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After years of proclaiming that the Vancouver real estate bubble is going to burst any day now, the cynics were strangely silent for most of 2014, perhaps stifled by a market that did not really let up all year long.

With the start of 2015, in the face of very strong results for the Vancouver market, came familiar hyperbolic headlines around our overvaluation.  Predictions of doom and gloom have ensued.

Here is a reality check around interest rates from a few weeks ago.

Last year, home prices throughout the Vancouver region continued their inexorable rise, and some gave up and just shook their heads as they watched them climb — especially people who had bought into ‘bubble hype’ of the past few (ahem 30) years and sat on the sidelines waiting for prices to fall.

Many asked the same reasonable question: in a market where a modest bungalow can be worth more than a million dollars, why hasn’t there been a price correction? How can this go on?

We often see both social and economic commentary, think-tank studies, statistics, and opinions (lots of opinions) making the argument that the cost of home ownership in Vancouver is both ‘unaffordable’ and ‘unsustainable’.

Of course it all depends upon one’s definitions of unaffordable and unsustainable.

A few simple questions to consider;

  • Are we building many more detached homes each year? No
  •  Are tens of thousands of new people arriving in the Lower Mainland each year?  Yes
  • Do the majority of property owners aspire to own a detached home?  Yes

So there it is in a nutshell. Limited supply and steadily increasing demand.

For 25 years ‘water-cooler-wisdom’ has pressed two Real Estate related (mis)beliefs, and for 25 years has been consistently incorrect.

 1. Home prices cannot go any higher!  (circa 1995; How can people be paying $160,000 for a detached home in Coquitlam?)

2. Interest rates cannot get any lower! (Circa 1995; A 5 year fixed rate at 8.75% – LOCK IN!)

We hear the same things today around the water cooler, in the news, in a taxi, at home… because well you know – its different today.

No it is not.

Population growth continues. A resilient Provincial economy, and a limping Federal/Global Economy will likely conspire to give us a few years to come of low rates, increased demand, and the battle for supply to meet that demand.

Vancouver real estate — in particular detached homes — can, and will, rise in price further still.

In the next two posts I’ll examine the assumptions behind the ideas of unaffordability and unsustainability and show where they’re faulty.

Meanwhile, here’s the short version:

  • Vancouver has been the most expensive Canadian city in which to buy a detached home since 1991, with the price gap widening steadily from that year onward.
  • As more single-family home lots are assembled and redeveloped into multifamily product, dwindling availability of single-family homes means lower supply and higher prices.
  • Vancouver price corrections have been nominal and short-lived, with prices rebounding and climbing to new heights. (primarily in the detached market)
  • If you are going to live out your life in Vancouver and wish to own a detached home, then do not sit on the sidelines waiting for a crash that is supposedly coming, as you might have done since 1991 when values began to deviate from the norm.
  • Low interest rates are not, in fact, allowing Canadians to qualify for larger mortgages than they did five or six years ago, so people are not taking on more mortgage debt than they can handle.
  • Low interest rates could be here for some time to come.
  • An increase in interest rates is  going to have NEITHER  an immediate nor significant impact in terms of people being able to make their regular payments.

The reality is that people who buy homes here clearly can afford them. It is ridiculous to use a metric for commentary such as home-price-to-average-income in a city in which 47% of homes are mortgage free, and for those with a mortgage the average balance is close to $420,000.00.  Perhaps an income-to-mortgage balance consideration should be considered.

Next post: Sustainability in the Vancouver Market.

Thank You

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Dustan Woodhouse