OT: Moving Out West

[King of the ES*]

Both of your points are popular myths.

I don't have the time to write a thesis here, but let's just say that it's my job to analyze market cycles.

1. Price-rent and Price-income ratios are at absurd levels. They've never been this far out of whack and mean-reversion always happens.

2. In the US, prices fell first, driving up defaults, then the economy went into recession. Fannie had record low defaults as late as 2007.

3. Home ownership is at 70%, record levels which have correlated with market tops in previous cycles.

4. Debt-to-Income ratios for Canadians is over 160%, higher than where the US topped out.

5. Lending rules have changed. The OSFI is enforcing tighter lending guidelines now that they are overseeing the CMHC. Proof of income is needed whereas before you could state income, particularly for self-employed. Lending ratios and amortizations have tightened up as well. Basically, banks and the government are worried and lending will be constrained going forward.

6. Over 30% of BC's economy is in real-estate related industries. The highest by far in Canada and completely unsustainable. This sector is cyclical and volatile.

7. Sales are already down 30-50% throughout BC, depending on where you look. Year-over-year prices (HPI) ranges from flat to down 15% in places like Richmond and Van West. The top was in on June 2012.

8. Interest rates have bottomed and have nowhere to go but up. If rates even normalize to 5-6%, the market is screwed.

9. Canadians have no retirement savings and baby boomers are far more likely to sell their homes to fund retirement. This could cause the mass exodus you speak of.

10. Real estate is cyclical, just like any other asset class. And the bigger the boom, the bigger the bust. It never changes. Population is a factor, but a far, far smaller factor than credit.

We might not see a sharp crash like we did in San Diego (Bernanke raised rates to break the market) but a slow grind lower for the next 5 years is a very plausible scenario. There will be significant economic fallout when prices are 25-30% lower than they are today.

What I've said are not myths. I'm speaking of fundamental market realities. The facts that you've railed off above are not new. People have been calling a Vancouver market crash for years, and years, and years, and are looking to find evidence like the above to support it. There are two main reasons why it won't happen:

-Legitimately world-class city
-Scarcity of land (ocean, mountains, etc.)

And those are notwithstanding the stable Canadian banking system.

For example - sales being down. OK, fine. People probably don't want to buy at the high levels, the high price:rent, etc. Guess what? Lack of buying isn't in itself a sign of weakness. Are the owners desperately trying to sell? If not, then why would the prices change? What I'm getting in rent on my real estate in Calgary isn't a very high yield relative to the asset's value, but it covers the mortgage and all expenses, so why do I care? I would venture a guess that most investors who are holding have a similar thought pattern. If the cash inflows exceed the cash outflows, or even comes close to doing so, owners are really under no pressure whatsoever to sell. That means that they're probably not going to be moving too much on their stated ask.

If there are any younger people reading this consider buying - just know that what the above poster said about Vancouver is what has been said for the better part of a decade, possibly even longer.

 

[Passthedonuts]

Widespread mortgage fraud, for one. Canadian banking system far more risk-averse than American - we don't have the same defaults that they do, because mortgages weren't given to people who couldn't afford them to begin with.

There's also a much bigger jobs crisis in the US than in Canada. Vancouver's got a pretty stable employment base, with resources, fishery, etc. What does a city like Phoenix have? Not as stable as a city like Calgary or Edmonton, but supply/demand is always the most important. People need a roof over their heads, so demand is pretty obvious (again, unless there's a mass exodus out of the city), and supply means either buyers or sellers. If there's far more people wanting to buy than sell, prices rise, and vice versa.

Funny you mention Phoenix, according to the Brookings Institute measure of GDP, the GDP of Phoenix is almost double of Vancouver. http://en.wikipedia.org/wiki/List_of_cities_by_GDP

As for the rest of your points they've been well countered already.

I work as an executive in the real estate investment industry, and I can tell you that with the exception of Chinese speculators, the smart investment capital is staying far, far away from Vancouver residential real estate right now.

 

[ginner classic]

Nonsense on a few levels.

One, the economy is driven by jobs, not house prices.

Two, house prices are driven by supply/demand, which is driven by population. The only thing that could cause a material decline in home values is basically a mass exodus out of Vancouver and a flooding of homes put on the market. How likely do you think that is?

It's a bit more complex than that mate. 25% of the jobs in Canada were driven indirectly or directly by construction. In Vancouver that numer is a LOT higher.

Hold on to your hat.

 

[ginner classic]

What I've said are not myths. I'm speaking of fundamental market realities. The facts that you've railed off above are not new. People have been calling a Vancouver market crash for years, and years, and years, and are looking to find evidence like the above to support it. There are two main reasons why it won't happen:

-Legitimately world-class city
-Scarcity of land (ocean, mountains, etc.)

And those are notwithstanding the stable Canadian banking system.

For example - sales being down. OK, fine. People probably don't want to buy at the high levels, the high price:rent, etc. Guess what? Lack of buying isn't in itself a sign of weakness. Are the owners desperately trying to sell? If not, then why would the prices change? What I'm getting in rent on my real estate in Calgary isn't a very high yield relative to the asset's value, but it covers the mortgage and all expenses, so why do I care? I would venture a guess that most investors who are holding have a similar thought pattern. If the cash inflows exceed the cash outflows, or even comes close to doing so, owners are really under no pressure whatsoever to sell. That means that they're probably not going to be moving too much on their stated ask.

If there are any younger people reading this consider buying - just know that what the above poster said about Vancouver is what has been said for the better part of a decade, possibly even longer.

You want some facts.....

The ratio of house prices to incomes is higher in canada than it was in the U.S. at the peak of their real estate market
Debt to income levels are higher in Canada than the US at the peak of their real estate market
House prices to rental incomes are higher in Canada than in the US at the top of their market.....

But let's go local...

Vancouver is the most overpriced real estate market in the english speaking world when house prices are compared to the cap rate on rental income and income levels generally which is the only bloody thing you need to look at. In fact it is so overpriced that it requires over 90% of median pre tax income to afford to cover a SFH in the GVRD. Think about that for a minute.

Vancouver is free falling right now in transactions volume and average price, while months of inventory is climbing past where we were at the bottom of the market in 2008.

Vancouver is going to get completely slaughtered.

Makes me laugh when you quote 'fundamental market realties' but ignore the stats you just got blown out of the water with.

 

[King of the ES*]

I work as an executive in the real estate investment industry, and I can tell you that with the exception of Chinese speculators, the smart investment capital is staying far, far away from Vancouver residential real estate right now.

Which makes sense, because the prices are high.

But the issue at debate here is whether the prices will drop significantly. I'm saying that they won't - they can't - unless an excessive amount of supply is suddenly available for sale. And I can't think of anything that would cause a sudden supply imbalance to present itself, short of a mass exodus out of the city, which would only really happen if the Vancouver's employment base would somehow completely dry up/go away. Vancouver also doesn't have the problem that Phoenix does in that it can't really be overbuilt, thanks to the geographic constraints.

So where's the smart money going in Canada right now?

 

[ginner classic]

Which makes sense, because the prices are high.

But the issue at debate here is whether the prices will drop significantly. I'm saying that they won't - they can't - unless an excessive amount of supply is suddenly available for sale. And I can't think of anything that would cause a sudden supply imbalance to present itself, short of a mass exodus out of the city, which would only really happen if the Vancouver's employment base would somehow completely dry up/go away. Vancouver also doesn't have the problem that Phoenix does in that it can't really be overbuilt, thanks to the geographic constraints.

So where's the smart money going in Canada right now?

They can't? They are.

You need to do some research before you get caught up in the real estate industry "it's different here" mentality. Are you a realtor?

Read the following blogs because nobody has enough time to teach you bubble psychology.

greaterfoool
vancouverpricedrop
yattermatters
whispersfromtheedgeoftherainforest


read and enjoy

 

[King of the ES*]

They can't? They are.

You need to do some research before you get caught up in the real estate industry "it's different here" mentality. Are you a realtor?

Read the following blogs because nobody has enough time to teach you bubble psychology.

greaterfoool
vancouverpricedrop
yattermatters
whispersfromtheedgeoftherainforest


read and enjoy

Not a realtor, don't own real estate in Vancouver and don't even live there any longer.

Greater Fool - Garth Turner. Noted doomsdayer. He's been calling for 30% corrections across the nation for the last 5 years. Whoops. Garth doesn't realize that the real estate market doesn't function like the stock market because people aren't going to suddenly not need a roof over their heads.

 

[ginner classic]

Not a realtor, don't own real estate in Vancouver and don't even live there any longer.

Greater Fool - Garth Turner. Noted doomsdayer. He's been calling for 30% corrections across the nation for the last 5 years. Whoops. Garth doesn't realize that the real estate market doesn't function like the stock market because people aren't going to suddenly not need a roof over their heads.

It's worse than the stock market because the vast majority of transactions by consumers are done on significant leverage (20:1)and it is illiquid.

You don't realize that all assets boom and bust. Were you under a rock the last five years? Do you think the U.S. was the only country with a real estate collapse? Were you alive in vancouver in 1981? Toronto in 1994? Vancouver 1996?

Housing supply does not soley dictate prices in real estate. Income levels, rental incomes, and the price of money do.....fused with feedback loops we get bubbles. This was a debt driven bubble. It is collapsing. Deny all you want it is happening right now.

 

[King of the ES*]

You want some facts.....

The ratio of house prices to incomes is higher in canada than it was in the U.S. at the peak of their real estate market
Debt to income levels are higher in Canada than the US at the peak of their real estate market
House prices to rental incomes are higher in Canada than in the US at the top of their market.....

But let's go local...

Vancouver is the most overpriced real estate market in the english speaking world when house prices are compared to the cap rate on rental income and income levels generally which is the only bloody thing you need to look at. In fact it is so overpriced that it requires over 90% of median pre tax income to afford to cover a SFH in the GVRD. Think about that for a minute.

Vancouver is free falling right now in transactions volume and average price, while months of inventory is climbing past where we were at the bottom of the market in 2008.

Vancouver is going to get completely slaughtered.

Makes me laugh when you quote 'fundamental market realties' but ignore the stats you just got blown out of the water with.

This is just a bunch of theory. I see Garth Turner's work has really struck a chord with you.

Just answer me this: where is everybody in Vancouver going to move to, after their homes are suddenly worthless (for no apparent reason)?

 

[JBIZ14]

Can the prices drop here in Lethbridge ...I'd like to buy a house with a pool in the near future...ahahahah might run me 350k

 

[ginner classic]

This is just a bunch of theory. I see Garth Turner's work has really struck a chord with you.

Just answer me this: where is everybody in Vancouver going to move to, after their homes are suddenly worthless (for no apparent reason)?

Garth Turner's work? Are you for real? Go back up and refute the data that has been presented to you.

Did everyone move out of the US in 2007? Spain? Ireland? France? What caused the 18% median price decline in 2008 in Vancouver? Did everyone move out for a year? Why did it recover? What has happened since 2004 that can help inflate and then deflate house prices in Canada? Can you answer any of these questions?

You are overmatched here.

 

[LickTheEnvelope]

This is just a bunch of theory. I see Garth Turner's work has really struck a chord with you.

Just answer me this: where is everybody in Vancouver going to move to, after their homes are suddenly worthless (for no apparent reason)?

Well there's no real job market in BC...

As someone in their late 20's the vast majority of my closest friends are all in real-estate in one form or another.

This market is heavily propped up by Chinese investors.

I don't know when it will crash but that's what i'm waiting for to look at buying a home.

As mentioned the trends are completely unsustainable.

 

[Hi-wayman]

Trying to predict Vancouver's housing future is getting a bit off topic. I have just under 50 years in Canadian Real Estate industry, residential & commercial sales and leasing, finance, infrastructure and appraisal. For 35 of those years in the lower mainland. I can tell you this that current residential rents do not reflect the market values of the structures rented, that the residential market values are greatly over valued and those residential market values will continue to sustain themselves for the time being.

Vancouver is a nice place to live, has a very limited footprint to expand, has adapted in order to attract industries that bring a lot of money into the local economy and is the least expensive major city on the West Coast. Seattle, Portland, San Francisco, Los Angles and San Diego being the other major cities. The last Vancouver residential housing crash was in the 80's & like today the residential market values were greatly over priced, but like today those high residential prices were not enough to trigger a crash.

At least one of two events needed to occur to start a domino effect that would cause a housing crash. Both involve the availability of money required to sustain the current housing market. The first reason is that money isn't available to the residential buyer or that it is too expensive. In the 80's crash the banks cut back on the maximum mortgage amount while at the same time interest rates climbed over 20%. The second reason would be the residential buyer loses or can't find employment. This later reason requires massive unemployment where the local employers lose their markets or their source of materials and thus cannot afford or need employees. A major down turn in the world or even just Canada's economy could do this, but Vancouver also has a local threat that could just effect the City's business economy without affecting the rest of Canada to the same extent. Right now, Vancouver and the businesses of Vancouver are not prepared for a major earthquake. How many business would be shut down and how long would it take to rebuild and open up again? That is how long the employees of those business would be unemployed and without an income. Of those employees who decide to move to other employment, they would face a very limited, even if temporary amount of prospective buyers. Once prices start to drop, the domino effect gains momentum rapidly. The fact that paper values greatly exceed actual values will only add to the fire.

 

[CascadiaPuck]

Trying to predict Vancouver's housing future is getting a bit off topic. I have just under 50 years in Canadian Real Estate industry, residential & commercial sales and leasing, finance, infrastructure and appraisal. For 35 of those years in the lower mainland. I can tell you this that current residential rents do not reflect the market values of the structures rented, that the residential market values are greatly over valued and those residential market values will continue to sustain themselves for the time being.

Vancouver is a nice place to live, has a very limited footprint to expand, has adapted in order to attract industries that bring a lot of money into the local economy and is the least expensive major city on the West Coast. Seattle, Portland, San Francisco, Los Angles and San Diego being the other major cities. The last Vancouver residential housing crash was in the 80's & like today the residential market values were greatly over priced, but like today those high residential prices were not enough to trigger a crash.

Respectfully, the bolded is not correct. Take Seattle alone - a very comparable city to Vancouver in a few ways. It is much less expensive to own a place there. And it or the areas nearby are corporate headquarters/a major employment hub for companies like Boeing, Costco, Microsoft, Nintendo (USA), Starbucks, Safeco, Amazon, etc. Vancouver is home to... Lululemon and 1-800-GOT-JUNK? I'm not trying to rag on where I'm from - it's a nice place to be - but I really think young Vancouverites owe it to themselves to be realistic about what this place is and what it is not.

Again to the OP: if you're looking for west coast specifically, you would do well to consider US options. Moving down there may have other issues attached to it and won't be for everyone but your cost of living will likely be lower in many other areas down there.

 

[Topp Spin]

If you have no formal education and if you're looking for "entry level" work, then I'd pick Calgary or Edmonton over Vancouver. You'll most likely find jobs that pay better...

You should decide on a career path first. I personally love Kelowna/Peachland and that is where I want to live and will soon enough. Problem is, in my line of work, if I were to live in Kelowna, I'd have to be alright with getting a 2 weeks on, 2 weeks off sort of gig. That could be another option for you; fly in/fly out (if your career choice supports it).

 

[VanCanFanEDM]

To the OP: Move to Edmonton or Calgary. Honestly this is where more young people should be moving to... Your going to find alot higher paying jobs here then in BC. Saskatoon would be next on the list..

I am a born and raised Vancouver guy, who moved to Alberta in my early 20's. - its worked out very well for me, Im far better off financially then friends whom stayed in BC.. Some now are moving out here in thier mid to late thirties trying to get ahead... Should have left long ago.
Others who stayed and would never leave chose lifestyle over wealth per say - still think us who left are silly.. 'specially for the winters..

All that being said I want to move back to Vancouver in the next few years, I love it and have started missing it more and more but I'm now almost 40 and can afford to come back and live how I want.....

Good luck!

 

[King of the ES*]

Garth Turner's work? Are you for real? Go back up and refute the data that has been presented to you.

Did everyone move out of the US in 2007? Spain? Ireland? France? What caused the 18% median price decline in 2008 in Vancouver? Did everyone move out for a year? Why did it recover? What has happened since 2004 that can help inflate and then deflate house prices in Canada? Can you answer any of these questions?

You are overmatched here.

I did refute that data. Like I said, it's just theory. You know what cities in the US have comparable lack-of-affordability traits? New York, San Francisco, LA, etc. But like Vancouver, these are the places where people want to live. And in today's age where we're transitioning to more of a self-employed, mobile economy, that will just make it that much easier for people to move to cities like that.

Still, the only thing that can actually cause a material price drop is an abundance of supply. If a big percentage of Vancouverites wake up tomorrow and decide that they no longer want to be homeowners, yes, prices will drop, because supply will outstrip demand. But you've gotta ask yourself - why the hell would they suddenly decide to do that? What's the motivation?

As for 2008 - that happened because of fear. Fear of what was going on in the US. What happened, like what happens in the markets daily, is that the weak holders were shaken out. The overleveraged, under-capitalized, wannabe investors that couldn't stand a small pullback sold at a discount to smart buyers. Fast forward a year or two later, and they're at new highs. Imagine that.

As for the US - yes, people did move. Detroit's a good example - check out their population trend over the last decade. Phoenix and Vegas were examples of overbuilding - a problem that Vancouver can't have, due to geographic constraints. BTW, are you aware that mortgage rules in the US allow that homeowners can walk away from their mortgages, at any time, without penalty? This is the critical rule that does not exist in Canada, and it's why so many Americans just decided to walk away from their homes when they dropped in value and suddenly they owed more than what they were "worth" (an ever-changing figure). In Canada, that can't happen. Obviously, this makes our RE market exceedingly more stable.

RE: inflating/deflating prices. A good example of that is/was Calgary in 2005/06. Everything basically doubled in value over that one year. Why? Excessive in-migration, due to jobs, due to the oil boom. It was people that drove the increase - demand outstripping supply - not credit availability, interest rates, any of that stuff.

EDIT: and like I said, I don't live in Vancouver, nor do I own real estate there, nor am I a realtor, etc. Couldn't care less about what happens in the Vancouver RE market.

 

[ginner classic]

I did refute that data. Like I said, it's just theory. You know what cities in the US have comparable lack-of-affordability traits? New York, San Francisco, LA, etc. But like Vancouver, these are the places where people want to live. And in today's age where we're transitioning to more of a self-employed, mobile economy, that will just make it that much easier for people to move to cities like that.

Still, the only thing that can actually cause a material price drop is an abundance of supply. If a big percentage of Vancouverites wake up tomorrow and decide that they no longer want to be homeowners, yes, prices will drop, because supply will outstrip demand. But you've gotta ask yourself - why the hell would they suddenly decide to do that? What's the motivation?

As for 2008 - that happened because of fear. Fear of what was going on in the US. What happened, like what happens in the markets daily, is that the weak holders were shaken out. The overleveraged, under-capitalized, wannabe investors that couldn't stand a small pullback sold at a discount to smart buyers. Fast forward a year or two later, and they're at new highs. Imagine that.

As for the US - yes, people did move. Detroit's a good example - check out their population trend over the last decade. Phoenix and Vegas were examples of overbuilding - a problem that Vancouver can't have, due to geographic constraints. BTW, are you aware that mortgage rules in the US allow that homeowners can walk away from their mortgages, at any time, without penalty? This is the critical rule that does not exist in Canada, and it's why so many Americans just decided to walk away from their homes when they dropped in value and suddenly they owed more than what they were "worth" (an ever-changing figure). In Canada, that can't happen. Obviously, this makes our RE market exceedingly more stable.

RE: inflating/deflating prices. A good example of that is/was Calgary in 2005/06. Everything basically doubled in value over that one year. Why? Excessive in-migration, due to jobs, due to the oil boom. It was people that drove the increase - demand outstripping supply - not credit availability, interest rates, any of that stuff.

EDIT: and like I said, I don't live in Vancouver, nor do I own real estate there, nor am I a realtor, etc. Couldn't care less about what happens in the Vancouver RE market.

You are flat wrong on all bolded points. I can't argue with someone who ignores facts and labels data theory. You are wrong....could not be more wrong.

1.) SF, NY, Seattle and Portland are all cheaper in nominal prices (SEA and POR...by 50%) and/or cheaper in terms of income levels and rental return. By far. It's not even close. Stop making claims that are flat wrong. 100% incorrect.

Source: http://www.demographia.com/dhi.pdf


2.) Supply and fear points contradict each other. I thought only oversupply causes a correction? Now you admit fear.

• What about interest rate increases? We are at the lowest rates in history right now.
• What about mortagage ammortization period reductions? CMHC changes from 40 to 35 to 30 to 25 after increaseing from 25 earlier last decade.
• what about down payment increases? 0 Down mortagages no longer insured by CMHC
• what about lending standard in general and the availability of debt? 1 Million dollar mortages no longer eligible for CMHC insurance
• What about declines in the economy in general? See yesterdays job numbers
• What about lagging rental income? Chart of rental income versus house prices:

• What about satiated domestic demand (highest % rate of home ownership in canadian history at over 70%)?
• What about loss of foreign demand? http://www.theglobeandmail.com/news...foreign-buyers/article9000860/?service=mobile
• What about declining immigration and net intraprovincial migration rates? See most recent BC Stats release: "Population growth through fourth quarter of 2012 is below its peak of late last decade, due in most part to net out-migration to other provinces and below-average net international migration. Annual growth has dropped 50% since its recent local peak in 2007, meaning annual population growth in 2012 was about 38,000 fewer than 2007. This will have a direct and negative impact on housing demand in the coming quarters. Interprovincial out-migration is of continued concern, with more people leaving the province for others than arriving"

• Yes oversupply is also a factor...what about the fact that 17% of the condos downtown are empty and generating no income for investor their owners.

Are we done here or do you want more?

 

[Interior Cascadian]

If you have no formal education and if you're looking for "entry level" work, then I'd pick Calgary or Edmonton over Vancouver. You'll most likely find jobs that pay better...

You should decide on a career path first. I personally love Kelowna/Peachland and that is where I want to live and will soon enough. Problem is, in my line of work, if I were to live in Kelowna, I'd have to be alright with getting a 2 weeks on, 2 weeks off sort of gig. That could be another option for you; fly in/fly out (if your career choice supports it).

Oil and gas industry?

I'm kind of in the same boat here- have been considering a move to Canada for some time, and definitely want to move west. It looks like I'll finally get the opportunity to (by working from home) and so this thread is incredibly helpful. The Okanagan Valley has me a little worried about prices, but without doing any real research I was unsure how it compared to US and Canadian west coast cities. Lately I've been thinking northern Idaho... don't align with their politics at all, but it's dirt cheap living there. If you have the freedom to work from home, why not?

 

[King of the ES*]

Are we done here or do you want more?

So what you're saying in all of this is that you're predicting a crash, yes? And if that's the case, can we then assume that you've sold your real estate and either moved somewhere else entirely or became a tenant?

 

[Topp Spin]

Oil and gas industry?

I'm kind of in the same boat here- have been considering a move to Canada for some time, and definitely want to move west. It looks like I'll finally get the opportunity to (by working from home) and so this thread is incredibly helpful. The Okanagan Valley has me a little worried about prices, but without doing any real research I was unsure how it compared to US and Canadian west coast cities. Lately I've been thinking northern Idaho... don't align with their politics at all, but it's dirt cheap living there. If you have the freedom to work from home, why not?

Yes I work in oil and gas, but can work in other industries as well. At the moment, oil and gas pays so that's where I'm at...

Nothing wrong with Idaho, some beautiful country out there. Good luck to you!

 

[Lawzy]

I mean this with 100% sincerity, please continue this debate. It's really interesting.

 

[King of the ES*]

I mean this with 100% sincerity, please continue this debate. It's really interesting.

It is interesting stuff, no doubt. The other guy's bringing up some good points. Demographia is a good source. Vancouver ranking #1 on that list in terms of the most unaffordable is pretty shocking. Pretty sure this would be a fairly recent development.

 

[CascadiaPuck]

I mean this with 100% sincerity, please continue this debate. It's really interesting.

If you are interested in learning more, I'd suggest checking perhaps some of Ben Rabidoux's commentaries.
http://theeconomicanalyst.com/content/primers

It's a big topic that can consume a lot of your time if you get interested in it though.

Few things:
1) Terms like "world class", "best place on earth", etc. cannot be measured and offer you zero insight into how Vancouver will behave relative to other places. Look for actual data. And I mean actually look them up. Median incomes, sale prices, monthly rent rates, immigration rates (people make lots of assumptions in this area), months of inventory, interest rates, dates when CMHC changed mortgage insurance rules on minimum down payments, maximum amortization lengths, etc. (superimpose the dates of interest rate and CMHC changes on ginner classic's graph above - and on graphs for other Canadian cities - and you may come to a different conclusion on what's caused steep increases in prices over the last decade or so).

2) In simple terms, a house/condo makes you money in 2 ways: 1) through the rental income it generates for you and 2) on the day you sell it. Two part-time wage slaves born at the right time for getting into this market may have a house theoretically worth 1.2 million today but if they don't sell, how rich are they?

3) Ever had someone say renting is "throwing away money" or "paying someone else's mortgage"? If that happens, ask them to do this simple thought exercise: assuming you had 2 million dollars in the bank and you were given the choice between a) buying your dream house for a million bucks cash or b) renting that same house at $50/month, which would you pick. In simple terms, the rational answer to pick every time is b). The interest on $2mil in a boring savings account way more than covers annual rent from scenario b) and rents are not able to soar fast enough to overcome the difference in what you'd gain. The moment it's acknowledged that renting > owning in terms of personal finance for this situation, then that means you should calculate which is more favorable in your present situation. My spouse and I make good money. We rent. Prices may continue rising, they may not. It doesn't matter. Renting leaves us enough money each month to save for our kids' education, retirement, other investments, a very nice lifestyle, Canucks jerseys, etc. Assuming we wanted to part with a 10% down-payment on the place we rent, I don't know that we could afford food and utilities at month's end. That's not a joke. My point is: I believe real estate speculation will unwind here but even if it doesn't I can continue living as I am (i.e. getting ahead). If I owned here and now - and had bought any time recently - I NEED things to stay up or else my family would be hosed.

 

[King of the ES*]

Few things:
1) Terms like "world class", "best place on earth", etc. cannot be measured and offer you zero insight into how Vancouver will behave relative to other places. Look for actual data. And I mean actually look them up. Median incomes, sale prices, monthly rent rates, immigration rates (people make lots of assumptions in this area), months of inventory, interest rates, dates when CMHC changed mortgage insurance rules on minimum down payments, maximum amortization lengths, etc. (superimpose the dates of interest rate and CMHC changes on ginner classic's graph above - and on graphs for other Canadian cities - and you may come to a different conclusion on what's caused steep increases in prices over the last decade or so).

You're technically right that the "world-class city" label is qualitative, but it is a factor. Vancouver has virtually every single "lifestyle" offering that you could want, and IMO those are even going to be more important when people decide on a place to live. A place like Regina has a pretty robust economy and affordable housing, but that's because not many people want to live there. It's the whole "work to live vs. live to work" mentality.

2) In simple terms, a house/condo makes you money in 2 ways: 1) through the rental income it generates for you and 2) on the day you sell it. Two part-time wage slaves born at the right time for getting into this market may have a house theoretically worth 1.2 million today but if they don't sell, how rich are they?

You also technically gain wealth by paying down the mortgage and reducing the liability each month (as long as the property's not declining in value).

That aside, though, do you really think that the average homeowner cares about how much money their real estate makes them? The average, historic homeowner buys a home that he can afford and pays down the mortgage over a period of 20-to-30 years. They don't care about median incomes, interest rates, asset values, any of stuff. That's part of why a real estate "crash" in Vancouver is just not likely. Very few people are real estate investors - most are just homeowners. As long as they're gainfully employed and able to make their monthly payments, what's the motivation to sell? And for a crash to happen, you'd need a whole slew of these homeowners - of whom the vast majority are single property owners and not investors with big portfolios - to sell, basically all at once.

3) Ever had someone say renting is "throwing away money" or "paying someone else's mortgage"? If that happens, ask them to do this simple thought exercise: assuming you had 2 million dollars in the bank and you were given the choice between a) buying your dream house for a million bucks cash or b) renting that same house at $50/month, which would you pick. In simple terms, the rational answer to pick every time is b). The interest on $2mil in a boring savings account way more than covers annual rent from scenario b) and rents are not able to soar fast enough to overcome the difference in what you'd gain. The moment it's acknowledged that renting > owning in terms of personal finance for this situation, then that means you should calculate which is more favorable in your present situation. My spouse and I make good money. We rent. Prices may continue rising, they may not. It doesn't matter. Renting leaves us enough money each month to save for our kids' education, retirement, other investments, a very nice lifestyle, Canucks jerseys, etc. Assuming we wanted to part with a 10% down-payment on the place we rent, I don't know that we could afford food and utilities at month's end. That's not a joke. My point is: I believe real estate speculation will unwind here but even if it doesn't I can continue living as I am (i.e. getting ahead). If I owned here and now - and had bought any time recently - I NEED things to stay up or else my family would be hosed.

There's no such thing as a perfect investment. The problem with renting is that you have a guaranteed 0% rate of return on those dollars spent.

And regarding your last sentence, again, not really. The holding period on real estate should be measure in decades, not months/years. There will be ups and downs, but the historic trend by and large is that it's tied pretty closely to inflation. And if you're getting a 2 - 3% increase in property values annually, that's called leverage working in your favour.