get money essentially free.

Mortgage rate changes don't really affect them.

[b5baxter]

It is pretty clear that Vancouver has been in bubble territory for several years. Low interest rates have kept the bubble from popping.

But there is some evidence that we may have reached the popping point. The leading indicator for falling real estate sales is rising inventory. Inventory is currently at the second highest point it has been in the last seven years (adjusted seasonally). And YTD it has climbed faster than any of the last seven years.



Recently the Economist magazine estimated a 25% over-valuation for Canadian real estate.

Deutsche Bank Securities estimates over-valuation by 54%.

Using the Schiller modeling the over valuation is even higher (70% ?).

Note that these estimates are for Canada as a whole. Over-valuation in Vancouver may be higher.

[go_leafs_go02]

I may be moving back to Metro Vancouver within the next few weeks, and man, a housing crash would be the best possible thing for me. For what I could buy here in Ontario for a medium sized suburban lot, I'd be looking at a tiny 800 sq. ft strata apartment somewhere in Langley.

If I do, I plan on renting the first few years, but to buy a house without that "bubble" bursting, would be extremely difficult.

[WarrenC12]

Originally Posted by b5baxter

But there is some evidence that we may have reached the popping point. The leading indicator for falling real estate sales is rising inventory. Inventory is currently at the second highest point it has been in the last seven years (adjusted seasonally). And YTD it has climbed faster than any of the last seven years.

Well, sure lots of listings so far, but in order to have a real "crash" in Metro Vancouver, I'm betting those lines need to go off that chart, like 25-30k listings.

[b5baxter]

Originally Posted by WarrenC12

Well, sure lots of listings so far, but in order to have a real "crash" in Metro Vancouver, I'm betting those lines need to go off that chart, like 25-30k listings.

Agreed. It is a leading indicator. It is too early too call for sure. But based on current trends we will reach 20k by mid April so we should have a better idea soon.

[Chikinlittle]

Originally Posted by b5baxter

Note that these estimates are for Canada as a whole. Over-valuation in Vancouver may be higher.

Or lower. Fortunately, or unfortunately, whichever way you would like to look at it, Vancouver garners a lot of international speculation. The second prices drop by a bit, people are there to snatch up that improved value. So whilst high prices may make things unaffordable for many here, Vancouver still is often to be a perceived 'good value' on the international market. It IS a desirable place to be, whether full time or not, and is a city of the 21st century with even better things to come.

Only time will tell if there will be a correction of any sizeable proportion here.

[Yume-sama]

Originally Posted by go_leafs_go02

I may be moving back to Metro Vancouver within the next few weeks, and man, a housing crash would be the best possible thing for me. For what I could buy here in Ontario for a medium sized suburban lot, I'd be looking at a tiny 800 sq. ft strata apartment somewhere in Langley.

If I do, I plan on renting the first few years, but to buy a house without that "bubble" bursting, would be extremely difficult.

That's probably one of the more short-sighted comments that show almost no knowledge of economics.

I wonder how the tens of millions of unemployed people in America (an amount equal to the entire population of Canada, in fact) who lost their jobs AND all equity in their homes feel about being able to buy a cheaper house. Fact is there won't be a collapse in one sector that won't end up making everything bad for you.

[Alex Mackinnon]

But do you think the investment is fairweather only? I don't see how it's immune from either shocks to the Canadian or Chinese market.

I think the premise of investor class immigrants picking up an asset which seems to be increasingly overpriced seems to be an odd idea. Even though theres some mighty deep pockets out there, as soon as the Chinese market realizes that the premise of ever rising real estate prices aren't sustainable, these same investor class immigrants driving up prices may realize that it takes a lot more than parking money offshore to make a good investment.

If things get soft in China, and prices don't come down here no one will be driving demand. I don't any of my friends (who are all pretty joining the ranks of yuppies) picking up the slack. I sure as heck won't be putting money into the housing market unless the assets I have start to produce less than the equivalent amount of money I'd be spending on rent.

If you can't soak up the amount of inventory retiring boomers are putting on the market then you could have a huge inventory without much of a market. As is, I know quite a few couples who should have over twice the average Canadian household income who're still priced out of a house in the DTES (including myself).

Just look at what stuff in is going for in my neighbourhood. The zoning is good for bigger lots where you can build a laneway house, but most of the stuff in the DTES looks like it needs a good gutting and sells for insane money.
2 Bdrm house on a 1000sqft lot
4 Bdrm house

I almost pulled the trigger on a house on Prior for $475k which seemed to have structural problems from the outside. It had good zoning which would allow for a suite and a laneway house, but it literally had thousands of hours of renovations that needed to be made. I like projects, but in the end I talked myself out of it before it sold.

[Chikinlittle]

Personally, I think urban inner-city real estate is much more secure than suburban (with some local-specific exception). So your inner city examples, given proximity to downtown, and being single-family, would probably be safer bets then those looking further afield.

I also think that there's more international speculation than just China, although agreed, they have been a major driver as of late.

One factor to keep an eye on, is vacancy rates. I've heard mixed messages, but from what I see, there aren't nearly as many empty condos as many people assume there are.

[b5baxter]

Originally Posted by Chikinlittle

..... international speculation. The second prices drop by a bit, people are there to snatch up that improved value....

The key word there is "speculation."

There are two things that are true about speculative bubbles:
- they always burst
- before they burst there are always people saying "but this time is different"

And when speculative bubbles burst people don't snatch up values. Look at the US. Prices in many markets are at the lowest they have been in more than 10 years. Interest rates are at historic lows. In many places it is cheaper to buy than rent. And yet people are still not buying.

Why would you buy an asset now when it going to be even cheaper next month?

Just like people buying Nortel shares are their height, people in Vancouver have been buying real estate because they didn't want to miss out on a "hot" commodity that looked like it would go up forever.

But when that mindset changes people stop buying.

There has been a lot of research on market psychology if you want to learn more about what is about to happen here.

[Chikinlittle]

Originally Posted by b5baxter

The key word there is "speculation."

There are two things that are true about speculative bubbles:
- they always burst
- before they burst there are always people saying "but this time is different"

And when speculative bubbles burst people don't snatch up values. Look at the US. Prices in many markets are at the lowest they have been in more than 10 years. Interest rates are at historic lows. In many places it is cheaper to buy than rent. And yet people are still not buying.

Why would you buy an asset now when it going to be even cheaper next month?

Just like people buying Nortel shares are their height, people in Vancouver have been buying real estate because they didn't want to miss out on a "hot" commodity that looked like it would go up forever.

But when that mindset changes people stop buying.

There has been a lot of research on market psychology if you want to learn more about what is about to happen here.

I'm not saying it isn't prone to crashing, nor that it can't nor won't happen. I'm merely indicating that nobody knowns until it actually happens.

You pointed out the word 'speculation' from my post. The definition of the word is not one-directional. Your assumption that something 'is about to happen' is also speculation.

[cornholio]

Everyone should know we have been in a bubble for a long time now, I am surprised it hasnt popped yet but thats just luck. Eventually this luck will run out and a trigger will come along it wont be able to dodge and then we will see what happens.

I think it would take a pretty irresponsible person to enter this market now with out already being in it(e.i. just shifting real-estate equity around, which includes foreign real estate also in a bubble) or if their buying for cash and either the price is irrelevant or tying their money up in a non depreciatable long term asset is their goal. imo

But really the bubble is there and like all bubbles it just takes a trigger to pop it, we are in danger territory now.

edit: Also I wanted to add that I have seen a increasing amount of media biases towards real-estate prices, lots of powerful forces making some big efforts to keep this bubble from popping(b5baxters market psychology is the most relevant issue here).
The problem I see is that although likely well intentioned this will only worsen the damage because you cant stop a bubble from popping but you can only postpone it and worsen it, that includes what some would like to call a soft landing, a soft landing that will always be the main contributing factor in allowing the next bubble to grow even bigger until it does burst.

[cornholio]

Originally Posted by Yume-sama

That's probably one of the more short-sighted comments that show almost no knowledge of economics.

I wonder how the tens of millions of unemployed people in America (an amount equal to the entire population of Canada, in fact) who lost their jobs AND all equity in their homes feel about being able to buy a cheaper house. Fact is there won't be a collapse in one sector that won't end up making everything bad for you.

Well to play the devils advocate I have to say that crashes, suffering and the resulting restructuring are integral parts of all economic systems. Maybe the difference now is that the re-structuring is required at the highest levels of society because the system is broken at its core.

At the end of the day as a "society" we come out stronger after a crash/recession or any type of major restructuring(I like to compare this process to the life cycle of a forest and the importance of massive forest fires in it).

[Pinion]

Originally Posted by cornholio

At the end of the day as a "society" we come out stronger after a crash/recession or any type of major restructuring(I like to compare this process to the life cycle of a forest and the importance of massive forest fires in it).

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.

[jlousa]

The bubble's been bursting since at least 2005, a lot of people have made a lot of money since then. There are still deals to be had if you know where to look or what to look for. I don't doubt we will see some price corrections but I feel they will be modest within the city, I do see the possibility for bigger corrections further out. I don't see much of a bloodbath though and not because it's different here. My advice is if you're buying a home don't think about timing the market, if the timing is right in your life, then buy and don't look back.

[GeeCee]

I'm in the market to buy a condo in the burbs in the next six months to a year or so. I don't know a whole hell of a lot about real estate, but all these conflicting reports sure make me wary.

[cornholio]

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.

Life is pretty unfair and horrific no? I mean even if you slow or stop growth you simply cant ever stop change as the world we live in is in a constant and unpredictable flux which we have to continually adapt to. Every change no matter how minor allows a poor decision to be made, this poor decision is then built on, and its unavoidable to make other poor decisions which also continue to get built on. It is impossible to catch all these decisions because we cant predict the future, and once their built on top of and woven in to the very fabric of our society or economy they are impossible to fix. Eventually over time all these weaknesses add up and a trigger allows our society or economy or whatever to crumble, disentangle and fall apart.

Once finished and stability is once again achieved we can roar ahead now knowing in retrospect the poor decisions we made and we can avoid them and build a stronger foundation that allows our society or economy to grow even bigger in to uncharted territory.
/rant

Nothing lasts for ever for good reasons. Cant have all your eggs in all baskets, to many baskets and not enough eggs. (e.i we cant predict the future and we cant be prepared for all possible events, and all possible events given enough time do happen)

by the way Pinion im a socialist at heart, if I had my way our society would "resemble" more the communism I to a extent grew up under then the capitalism we have seemed to push towards, even if I dont always practice what i preach, but I try. I think what you really are saying is that we should have more control over our growth and not grow just for the sake of growing, which I agree with.

[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

[phesto]

I see a combination of NDP government (and the attendant effect of economic policy) and rising interest rates having a negative impact on housing prices in 2013/2014.

But honestly, I don't see a major correction.

The same people who are predicting a massive bubble bursting are often the same ones who can't offer any explanation for why housing prices are so high here in the first place. But this has been discussed earlier in this thread...