Vancouver Real Estate: To The Moon Alice!

If you listen to the real estate industry and their spin doctors in the corporate media then markets like Vancouver are not only normal but should be expected to move forever higher in a neverending lovefest of perfection where everyone get’s rich and nothing bad ever happens to anyone.

Does Anyone Use A Calculator Anymore?

Anyone who stops and gives their head a quick shake and actually plugs some numbers into a calculator invariably comes to a different conclusion. The long run “safe” borrowing policy that banks (used to) use is to allow a borrower to leverage no more than 3 times their annual income on a home purchase hopefully with a healthy down payment.

The average Vancouver home is now priced at over 7 times the average annual income of families working there trying to afford them. The Vancouver real estate market is in a hot and frothy bubble and eventually it will burst. It’s not an if, it’s a when. This is a mathematical certainty that the real estate industry won’t ever mention in their literature or interviews they give to the media.

Record High Debts, Record Low Rates: Fool’s Gold

Canadians are more leveraged then they have ever been before and the only thing keeping the entire house of cards from tumbling down is record low interest rates to service this debt load.

Despite the overall credit softening, the average Canadian’s debt-to-income ratio hit 145% in the first-quarter. Still, debt interest payments today account for 7.45% of disposable income – the lowest service ratio since mid-2006. Source: Toronto Sun

So we have record high debt to income ratios for Canadians but the servicing costs are lower than ever. Gee, sounds fantastic, let’s all get drunk on credit and use the “buy now, pay later” mentality to go buy everything we ever dreamed of owning (including a home). Of course that’s what Canada’s government, banks and real estate industry want you to do and they have used every policy weapon at their disposal to get you to do just that. And it’s working!

Vancouver Wave 3!

Turning our attention back to the Vancouver bubble we can read in the Globe and Mail today that Vancouver’s real estate market is about to take another rocket shot higher thanks to newly rich Chinese investors from the Mainland in China:

“And unlike the buyers from Hong Kong in the 80s and Taiwan in the 90s, who had a huge impact on property values, this third wave from Mainland China is projected to be far bigger.” Source: Globe and Mail

It’s Different Here: Again

Oh great, “it’s different” than the 80′s and it’s only going to be bigger. No mention of course of the huge property bubble going on in China right now only that Vancouver will be going higher, higher and higher still.

Of course the Japanese were going to buy up all of NYC and LA back in the 80′s if we can remember back to the headlines then. Of course that was before the Japanese bubble burst and over 70% deflated out of their stock and real estate markets (still not recovered over 20 years later, in fact not even close). But let’s forget about those facts and cherry pick what we want to hear right real estate industry and your media enablers?

“After a few years, the Hong Kong and Taiwan waves sort of fizzled out, whereas my immigration consultant friends tell me that there is a minimum of 10 more years of this wave.” Source: Globe and Mail

Which immigration friends are those? You have to love unsourced quotes from mystery immigration friends. This article of course is perfectly timed since Canada took almost a 10% hit on home sales in May. Have no fear, the wealthy Chinese investor will save the Vancouver real estate market as it falls.

China Has It’s Own Property Bubble

The article fails to mention that purchasing a second property in China requires a 50% downpayment and there is no bank financing for a third. Perhaps it’s our banks lax lending standards that are attracting this new Chinese money. And hey, with a Government insurance policy through the CMHC why not lend to anyone eh boys? Furthermore, China has it’s own property bubble to deal with and the smart money is on it bursting soon as well:

“In Beijing’s Chaoyang district — which represents a third of all residential property deals in the capital — homes now sell for an average of nearly $300 per square foot. That means a typical 1,000-square-foot apartment costs about 80 times the average annual income of the city’s residents.” Source: MSN

Market conditions sound great there! Nothing wrong with those stats. Should just keep going higher and higher forever But it’s “different here” in Canada. Sure it is. Tick tick tick.