King of the ES*
Guest
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.