The amazing part of this election campaign is that nobody seems to be addressing the 800 pound gorilla in the room. That gorilla is named “Canadian Real Estate”. The overvaluation of real estate (“bubble” is so overused it has lost its shock value) in many parts of Canada has been propelled by a Canadian addiction to debt and federal government policies that helped to create a runaway freight train in the form of real estate prices. Outside of the Canadian political campaigning trail the Conservatives have paid lip service to the issue through their recent series of mortgage lending restrictions, however, this tightening is only undoing the Conservative party’s mortgage lending loosening from a few years earlier. Again, both key facts are rarely mentioned by any of the political parties currently campaigning.
Vancouver home prices have surged far beyond total British Columbia GDP growth and personal income growth. In fact, for housing prices to revert back to the GDP growth rates by the end of 2011 (assuming the BC economy grows at 4% in 2011), we would require at least a 12% and up to a 31% correction in home prices. This of course assumes that BC’s GDP isn’t linked to a housing bubble bursting. In truth, the dependence on real estate to spur economic growth has been very apparent, especially in Vancouver, and therefore a deeper correction would actually be required to find a sustainable equilibrium.
Not all real estate in BC is defying gravity. While prices have not plummeted....yet, sales are pathetic in other places in BC.
Kelowna is busting with 13.9 months of inventory
North Okanagan is busting with 20 months of inventory
Shuswap is busting with 23 months of inventory
Just wait until Chinese stop buying real estate in Vancouver. It has happened before and it ain't pretty. This time the bubble in Vancouver is bigger.