Apparently Vancouver is 15% overpriced?
July 9, 2012
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This post is a little outside of what I normally do which of course is to analyze and report on housing price movement and related stats but it still involves some number crunching and debunks some ridiculous statements coming out of the mouths of so called industry experts. The latest trend is for bank economists, rock star realtors, developers and others with substantial skin in the real estate game to grudgingly claim that Vancouver might be 10-15% overpriced today. The apparently not so obvious take away from this is that for 90%+ of our history Vancouver real estate has been incredibly underpriced.
Let’s look at a graph showing the Teranet HPI index since 1990 (could not find data from before this) and then plot what these experts think the true value should be based on current values being 15% overpriced and back-applying inflation to that price. Does that look like a reasonable graph to you where over 80% of the HPI numbers come below their true value line and where for 15 of the 22 years the True Value line is 50% above the HPI price?
I don’t know about you but that really looks wrong to me. In order to have something more realistic I would think that half the red number points should be above the blue line and half should be below the blue line. So what does that graph look like?
Well that’s better! Notice how for 13 years (and likely most of the 90 years before that) things are looking pretty reasonable? So based on this graph, what is the real “True Value” today? 97.25… That would put real estate in Vancouver at 77% over priced based on historical Vancouver prices or in other words it would require a 44% drop to get back to where things belong and we know from every bubble in history that they always overshoot this.
There is a premium to living in Vancouver, the city has a lot to offer. A 50% drop would make the average listed home in Vancouver West (which is currently about $3 million) list for around $1.5 million. Vancouver East would run about $500K and Langley would be somewhere around $350K. Seems shocking, right? Well consider this: we only have to go back about 8 years to have seen these prices and incomes have dropped against inflation since then. We have become desensitized to these ridiculous prices but thankfully, for the future of this potentially wonderful city of Vancouver, things are going to be changing.