While Canadian house prices have more than doubled in the last decade, Vancouver's have more than tripled.
Consider that the average national house price of $373,000 is 5.1 times the annual median family income, while the average Vancouver house price of $815,000 is 11.2 times median family income, according to BMO Capital Markets' report A Tale of Three Canadian Housing Markets, published June 7.
That means the average house price in Vancouver is 71% more than the average in Toronto. This growing unaffordability has made Vancouver the third least affordable city in the world, according to a Demographia survey, which looked at 325 markets across the globe.
The report points to the rising tide of foreign investment flooding into the Vancouver market as a major source of the city's overvaluation.
Many Chinese buyers emboldened by looser travel restrictions, more lenient investment rules and discounted prices in comparison to China's major cities, are scrambling to get a beautiful detached home in some of Vancouver's wealthiest neighbourhoods.
David Macdonald, an economist with the Canadian Centre for Policy Alternatives, said Vancouver homeowners, though house poor already, are still able to make their monthly payments. But if interest rates increase even by as much as 25 to 50 basis points, many of them could be struggling to pay for their home.
"The Vancouver market is completely out of control. This is not a long-term sustainable trend," he told CRE Online. "So I think the question is: are there policy tools that we could use to moderate these types of increases."
Macdonald said the mortgage rule changes introduced on March 18 are a good step back in the right direction, but he'd like to see them return to what they were in 2006 when a 25-year mortgage required a 10% down payment.
Last month former MP and author Garth Turner told CRE Online that he feared the Vancouver real estate market was about to plummet and take the provincial economy with it.
"And when the real estate market collapses in Vancouver, it's really going to hit the B.C. economy, and it's going to last for a number of years because British Columbians have just put way too much emphasis on the value of real estate," said Turner, the author of Money Road: Tools for the Wild Ride Ahead.
But CRE Contributor and author Paul Hecht doesn't share the same sense of pessimism about the market.
"Vancouver is kind of an anomaly. It's got a huge population, lots of growth and foreign investment coming in like crazy. And it was supposed to have gone through a number of corrections over the last three years, but it hasn't," he told CRE Online. "The foreign money keeps pouring in and keeps pushing prices up. So if that foreign money stops, it could correct, but my question is how much foreign money is still coming?"
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