subject: Vancouver Real Estate Market – Bubble or No Bubble? Get The Facts! [print this page] As Vancouverites, the question of whether our real estate market is experiencing a price bubble or not is talked about almost daily in the media and around water coolers from Victoria to Hope. A more macro look at this issue would be to examine whether a housing bubble exists across many major cities in Canada, as one did across many major cities in the US.
The Bank of Canada has been slow to talk about a housing bubble but economists have issued repeated warnings that Canada's housing market is over-valued. Many of you might be thinking that, as a realtor it would be counterproductive for me to talk about prices dropping and bubbles bursting' but I disagree. This blog entry is an objective look at a recent report by the Canadian Centre for Policy Alternatives which I think is very well researched and should be read by every real estate owner or potential buyer in Canada.
According to the Organization for Economic Development and Cooperation (OECD), Canada has the highest consumer debt-to-financial-asset ratio among the top ten countries surveyed, including the US. The Canadian Association of Accredited Mortgage Professionals (CAAMP) estimate that about 375,000 mortgage holders in Canada are currently facing problems covering mortgage payments and would not be able to handle any further increases in interest rates. Of course this statement would have to be examined with a look at fixed vs. variable rate mortgage holders and renewal dates of those in trouble.
Back in April, the government did tighten mortgage lending guidelines (underwriting policies) to include a higher qualification interest rate' for all mortgages shorter than five years. Canada Mortgage Housing Corporation (CMHC) also got rid of high-ratio mortgage insurance for investors (non-owner occupied) properties in an effort to curb speculation. But have they done enough?
A housing bubble starts when house prices rise more rapidly than inflation, household income and economic growth (increase in GDP). When household incomes are increasing uniformly, house prices will experience increases without any concerns about affordability. The problem starts when there is a disproportionate increase in the earnings of the wealthy, as there has been over the past ten years. This small number of wealthy buyers overbid and overpay for the best properties thereby driving up prices in neighbouring markets. This price contagion' causes people to overpay and over-leverage themselves just to get a piece of the action.
Sound familiar?
Vancouver Real Estate Market Bubble or No Bubble? Get The Facts!
