Further Thoughts on Canadian Housing

Visiting Vancouver last week, some of the clients at meetings were commenting on house prices in Vancouver and the lower mainland of BC, complaining at how expensive they were and how they had risen sharply in the aftermath of the Winter Olympics in February this year. One smart and successful advisor was renting and had been for several years, determined, as he put it, not to be seduced into jumping into a market that was not only the most expensive in Canada in absolute price terms, but also the most expensive by fr in affordability (price to average salary). According to the Average House Prices table in the Globe’s report on Business section this Saturday, November 27th, the price of the  average house in Vancouver is approximately $715,000, a 60% increase compared to its level of $$450,000 5 years ago, and to Toronto, the next most expensive city, where the average house sells for $450,000 today, only up 30%  from $350,000 5 years ago.

According to the Teranet-National Bank House Price Index, Vancouver has seen its average house increase 9.2% in price over the 12 months to September 2010, and is up 3.9% year-to-date. This compares with a 7.9% year-on-year increase nationally and a 4.4% increase year-to-date, so in fact Vancouver has fallen behind the national average so far this year, but it undoubtedly remains by far the most expensive city in Canada. One point to remember, however, is that Vancouver went through a prolonged property bust between the end of the major wave of Hong Kong migration in 1994 and the replacement of the perceived high-tax, business unfriendly NDP governments of Mike Hargrove and Glen Clark in 2001. According to the Teranet-National Bank index, average Vancouver house prices rose 34% between early 1990 and the end of 1994, but then had fallen 7% in nominal terms by April 1999, and were still below their December 1994 level as late as April 2002. They then doubled in just under 6 years (January 2008) and peaked in August that year, before falling 12% over a year to August 2009. It’s true that prices have recovered to new all time highs but compared to 2 years ago, they are barely ahead. 

On a housing affordability basis, using the RBC survey’s definition of  the costs of owning a home with a 25% downpayment, a 25 year mortgage with a 5 year fixed rate and including utilities and property taxes, Vancouver is by far the most expensive city, with 78% of median national pre-tax income required to cover these costs for a standard 1500 sq ft 2 storey house compared to a 25 year average of 63% and 68% for a 1200 sq ft bungalow compared to a 25 year average of 57%. It’s unsurprising that so many Vancouverites buy condos , where affordability runs at 40% for a 900 sq ft unit, although even these are expensive compared to the long term average of  32%. For Vancouver, along with other resource based markets such as Calgary and Edmonton, choosing when to buy your house seems almost as important as where to buy.


Comments are closed.