House Prices: Sydney Australia vs. Vancouver BC

A lot has been made recently of this article in the australian press reporting on a house in Sydney selling for 42 percent less than it sold for three years ago. Housing market bears are quick to point to this article as evidence that “yes, actually real estate prices DO go down, sometimes drastically”, while people more bullish on the Vancouver market point to the fact that “this is only one house out of many and the real decline in house values overall has been closer to 15 percent or so, besides vancouver is different because the olympics are coming and I’ll sell just before the crash anyways”.

But I say you’re BOTH wrong, and you’re not looking at the big picture. You’re forgetting one very important fact, and that is that Syndey Australia is on the other side of the world from us. This point is illustrated above and is the cause of a common but major misunderstanding regarding australian housing market data. First off lets look at a graph of that house price:

Looks bad doesn’t it? You might look at that price drop and get a bit freaked out about the possibility of prices dropping in Vancouver just after you buy that shiny new $400k condo right? But that feeling is caused by one common amateur mistake- you are failing to make hemispere adjustments to that data. Australia is on the other side of the earth, which is why we refer to it as ‘down under’. Before you attempt to interpret any Australian real estate market data you need to make one major adjustment, like this:

There! That looks a lot better doesn’t it? Look at that rise- It’s bold, steady and strong. Just like the Vancouver market!

US home sales dropping.

This article in today’s vancouver sun says that home sales in the US this July were the lowest they’ve been since January 2004. Dropping home sales across the US have pushed the inventory of unsold homes to a record high:

“The latest snapshot of housing activity was weaker than analysts anticipated. Economists were forecasting the pace of sales to fall to 6.55 million.

“The housing sector is fragile,” said David Lereah, the association’s chief economist.

The median price of a home sold last month was $230,000 US. That was up just 0.9 per cent from the same month last year and marked the smallest year-over-year increase since May 1995. The median price is the middle point, where half sell for more and half sell for less.

The inventory of unsold homes in July rose to a record high of 3.86 million. That represents a supply of homes still available for 7.3 per cent of a month. That is the longest period to exhaust the supply of home since the spring of 1993.”

contrary to the opinion that housing exists only in local markets, these drops happened across the US – In the northeast sales dropped by 5.4 per cent, the Midwest saw a drop of 5.9 per cent while the West dropped by 6.4 percent. The South held out the strongest with a sales drop of 1.2 percent.

The concern in the US is how the housing market slowdown will effect the economy overall:

“One of the things that Federal Reserve Board Chairman Ben Bernanke and his colleagues are watching closely is the housing slowdown. If home prices and sales were to crash, that could spell big trouble for the overall economy. Thus far, Bernanke has said the market’s slowdown has been fairly orderly and smooth.

Lereah said he still expects a “soft landing” for the once high-flying housing sector. But he urged the Fed to leave interest rates alone and refrain from bumping them up again – as some analysts have said is a possibility.”

Will we be able to make enough money off of the olympics to keep a frail US economy from effecting Vancouver?

Vancouver: the only city in the world?

So Vancouver is the most expensive city in Canada and getting more expensive – If you are renting or thinking of buying in Vancouver here’s a question for you: Are you tempted by any other cities in canada or the rest of the world? What keeps you in Vancouver – quality of life? friends and family? work? some combination of those items?

If you’ve considered moving what motivates that line of thought? The cost of living here? Increased career possibility? Change of scene?

How do you FEEL about Vancouver right now?

There are still good deals out there!

Check it out! If you bring cash this house will only cost you $462,000.. You might even get a deal as the seller is ‘motivated’ since at least April or so. It brings in $1450 per month in rent too! Can you make those numbers work?

I used the ever handy mortgage calculator to discover that if you put 5% down you’ll need an annual income of $157,631 to buy this house, so it’s quite the status symbol. And yet some people claim that Vancouver is in the peak of a bubble. pshaw!

Is Vancouver ‘Severely Unaffordable’?

I just found this story in the sun from way back in January – It’s about a study that ranked cities housing affordability based on the ratio between median house prices and median income, and guess what – Vancouver was rated worst in Canada, and 15th worst city in the world for affordability at that time.

This is the second year for the survey, which was developed to compare housing affordability around the world, the report’s co-author Hugh Pavletich said in a telephone interview from New Zealand.

“We felt there was a desperate need for an easily understood measure of housing affordability both within countries and across borders,” Pavletich said. “So it doesn’t matter what currencies we’re talking about, or even the house prices and the household incomes. The key thing is the multiple of household income it takes to buy a home.”

This multiple should not be greater than three, Pavletich said. He called Vancouver’s index of 6.6 “bloody absurd.”

“Historically back in the 1970s and 1980s within the property industry, it was always considered a rough rule of thumb that people should not have to spend any more than three times their household income to buy their homes,” he said.

Now as house prices get “out of hand,” this guideline has faded from public view, Pavletich said.

See? Things are different now! And since things are different that means the prices will never go down. Maybe ‘bloody absurd’ is the new reality?

In unaffordable cities, the key problem was the “strangulation of land supply” by local government, Pavletich said. Not allowing enough land to be developed was creating an artificial scarcity which is driving prices up, he said.

Three cities in Canada made the most affordable list with Winnipeg in third place worldwide with a house price to income ratio of 2.4, followed by Edmonton and Quebec City, tied at 14th with an index of 2.8.

The United States, with the world’s most unaffordable real estate, also had the most affordable, with indices of 2.2 in both Buffalo and Rochester, N.Y.

Pavletich hopes the survey will get people to question housing affordability and urge governments to actually set housing affordability targets.

Hmm.. I wonder how much of a role government can play in prices. Obviously things like interest rates and employment factors have some impact on prices, but is the current boom due to ‘not enough land’ to build on? If they opened up the land just northeast of terminal and main would that make a difference? Should they open up Stanley Park, Jericho beach park and the UBC endowment lands to condo developments?