It's never been a better time to own a home in Vancouver, or a worse time to buy one. With record- breaking real estate sales and sky-rocketing prices, young people are starting to wonder "Where will it end?"
In its latest residential sales report, the British Columbia Real Estate Association said there's been a 20 percent jump in sales since last year, with the average residential sales price hitting $445,205. That makes Vancouver—which has been consistently ranked by The Economist magazine and other publications as the most livable city in the world—the most expensive city in Canada.
According to Royal LePage, a detached bungalow in Vancouver will net an average $787,500, almost double Toronto's $405,581.
More homes have come up for sale, says the report, but more people are also buying them, which means prices continue to climb, often out of the reach of prospective buyers. The last several years have seen annual housing prices jump by up to 20 percent, doubling the value of many properties in just five years.
Many observers say young buyers are being priced out by the boom. Without equity from a previously owned home, it's become more difficult for average-income first-time buyers to break into the market. Shane Holmes, 28, the owner of PaintBallGear.ca, says that at this point in his life he isn't even thinking of buying a home.
Holmes, whose wife stays at home with their two young children, says they just can't afford to buy in the Vancouver market. In fact, if Vancouver wasn't the best place for his budding paint ball supply business, Holmes would move back to the B.C. interior where houses are a fraction of the price.
His older brother Ryan, 32, runs a successful web design and marketing company with 20 full-time employees. While in a much better position to buy a home, Ryan is still having difficulties.
He recently put in an offer on a 1500-square foot home in Vancouver that was listed at $649,000. There were eight other bids and the winner paid $769,000—a whopping $120,000 over the asking price. That's enough to buy a downtown character home in Winnipeg, Manitoba.
"It's really crazy down here," said the elder Holmes. "You've got an international community so you've got a lot people people buying in here from other places...you're not just competing with [buyers] that are local, but also with people from abroad."
Anyone who has been to Vancouver can see the truth of this. While experts are not sure of the exact number of homes being purchased by foreign investors, it is certainly playing a role. The same can be said of other hot real estate cities around the world like London, where it is not uncommon to take out a 50-year mortgage.
With Vancouver's upcoming Olympics and its international buzz, it's not a surprise that buyers are flocking to Canada's west coast. What is a surprise is how much they are willing to pay. Some premium condos in Vancouver's downtown are selling for up to $830 per square foot—a lot to pay, some say, for a 1,000-square foot, two-bedroom condo.
Some are paying a million dollars for an apartment that is half the size of the average Canadian home. That might also explain why, while the rest of Canada is moving into ever larger suburban houses, Vancouverites are learning to live in 500-square foot condos that still come with big price tags.
Ryan Holmes recently sat down with his girlfriend's father and compared income-to-house-price ratios today compared to a generation ago. The pair discovered that in today's market home buyers need ten times the income.
"It's totally out of the question for so many people," said Holmes. "I think there will be some problems out of it. I think home ownership is kind of a right and if that is not possible there will be some social implications from that, for sure."
For those that do manage to outbid competitors and snag a home in Vancouver, they can expect the average house to come with a "mortgage helper"—the requisite basement suite many homes feature to help their owners pay off exorbitant mortgages. But even with the basement suite, new home owners shouldn't expect much of a return on their investment. Forbes ranks Vancouver as the sixth most overpriced real estate market in the world, mostly because rental yields don't match housing costs. In other words, that $120,000 Winnipeg home can generate $700/month from a two-bedroom basement suite. In Vancouver, a home will cost four times that much and the basement suite might still rent for only $700.
That leads Forbes and others to suggest that Vancouver and other hot housing markets around the world are in a bubble; that is, the real value of property has been inflated by speculation. The logic goes that sooner or later the bubble will 'pop' and homes will rapidly drop in price.
But others disagree, one being Roby Adamache, the Vancouver senior marker analyst for the Canadian Mortgage and Housing Corporation. She said Vancouver had a bubble in the eighties, but this is different.
One of the key indicators of a bubble is how many people sell their home after owning it less than a year. In the '80s that number reached 50 percent. Currently, the figure sits around 25 percent. Adamache points to a hot western Canadian economy and droves of people moving to Vancouver as the foundation of the current real estate boom.
Strong economic projections for the next few years should be enough to sustain that growth and it is unlikely Vancouver buyers will see a drop in prices, she said. This year's 12 percent increase will, however, cool to a 9 percent increase for 2008.
While this is good news for owners, it's disappointing for people like the Holmes brothers who have yet to enter the market. But Adamache says she doesn't believe new buyers are being priced out of the market just yet.
According to the mortgage corporation's research, a third of the homes being sold are bought by new buyers, which is on par with the national average. That said, she also thinks that new home buyers in Vancouver are waiting longer to enter the market. These days people might not get into their first home in Vanvouver until "anytime up to their early 40s" she said, noting that twenty somethings are no longer the first-time buyers they once were.
The 2006 census found that in Vancouver, 50 percent of people in their twenties were still living with mom and dad. Adamache believes it's so they can save up for a down payment. "I think that would probably be a fair assumption."
Which might be one of the best lessons Vancouverites can learn from the current real estate boom. Western individualism is great when jobs are plenty and the living is easy, but when mortgages start looking like they will need to be passed on to future generations, it might be time for families to stay closer together.
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