JonboyE

The meteoric rise in prices in Vancouver pre 2012 was driven by buyers who didn't need to earn a living in Vancouver. Hence the ratio went completely out of wack.

In 2012 these buyers are not here and a fall of 25% from the peak for a house of a certain type and price is not at all unreasonable. It will likely be more. It doesn't much affect the ordinary joe who has to work for his living. He bought a $300k townhouse in Langley.

Alan2005

I don't understand what you are saying here. The ratio isn't calculated based on a house owners income compared to their own house value - it's based on the ratio of median house price to median earnings.

A housing market is overpriced if in the long term the average first time buyer entering the market cannot afford to buy an average house. That is based on what people earn - even if in the short/medium term, most people entering the market have been cash buyers (like in Vancouver)

JonboyE

Well yes. It is a very useful ratio in a community where most people are working for living. Prices are capped by peoples' ability to raise and service their mortgages.

In Vancouver itself the top of the market was driven by overseas investors who don't have any (Canadian) income. Then there are wealthy people with good accountants, and empty nesters selling their mortgage free family homes in the 'burbs and retiring in smaller homes in the city. All these buyers will skew the price to income ratio.

I am not saying that it is a useless ratio but needs to be viewed in context. A 5:1 ratio in the working community could be much more indicative of a price collapse than a 10:1 ratio where the market is set by investors.

iaink

If the top end of the housing market goes for a crap, does it really matter then?

I can live with people with enough money to take a chance investing it in $3M homes getting their fingers burned, they have other assets to fall back on. If buyers dry up at that end of the market then prices will presumably fall, but while its a lot of $$$, what percentage of all the house sales is that in reality?

Whats scary is if the bottom and middle of the housing market collapses, and the people who have to work to pay the mortgage get burned.


What is the chance of that happening, or is it like a house of cards where if the top falls the whole thing is in trouble?

Alan2005

Ok, I agree with that. I guess I got confused by you using yourself as an example.

Alan2005

Hard to say. Sentiment is a big factor - the big losses may well be at the top, but they still affect the average. People see prices falling, then they hold off buying. So you get a positive feed back cycle which does affect the rest of the economy - people don't buy houses, they don't do reno's, they don't buy new stuff for their house etc etc.

JonboyE

As above, in normal situations prices are capped by the ability to raise and service a mortgage. Therefore secure jobs and interest rates become the major drivers to prices. Seeing investors losing money on high-end homes should not make much of a difference.

However, Alan is right that sentiment does play a part in the short-term.

muffback

Property prices in Vancouver are completely over-inflated. The market has been primarily driven by foreign investors, many from mainland China. They have bought multiple properties (usually condos) and flipped them for a 10% profit a time, then repeated several times. The party is coming to an end as the world economy gets worse- expect large corrections.

I have lived in London, Sydney and Edinburgh. While there is foreign investment in the housing stock, there is also a lot of corporate HQs and financial institutions resulting in higher wages. I can honestly say that I find Vancouver property prices much more more over inflated than any of the aforementioned cities.

Not just me that thinks this. "The 8th annual Demographia study places Vancouver as the second most unaffordable housing market in 325 international markets (Hong Kong is first). Vancouver's median house price to median income ratio is 10.6, whereas New York and London have ratios of "only" 6.2 and 6.9".

Alan2005

This is a little out of date. The last few years of rises haven't been due to condo flipping. The cause is aggressive marketing of Vancouver to Chinese investors coupled with new regulations in china to help cool down the housing market there. Basically China exported part of it's own housing bubble to Vancouver which caused a massive spike in prices in a few specific areas - however generally prices haven't risen that much (if at all) outside those areas.

All true. However Vancouver has a disproportionate number of cash buyers. See JonboyE's posts above.

These stats are quite well known here as it's been like that for years already. Personally I think a reasonable long term ratio is about 3:1, however Canadians (stupidly imo) get mortgages based on affordability rather than income multiples. So you also need to look at repayments vs earnings - although that's still nuts. I *think* it's over 50%, but I'm not sure of the exact number and I can't be arsed to google it.

Animal

It's really cheered me up this thread

I'm just about to hopefully complete on a house purchase in ON and your all saying the ar$e is going to drop out of it straight away.

Great !

ExKiwilass

Maybe it is, maybe it isn't.

They've been predicting this for ages. As long as you can easily afford your house and you love where you live who cares? Screw the market. It only matters if you're trying to sell or planning to sell fairly soon.

el_richo

Very true. Newly arrived immigrants are at financial risk if prices to drop. Especially the gung ho ones who's reality is slightly different to what they expected

JamesM

The only certainty with any market is that sooner or later it crashes/corrects.

The government has tried to cheat the housing market but it is running out of weapons.

CanadaJimmy

I'm expecting the new mortgage rules and also CIC freezing the FSW1 and Investor immigration routes to reduce the price of housing in Vancouver. I'm fairly confident that part of the appeal of Canadian city property in the global market is the fact Canada is relatively easy to immigrate into, especially when compared to the US.

Boy d

I agree. And if u look at the lack of offers over asking now, there already has been a correction of sorts. Sales are down to their lowest in 10 years and inventory above 10 months worth. Lots of property here over 1 million, so the new lending rules will be more profound in vancouver.

Personally, I think we need to experience some pain for the longterm well- being of the place. Prices here have ruined the place and had turned the city into largely an exclusive resort town