I’ve written a lot of posts about the potential real estate bubble in Canada. And while my conclusion has consistently been, “there is no bubble”. But I’ve always said that with one caveat: Vancouver. I do think the homes in Vancouver are overpriced.
Take this Vancouver home reported in the Globe and Mail today shown above. Let’s play a guessing game…how much do you think that house is worth?
Okay, I’ll give you some details. It’s on a lot that’s 33 feet wide. It’s 2,900 square feet (a pretty large home that can definitely accommodate four bedrooms). And it’s in the Dunbar neighbourhood.
It’s listed at…
*Drum roll please*
$2.2 million. That’s right, $2.2 million. Now, when I imagine a home in Canada with a price tag like that, I would think I would be buying my dream home. And while there’s nothing wrong with it, it definitely doesn’t tickle my fancy.
With a standard city lot trading hands for around $1.4 million and construction costs running at least $200 a square foot, it doesn’t take much of a house to hit the $2-million mark.
And Vancouverites can’t actually afford the homes. Vancouver’s home affordability ratio has increased so much that it now sits at double the Canadian average. Median household income in Vancouver is standard compared with the Canadian average.
So that begs a pretty obvious question…who the hell is buying all these seemingly overpriced homes?
It looks like the answer is purchasers from China. Why? According to a Vancouver architect Bing Thom Vancouver is becoming “the Switzerland of the Pacific”. Basically, according to the Globe and Mail:
The Hong Kong-born Thom was referring to the way the city offered a safe and comfortable harbour to elites from around the Pacific Rim in search of fresh air, good schools, and geopolitical peace of mind.
But where does that leave Vancouver? It leaves them with a bunch of unaffordable homes, and no extra stimulus to the economy to speak of (i.e. their incomes are on par with the rest of Canada).
It’s difficult to say whether this relationship can be maintained. How imbalanced can the level of income and cost of housing get before something snaps? Only time will tell.