Canada's 'housing bubble' deemed close to bursting

[whatnext]

Originally Posted by mistercorporate

Did someone say bubble??

Didn't know std7860 had his own meme.

[Stryker]

Originally Posted by geotag277

I doubt it will be as much the following year, but it was set up for a slide based on the ridiculous values for homes coming out there. Even with another 20% slide I would still characterize the houses there as grossly overvalued.

Most of the cap ex and head count has already been reduced assuming 45 oil by this point. Some projects are going ahead, some are cancelled. I expect next year will see a slide but not as much.

That's tricky although oil is real cheap right now, long term tarsands are still uber valuable.

[caltrane74]

Originally Posted by ssiguy

The thing that sticks out with all the cities surveyed on that list is that, despite being #4 most over valued, Vancouver would have the lowest income.

Compared to London? Or Sydney?

Saying London is richer than Vancouver is like saying Toronto is richer than Vancouver. Yeah Toronto has more billionaires and yes they are richer, but overall Vancouver is insanely rich. Its on another level. On average London is full of broke blokes. Average incomes way below North American standards.

[Drybrain]

Originally Posted by caltrane74

Compared to London? Or Sydney?

Saying London is richer than Vancouver is like saying Toronto is richer than Vancouver. Yeah Toronto has more billionaires and yes they are richer, but overall Vancouver is insanely rich. Its on another level. On average London is full of broke blokes. Average incomes way below North American standards.

The thing is, Vancouver isn't insanely rich--its median household incomes are considerably below the nationwide median, and also below most other CMAs, including: Victoria, Winnipeg, all SK/AB cities, Hamilton, Toronto, Ottawa, Montreal, and Halifax.

It`s incomes for both family households and non-family (i.e., single people- households) follow suit.

That`s why I don`t really agree with geotag below, when he says that single-family housing is undervalued in the city. The city has an average detached house price of over 1 million, and also among the lowest median incomes. The market in Vancouver cannot maintain like this, unless it DOES become a ghetto for the hyper-rich. But it`s far from that right now.

[geotag277]

Originally Posted by Drybrain

That`s why I don`t really agree with geotag below, when he says that single-family housing is undervalued in the city.

For the record I said condos are overvalued in Vancouver and single family detached homes are undervalued. The difference between Vancouver and other CMAs in Canada is that single family detached housing in Vancouver is disappearing from the market, thus supply and demand dictates that it will get more expensive, especially as Vancouver itself continues to grow (and indeed, continues to be one of the fastest growing Canadian CMAs).

Real estate is supply and demand as well as location. Single family detached housing in Vancouver is in a fairly sweet spot in terms of value growth considering these two factors. They are disappearing, and the ones remaining will continue to get more valuable.

[mistercorporate]

Any city anywhere in the world that has a median household value over $500,000 (and I'm being generous here) is overvalued, period. Everything else is just the froth from the bubbly.

[Denscity]

I saw a chart recently showing Vancouver 's average income level was just slightly higher than Toronto so I'm not sure why it has the reputation of being so low. I remember someone from Toronto saying they weren't surprised. Was it you mister?

[geotag277]

Originally Posted by Denscity

I saw a chart recently showing Vancouver 's average income level was just slightly higher than Toronto so I'm not sure why it has the reputation of being so low. I remember someone from Toronto saying they weren't surprised. Was it you mister?

It's hard to say what's more important, average or median incomes. I would say if anything average incomes are driven up by outliers in Toronto's financial sector and the high number of corporate head offices there (and therefore the abundance of c-level executives for publicly traded companies).

From the horse's mouth, statscan, it seems Vancouver actually has higher median salaries compared to both Toronto and Montreal (from 2013 at least).

http://www.statcan.gc.ca/tables-tableaux/sum-som/l01/cst01/famil107a-eng.htm

[mistercorporate]

Originally Posted by Denscity

I saw a chart recently showing Vancouver 's average income level was just slightly higher than Toronto so I'm not sure why it has the reputation of being so low. I remember someone from Toronto saying they weren't surprised. Was it you mister?

I don't know what relevance that has to the point I made, which is that at $1mil+ the housing prices in Vancouver (and Toronto I might add) are way overvalued even if existing average/median incomes in those cities doubled.

[Drybrain]

Originally Posted by Denscity

I saw a chart recently showing Vancouver 's average income level was just slightly higher than Toronto so I'm not sure why it has the reputation of being so low. I remember someone from Toronto saying they weren't surprised. Was it you mister?

Median incomes in the Vancouver area are fairly low among Canadian CMAs. (Toronto doesn't come in that high either, though both cities have their fair share of millionaires.) It's not like it's a poor city, it's just not a particularly wealthy city, in terms of the average citizen's income.

Originally Posted by geotag277

For the record I said condos are overvalued in Vancouver and single family detached homes are undervalued. The difference between Vancouver and other CMAs in Canada is that single family detached housing in Vancouver is disappearing from the market, thus supply and demand dictates that it will get more expensive, especially as Vancouver itself continues to grow (and indeed, continues to be one of the fastest growing Canadian CMAs).

Real estate is supply and demand as well as location. Single family detached housing in Vancouver is in a fairly sweet spot in terms of value growth considering these two factors. They are disappearing, and the ones remaining will continue to get more valuable.

That's a huge part of it, but single-detached housing still comprises more than one-third of the city's housing stock. Statscan has all that data.

That's one of the lowest proportions of single-family to multi-unit in the country, but not by a dramatic margin--most cities come in closer to 50/50, and some, like Montreal, have a lower proportion of single family.

Montreal might be an instructive comparison, actually, in terms of the relative costs of detached houses vs. the overall market. Overall CMA prices can be found here; detached prices can be found here and here.

The average price for all housing types in Greater Montreal is $339,000, and the median price for single-family detached houses is $358,000, six percent higher.

In Greater Vancouver, which has proportionally more single-family detached housing than Montreal does, the median home price for all types is about $900,000, and the single-family price is $1.47 million, 64 percent higher. There are all sorts of economic and cultural variables that come into play when looking at two different cities, but that kind of gulf is too big to be ignored. It really makes Vancouver look insane.

I mean, $1,470,000 for an AVERAGE detached home, across the CMA. Scarcity alone can't explain that, and with detached housing representing more than one-third of the region's households, they're not really all that rare.

[geotag277]

Montreal is not an instructive example for anything. The reason why? Ask Lio about tenant rights in Quebec.

[Drybrain]

Originally Posted by geotag277

Montreal is not an instructive example for anything. The reason why? Ask Lio about tenant rights in Quebec.

It's instructive insofar as the price differential between detached housing and the overall market. I don't see what tenant issues have to do with it.

In any case, take Toronto: It has a slightly higher proportion of single-family dwellings (about 1/2.5 instead of Vancouver's 1/2.9.

The average housing price across all types in the Toronto CMA is $631,000. Detached housing is $820,000. That's a 30 percent differential. Less than half of Vancouver's.

Vancouver stands alone as having, by a huge margin, the greatest discrepancy between single-family prices and overall prices (as well as the highest prices overall).

And while single-family dwellings are falling as a proportion of the region's total, the proportional makeup of dwelling types remains, for now, similar to Toronto and Montreal. Vancouver doesn't make sense.

[geotag277]

The point is you are oversimplifying. Each real estate market is different and has different powers that are pushing and pulling it's supply and demand curves. You can't look at property in Brooklyn and use that as an indication of why Manhattan properties are overpriced, and those are two neighbourhoods in the same city. What you are trying to do is imply single family detached housing should be priced the same as Montreal, where these are two totally diametrically different markets for a myriad of reasons.

The same with Vancouver and Toronto. Vancouver has natural borders. It's single family detached housing stock is decreasing more every year, and has gone down by double digital % over the past few decades. Toronto adds housing stock every year. Again, just a small example of the two different market forces at play in two different markets.

Tenant rights are important in Montreal because it limits the amount landlords can charge for rent, thus, creates an environment where rent is perpetually held in check and limits the investment opportunity for housing. Again, just a small small example of small factors that can have huge implications for the value of housing in general.

[mistercorporate]

Originally Posted by geotag277

The point is you are oversimplifying. Each real estate market is different and has different powers that are pushing and pulling it's supply and demand curves. You can't look at property in Brooklyn and use that as an indication of why Manhattan properties are overpriced, and those are two neighbourhoods in the same city. What you are trying to do is imply single family detached housing should be priced the same as Montreal, where these are two totally diametrically different markets for a myriad of reasons.

The same with Vancouver and Toronto. Vancouver has natural borders. It's single family detached housing stock is decreasing more every year, and has gone down by double digital % over the past few decades. Toronto adds housing stock every year. Again, just a small example of the two different market forces at play in two different markets.

Tenant rights are important in Montreal because it limits the amount landlords can charge for rent, thus, creates an environment where rent is perpetually held in check and limits the investment opportunity for housing. Again, just a small small example of small factors that can have huge implications for the value of housing in general.

Could you please elaborate on your level of expertise in this area (real estate investment/finance)? For example, age, related employment, RE investments, etc.? My personal assessment/interpretation of your comments leads me to believe you don't know what you're talking about, but I am willing to keep an open mind should your experience suggest you know something we don't.

[geotag277]

Originally Posted by mistercorporate

Could you please elaborate on your level of expertise in this area (real estate investment/finance)? For example, age, related employment, RE investments, etc.? My personal assessment/interpretation of your comments leads me to believe you don't know what you're talking about, but I am willing to keep an open mind should your experience suggest you know something we don't.

Attack the arguments not the man.

But from your comments you are too immature to bother responding to further.

[mistercorporate]

Originally Posted by geotag277

Attack the arguments not the man.

But from your comments you are too immature to bother responding to further.

I wasn't attacking you. I was stating an observation that could be changed based on additional info that I gather you're unwilling to provide. No sweat.

[Drybrain]

Originally Posted by geotag277

What you are trying to do is imply single family detached housing should be priced the same as Montreal, where these are two totally diametrically different markets for a myriad of reasons.

I'm not saying it should be the same--Montreal has a relatively mediocre economy, and many of its more prestigious neighbourhoods are full of duplexes and other attached low-rise housing, unlike in Vancouver, so that changes demand patterns. Likewise, the tenants' rights issues probably play a role as well.

So I'm not saying the proportional values of detached housing to other types should be identical from city to city, but Vancouver's are so wildly different from any other place that it seems likely it has to do with an irrationally inflated housing market, rather than simple supply and demand. The relatively low incomes in the CMA only bolster that perception.

[Spring2008]

My buddy told me he purposely listed his older downtown condo for 20% above market value. Had an open house with a bunch of viewing but no offers. His broker calls him a few days later and mentions a foreign investor put in an offer with down payment ready, no price negotiation or viewing necessary.

Van is building by far the sexiest new architecture in Canada, but the downfall is housing is becoming more and more out of reach for the locals, esp younger generations.

Originally Posted by Drybrain

So I'm not saying the proportional values of detached housing to other types should be identical from city to city, but Vancouver's are so wildly different from any other place that it seems likely it has to do with an irrationally inflated housing market, rather than simple supply and demand. The relatively low incomes in the CMA only bolster that perception.

[LeftCoaster]

Originally Posted by Drybrain

So I'm not saying the proportional values of detached housing to other types should be identical from city to city, but Vancouver's are so wildly different from any other place that it seems likely it has to do with an irrationally inflated housing market, rather than simple supply and demand. The relatively low incomes in the CMA only bolster that perception.

CMA income is irrelevant when so much money is being pored into the city from abroad, originally HK and the US, then steamrolled with Mainland China money, and now seeing more and more new entrants such as Russia and Latin America. Trying to apply normal housing metrics to markets like this just doesn't work. And these investors only want high end condos or SFH near the core, hence why you see the major split between asset classes, a split you are now starting to see in Toronto and simply don't see in Montreal.

Bottom line is housing IS affordable in Vancouver, you just need to redefine what your concept of housing is. For better or worse an average Vancouverite can no longer afford a SFH close to the core, but mid market condos, low rises and townhouses are still affordable, if a tad expensive. It's a reality most there are starting to wrap their heads around, but a reality most in Canada outside of Vancouver simply can't comprehend, since land is so abundant elsewhere. That said it's certainly not a phenomenon unique to Vancouver, SFH home ownership is not a given in most parts of the world, and we are likely to see it declining more and more in North America as well. I certainly see the same trend starting here in Toronto.

Expect Vancouver to look a lot more like Hong Kong or Sinagopre in 20 years than it looks like Montreal or Calgary. Where the ultra wealthy live in houses, but middle and even upper middle classes live in condos. Even when I visit today playgrounds downtown are filled with children, which is something you just don't see in most cities in Canada, it's even still rare in Toronto where condos are mainly for 20 somethings or empty nesters.

[ssiguy]

The reason SFH are so expensive in Vancouver is that Vancouver lets anyone buy a SFH and then replace it with a much larger one that sits empty but does have proper fung shui when the owners pop in once or twice a year.

Vancouver's willingness of wholesale destruction of entire neighbourhoods creates a completely speculative market that benefits the Chinese money launderer. The ultra expensive Westside {even by Vancouver standards} has become the domain of Chinese passport buyers.

It's akin to having Westmount or Rosedale being turned into Chinese suburbs where the old stock housing {regardless of heritage value as in Vancouver heritage has no value} being torn down and then no one actually occupying the house. There are whole streets on the Westside that have most of the houses with no electrical power usage or garbage pickup and $5 million dollar homes with lawns with overgrown grass, weeds everywhere, and no cars in the drive way.

Vancouver has gone from WASP to multicultural to bi-cultural in a generation.