Vancouver housing: How long will it last?
By ebizniz on July 31, 2007 - 3:06pm
A posting by Vancouver Home Mortgage:
The real estate frenzy especially for Western Canadian cities like Vancouver, Victoria, Calgary and Edmonton is all consuming. Canadian home owners are happy with the huge price gains in their house values over the past 5 years. Many more people are encouraged to jump in for fear of loosing out as housing reports from real estate experts and economists are predicting another 7% to 8% price gain for the next 2 years?
The Canadian housing cycle will take its course and unwind itself to a level when rental return and housing affordability are in balance. There is a disconnect between the average Canadian household income and average housing cost. As it is now, there is a "madness of crowd" mentality that if one is not jumping in to buy a home, or 2 or 3 (for speculation), they will miss the boat.
We, in Canada are faced with the following problems:
1) over-valued house prices - similar to the U.S.
2) major problem with housing affordability - maybe worse than the U.S.
3) over-supply of housing inventory (not apparent now)
4) bullish crowd mentality on real estate - people think we are different from U.S.
5) an economy exporting 80% to the U.S. - danger of economy contraction
6) Canadian loonie approaching parity with US$ - not through productivity gain
What are your thoughts?
Your points are well presented. The average salary of the average joe in Vancouver has not gone up 20% per year. The mainstream media is not exactly reporting the malaise that is occurring almost everywhere in the US (except for a few blocks in downtown Manhattan). One only has to do a search of sites such as www.patrick.net to understand that the feeding frenzy at the trough cannot go on.
Yes, yes, yes, there are always going to be eternal optimists such as:
1. Vancouver is land locked and nowhere to build - rebuttal - take a look at land locked Japan and read about what has happened to their real estate market...
2. Vancouver has the beauty of water - add on more sunshine and voila you have Miami that is going through unbeliveable malaise...
3. Real estate always goes up - yes over 100 years it does, but stocks go up even more...People have a short term memory of the previous dips in real estate in Vancouver in the 80's and 90's (as well as the 87 stock market dip)...Why so different this time?
Bottom line, if your average joe cannot afford these prices, what happens? When real estate taxes, insurance, and increasing rates eat up gains of real estate flippers, what happens? Is it really cool to talk about real estate anymore? When rates rise in September and beyond, real estate is not going to look as juicy for the trough...
The only reason why the Vancouver economy is booming right now is because of the construction relating to the Olympics. All these major projects are set to end before the Olympics. Once that happens, thousands of trades workers will be out of work. They'll get jobs doing whatever they can get paid for and that will push wages down for everyone. Will that mean that land prices will go down? Maybe not...
What keeps property values high here is investment from the outside. The difference between Vancouver and Japan is that in Japan, it is very difficult for non-Japanese citizens to purchase property. So, they couldn't rely on foreign investment to continue to artificially inflate the prices.
That is the speculation. Olympics doesn't help property value at all. Go find information for 1984 LA, 2002 Utah, 1976 Montreal, etc. What portion of the housing market investment is from foreign countries? It is less than 2% and it will not make any difference at all.
What's happening in Vancouver is pretty much identical in LA two years ago. ebizniz made everything clear and we will see the results very soon.
Unlike stock market, the market correction happens in very slow pace and will take long to see the difference. By the time you see the results, it will be very devastating and will cause lots of problems.
Wake up, dude!! History cycles, and so does economy.