Vancouver Real Estate Over Valued According to The Economist

Vancouver Real Estate Over Valued According to The Economist

Vancouver Experiencing a Real EstateAsset Bubble?

Towards the end of October each year, The Economist magazine conducts a survey of global housing prices. Out of 20 markets trackedin the study, only four posted declines as compared to last year when the study results were awash' with negative numbers.

The study uses a fair market value' by comparing current ratio of house prices to rents with long run averages. Hong Kong and Australia boasted the strongest year over year price increases at 58.1 and 63.2% respectively. Only four global real estate markets scored as undervalued' in the study, the U.S, Germany, Switzerland and Japan. While Ireland, Spain and Italy showed price declines, housing markets in France and Germany have enjoyed price gains. The Economist predicts that the unexplainable strength of theBritish housing market is waning and an outright fall may loom".

Canada came in at a positive 23.9%, a number I am sure would have been up there with Hong Kong and Australia if it had applied only to the Vancouver market. A single family detached house in Vancouvercommands an average price of approximately $873,000. According to Patti Croft,recently retired Chief Economist from RBC Asset Management, housing affordability is the key metric in determining whether a market is experiencing a bubble. According to her data, a whopping 83% of household income is required to service the debt on a two storey home in Vancouver.

The big question then has to be isthe Vancouver real estate market decoupled' from affordability because of so much capital flowing into this market from mainlandChina and elsewhere abroad? If you want my opinion, the answer is clearly yes. I don't know a lot of working Canadians that earn $350,000 to $400,000 per year traditionallyrequired to comfortablyservice amortgage over the million dollar mark.

Even if real estate prices were to drop 30%, there is always a pent-up demand of local buyers that live and work here and have been waiting for six or eight years to own a 650 square footcondo in Vancouver. How long would the price drop last?

So, does that constitute a bubble in the Vancouver real estate market? Perhaps it does but remember that the real estate market (like the stock or bond market) is a placewhere people chooseto park wealth. People vote with their dollars and, like it or not,right now they're voting for Vancouver real estate.

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