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GVRD house prices and local incomes

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Vancouver average house price vs median income 2000 - 2007

This should be fairly self-explanatory, I’ve graphed data from BC Stats comparing the increase in local incomes to the run-up in house prices from 2000 to 2007.  Why only up to 2007?  Because that’s the last year I can find local income statistics from Revenue Canada.

The house price data comes from the house sales PDF link at the bottom of this page at BC Stats, while the neighborhood income statistics come from this page, and are available as a PDF or CSV.  If anyone can find any other interesting data in that haystack I’d be happy to post it here to share with the VCI community.

So how about that growing gap between incomes and house prices?  Can house prices grow that much faster than incomes indefinitely?  We’ve already seen how well that worked out in the US.

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Analyse

Vancouver detached home prices are not much higher than Toronto or even Montreal in the nice areas near downtown. There's a bit of a premium but the real estate inflation is in all major Canadian cities. Cheap mortgage rates, extended amortizations, combined with boomers at around age 49, which is the peak purchasing age on average, creates a home pricing peak. What's the future? Probably like past peaks. A correction followed by a long sideways consolidation. Toronto from 1988 to 2003 is a good example. It corrected 50% when rates went up dramatically then gradually recovered. If they can manage to keep rates low then prices will move sideways for a long time.

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Anonymous

I have come to the conclusion that Vancouver may well end up like Manhatten, central London …

======================================

Sure, just give it 200-300 years.

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rentah

phoey:

Sorry, I may have been a little obscure earlier.

What I meant was that your comments had a bit of the tone of a formerly-sensible bear who is now capitulating…starting to give-up on fundamental analysis and common sense, akin to saying "Perhaps it IS different here/this time".

As you no doubt know, from a contrarian perspective, when bears capitulate, the top is 'in'.

—-

PS: I'm writing this as a bear who has been having very similar feelings myself. But I have to remind myself that this is, very obviously, a bubble (see my post near beginning of thread for summary!).

PPS: All the best. I also hope to be buying (at better valuations) in 2011.

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No Longer Looking

phoey,

Its not just dishonesty in our media. They are just part of our real estate cult. They are owners too. So if they honestly believe what they are saying, its not really dishonest (or at least, not entirely).

The Vancouver real estate cult must be baffling to outsiders. You can't go to a party without people chatting up real estate purchases or their latest home renovation. They'll even talk like they got a great deal when they massively overpaid.

When the housing bubble pops here, it will be more than an economic phenomena. It will be interesting to watch how our local culture reacts.

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phoey

rentah – I agree about rents and the main reason we haven't bought is the rents are generally affordable (or where if you got in somewhere 3 or 4 years ago) so the sums have never added up. If by "top of the bubble flavour" you mean I think prices have to come down – yes definitely. I expect/hope to buy sometime in 2011 – you can only take so much pressure from your better half! I think my point is mainly that I have been looking at vancouver in comparison to other places for a while and I think that's pointless now as it really does seem there is a different mentality that goes against what should be happening. The media for a start is outright dishonest in its attempts to pump real estate in a way I haven't… Read more »

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rentah

@phoey: Thanks for sharing your thoughts.

Two things:

1. Yes, but then why aren't rents higher?

2. Your post has a 'top of the bubble' flavour to it, you are foregoing fundamental analysis:

–"I have come to the conclusion that Vancouver may well end up like Manhattan, central London"..

–"I now intend to stop watching the market and reading these blogs and just buy when we are sure we can afford it, and without comparing the price to other cities or countries as it seems increasingly fruitless to do that."

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phoey

I'm someone who has been ready to buy a house in vancouver since 2007. I baulked at the prices and am waiting with a large downpayment. However, reading these comments (and without getting into a is vancouver one of the best in the world or not discussion) I think people need to realise that prices in vancouver are likely to ALWAYS be higher – maybe considerably so – than the other Canadian cities just as prices can be considerably higher in desirable neighbourhoods of the same city. Whether some here agree or not, Vancouver is desirable – especially to people who might have just visited for a week and caught it during a sunny spell, or to our fellow Canadians who hate three months of snow. I've travelled a lot and IMO Vancouver's quality of life for people with stable… Read more »

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rentah

Thanks for the link, realpaul.

Love the article, file in the 'Whocuddaknowed?' folder.

Excerpts:

"Okay, this is a shocker," said Douglas Porter, deputy chief economist at BMO Capital Markets. "We're not talking about a shot across the bow of the optimists, this is more like a torpedo through the hull.

"It's not just the consensus that will be surprised by this result — the Bank of Canada has been loudly proclaiming lately that growth would likely surprise to the high side of their July forecast in the second half of the year . . . ." Porter said.

..Wednesday's surprisingly weak report was in stark contrast to recent data showing strong signs of economic recovery — especially in the retail and housing sectors.

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realpaul

@skiff: That $5 bucks a month is already getting chewed up by the increase in the HELOC increase everyone got this past month from the friendly banksters. For sure when you have bidding wars in MetroTown you know the insanity has really taken over. I mean really, how can you say 'investment' and 'Metro Town' in the same sentence without laughing? Meanwhile, economists are 'shocked' that the Canadian economy is stalled after the government announced an increase in June of a roaring .001%, that was supposed to have been the turning point, Bwahahahahahahahahahaha! http://www.vancouversun.com/business/Canada+stall… What part of the truth are people grasping for? Is it the part that makes them feel all better? Is it the part where the great leadership Mommy suurogate kisses the boo boos away and tell them that everything is fine? OMG, it's just too funny.… Read more »

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rentah

@patriotz:"There is no credible scenario for increasing real median incomes, and thus increasing real median rents in Vancouver. This is the only way that current median prices can be supported." —- I agree. Thus my 'close to zero percent' estimate that Vancouver magically transmorphs into some kind of monetary-political safe haven for… who?.. millions of Chinese millionaires?.. during…what?.. a time of global unrest and hyperinflation?…(Or of any other unexpected scenario along those lines.) But, given the absolutely whacky monetary moves we have seen thus far from various governments, and given that Vancouver stands out globally like a sore/soaring thumb (depending on perspective) of bullet-proof RE 'investment', the risk is not absolutely zero. — PS: The mere fact that bears like myself are entertaining ways in which this bubble just possibly MAY continue ad infinitum, is in itself a sign of… Read more »

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patriotz

@rentah: This is the argument that Vancouver will become the new Monaco, with wealthy folks attracting each other and higher prices driving even higher prices (a la the Chandler suggestion). One has to distinguish between a RE market being expensive and in a bubble. There are and have always been expensive places to live – both to buy and to rent – because the people who live there make a lot of money. That's normal. It is not normal for prices to be out of whack with rents – that's a bubble. As I have already said, if rich buyers were supporting prices, there would be no need for people like Chandler to be making her pitch to the general public. There is no credible scenario for increasing real median incomes, and thus increasing real median rents in Vancouver. This… Read more »

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Vic

What a great chart. It looks even worse when you include earlier data and how it relates to average family incomes. To be honest — even if this trend is sustainable, its not a great life. With both parents working and spending 50% of their income on housing, it doesn't leave much for food and other necessities. Vacations and fun time are reduced to short trips to metrotown and long weekend camping trips at Alice Lake. Its like living in the greatest (or one of) cities in the world, but you are too busy working to really enjoy it. Kinda sad when you think about it.

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kansai_92

FTB story #1: Guy I used to work with. Had lunch with him a few weeks ago. He tells me he bought a pre-sale down at the Olympic Village the week before. So I get curious and start poking around. I ask him which building and turns out he doesn't even remember. He says it's not exactly in the Olympic Village, but it's next to it. He tells me it's 630sf and the price was $399,000. Completion is more than 2 years away. The more and more I talked to him, the more clueless he turned out to be. Me: It's kinda small. Do you plan on living in it? Him: Nah, I'll probably rent it out. Me: What do you think you could get for rent? Him: I'm not sure. I'll probably break even. Me: Do you know how… Read more »

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read on

yes supra boy, but with an average household income of 68k, "everyone" is not.

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Supraboy

Frank, guess what, check out how real estate is moving in the West side, it's getting cranked up higher.

Please raise your hands if you are jobless right now. I bet all of you are working and making money, therefore, the real estate markets will not tank.

I'm sure everyone here has a job and constantly post their gibberish here during their downtime. This city is so freaking unproductive, yet we all get paid +50k and complain about high real estate prices. It ain't high if everyone's pulling in good salary.

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rentah

@kansai_92: Kansai…. tell us a few FTB stories, please…

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kansai_92

RE: #61 by skiff

Thanks for the entertainment, but if only that were the worse anecdotal behaviour of FTBs.

I've seen far worse.

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frank11

that supraboy sure is a silly dink!

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Supraboy

That chart there looks like a big rocket, haha….you people here are bickering while smart business people are scooping up land hands over fist.

More mainlanders from China to invade Vancouver next week. If you people have a clue, there's a real estate tour from China to Vancouver during China's national holiday. Jack the real estate up baby! All aboard!

Happy economic times coming around the corner and let's celebrate!

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skiff

@No Longer Looking:

Believe it or not, the bidding war is in Metrotown.

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patriotz

@No Longer Looking:

What you are saying in economic lingo is that the locals are the marginal buyers, the buyers who actually set the price. If the "Rich Whatevers" were setting the price, no locals would be buying.

Another way of looking at it is if the "Rich Whatevers" are driving the market, why are the developers spending so much money to market their projects to ordinary local people?

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other ted

Skiff funny story. I can only laugh at those people. what is sad idiots like that have been proven right for the last 5 years at least. When things go wrong of course it will be the governments fault or whatever excuse they can come up with.

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No Longer Looking

BTW a bidding war for a suburban condo? I wonder what suburb. If there is one thing that stayed weak during that latest bull run, its been suburban condos. Maybe it was a nice part of North Van or something.

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No Longer Looking

skiff,

Your anecdote reminds all of us that it is not "Rich Asians" or "Rich Albertans" or "Rich Whatever" that are buying all this expensive real estate. No, its just average fools with average incomes who have too much access to cheap, easy credit. I've never been so sure myself, but I don't talk anymore either. I don't want to be remembered as the doomsayer and somehow blamed when it all comes to pass.

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trackback

[…] are having their faith tested and their feet held to the fire. Sign of a market top?  This from skiff at vancouvercondo.info September 29th, 2009 at 6:42pm […]

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