Matthew Slutsky
June 29, 2010

I continually hear conflicting thoughts about the housing market in Vancouver. To be a bubble; or, not to be a bubble? That is the question.

No matter our Canadian opinion, it appears that Americans are beginning to answer with BUBBLE.

Check out below what Bloomberg Business has to say:

“All that safety and stability has come with a price. It may have overinflated prices. At least that’s how some doubters see it. One Vancouver wag has actually been affixing “certified bubble pricing” stickers to Realtors’ signs. Also among the skeptics is Petr Pospisil, a teacher in Vancouver who created a website called “Crack Shack or Mansion,” in which the visitor attempts to guess whether a pictured bungalow is a bombed-out home of little value or a real Vancouver listing with a price of over a million Canadian dollars. Pospisil, alternately concerned and amused by what he saw as an irrational mania for real estate, got 30,000 views on the first day he put up the site. Within five days, 200,000 had played the game.

“Canadians defend their bubbles, especially here in Vancouver,” says Pospisil. “People get angry when you tell them it’s a bubble. They say it’s different here, that this is such a beautiful place and everything is different. Everywhere there is a bubble, they say it’s different.”

Professionals like Robert Hogue, a senior economist at RBC Royal Bank, use less exciting language but fundamentally agree. “The type of price increases that we’ve seen in Vancouver are unlikely to be sustained,” says Hogue. “There might be some downside risk to that market.”

Some, like Garth Turner, a financial writer and former member of Parliament, see Canada going all the way down the road the U.S. took. “My basic view,” he says, “is that we have a Canadian version of the U.S. real estate bubble. Not exactly the same, but close enough. We’ve relaxed lending standards, we have high unemployment, and we’ve reached a point of unsustainability in the housing market. I see real estate values falling shockingly.””

What is keeping the market buoyant according to Bloomberg?

1. Near-zero interest rates have mortgage rates low, very low;

2. The Canadian Mortgage and Housing Corporation tightening its standards on loans; and,

3. A push to buy because of the HST in Ontario and Vancouver.

Personally, I think that both Ontario and Vancouver have high levels of population growth, coupled with very limited land for outward expansion (Ocean and mountains in Vancouver; Greenbelt and other growth strategies in Ontario). This scarcity of buildable land is driving up prices of land, and thus unit-prices.

Yes, the market may be over-heated a bit and may need to stabilize, but it is not in a bubble, and not about to collapse… maybe a plateau over the balance of the year.

Oh yeah, don’t forget to watch the Vancouver Real-Estate Roller Coaster, below….

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