As I have stated many times before, Demographia botches Vancouver numbers. The price is way too low. I checked San Francisco numbers, and the it was dead on. Vancouver is likely at the VERY TOP of the list, and has been for some time.

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http://tinyurl.com/6jvufv

the joys of commuting from a bedroom community with

expensive gas…. hello Port Moody et al

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Yup, basic maintenance alone increases over time. Rent also decreases over time relative to new stock, even with decent upgrades. Maintenance up + rent down = depreciated asset.

"Does anybody know how many months of inventory it should take before the bubble should statically burst?"

The rough crossing point is around 5-6 months of inventory for at least 3 months before you can observe definite negative price movements. Vancouver is diverse enough of a market with no major supply/demand shocks that it should follow this general rule.

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There are too many factors involved to try to make that sort of a calculation. The speed at which inventory increases will have an effect, the percentage of "motivated" sellers, foreclosures, employment statistics etc…

However I think one can reasonably say that if inventory continues to rise the way it has been since January we should begin to see some price movement by the end of the summer and YOY price drops by next spring.

I think nearly everyone here wants things to go faster even if it's just their own morbid curiosity to see how it all turns out. The fact is that we're in for a long downhill ride, if it's a quick and decisive crash it could be over by the end of 2011 but I doubt it's possible things could bottom out much earlier.

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Thanks for covering that, I'm a little too involved and I sometimes forget that not everyone knows what I'm talking about

Also, an addendum to your clarification.

Condos are a depreciating asset in a normal market, this further drags down the P/E ratio.

For those who don't believe that condos should depreciate in a normal market here's a thought exercise:

Imagine a new condo. Now imagine a condo of the same size and general amenities but it's 50 years old. Which one is worth more?

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The ratio compares monthly rent to price. The analogy used is to a bond that produces a return (yield) every month just like a rental property. Example: condo is $200K and rent is $1300 to produce ratio of 150. This means you get 7.8% gross annual return. After expenses this is reduced further to say 6.5% at best. This yield is reasonable as it is a few % above the risk free yield you would get from a treasury bond. In some cases the risks are higher so the ratio could go lower to 100. You need a higher yield to compensate for the risk just as you would demand a higher yield from a junk bond.

For comparison a ratio of 300 is a gross yield of 4%, and a best-case net yield around 3.2%.

Note the 100-150 ratio is for condos. For properties with a chance to subdivide, the ratio would be a bit higher.

With yields low (price to rent ratio high) in Vancouver you are relying on future price gains or rent increases to compensate for the crappy yield.

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Vancouver saw 9% increase in median price-income ratio from the report a year ago. Victoria's saw 10.6% increase. Data was from Q3 (September 2007). In the past 6 months the US markets have eroded significantly. It is likely Vancouver is now closer to the top of the list and could soon be in the top 4 if US prices continue to fall fast. Unless Vancouver median price starts falling too.

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2) Rent to cost ratio should be between 100 and 150 in a healthy market. In 2007 it was 326 (and rents are likely to come down in a crash here).

Drachen, I would really appreciate it if you could explain the rent to cost ratio you mentioned. Please provide an example of this 100 to 150 rent to cost ratio.

Excuse me if this seems like a silly thing to not know. I visit this blog daily to learn more and more about real estate, rent, ect…

I am trying to learn more and your insight and other posters insight have provided a wealth of information for me.

Thanks.

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Our cafes where the action is at?

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