Vancouver Price Drop

Documenting Vancouver real estate price movements

Apparently Vancouver is 15% overpriced?

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.


13 responses to “Apparently Vancouver is 15% overpriced?

  1. Presto July 9, 2012 at 1:47 pm

    if you are going to be doing these types of analyses you should be plotting prices logarithmically.

    • an observer July 9, 2012 at 2:15 pm

      Feel free to make your own graphs. Most people have an easier time visualizing graphs like this for most things – Maybe that’s why basically every single housing price graph produced is done that way, you think?

      • gokou3 July 9, 2012 at 4:08 pm

        Keep the graphs as you presented. The parabolic shape shows clearly the bubble being formed over the years. (And yes, for the math nerds out there i know the graph is not actually “parabolic” in math terms)

  2. M- July 9, 2012 at 2:24 pm

    Thanks for putting those charts together– it really shows the craziness of the “we’re only 15% overvalued” statements by the “experts”.

  3. Vulture Fun July 9, 2012 at 5:08 pm

    This is rapidly becoming my favourite site, but it would be nice to know a bit more about the founder. Surely some details could be shared (occupation?) without outing yourself.

    • an observer July 9, 2012 at 6:07 pm

      Hi, I’m married and have two young children. A surprise based on the subject of the blog is that I own my home plus own a vacation property that we get a ton of use out of.

      I’ve been programming as a job for about 16 years but most of those years were in management / executive positions and more recently as a business owner but I always make sure I carve out a significant amount of time to focus on coding.

      I want this bubble to pop and for housing in Vancouver to return to fundamental values. This will take a nice chunk out of my net worth over the next 5 to 10 years but it will make Vancouver a place that my children will be able to work and live in and raise their own children some day with the same opportunities. That makes it worth it in my opinion.

      • Yellow Helicopter July 9, 2012 at 7:58 pm

        Thanks Observer. As a parent of a young child myself, I appreciate your viewpoints and ability to look at the long-term impacts of the housing bubble on Vancouver and the affect it will have on our children.

      • Vulture Fun July 10, 2012 at 12:32 pm

        Thanks for the info. Beyond just being nosey, it’s nice to have a little context on a blogger. You’re not the only property owner I’ve heard who’s philosophical about a crash. Long-term, it will be a healthy development. Some douche on CBC was talking about how the new mortgage rules will keep new buyers out of the market. Well, not for long! Debt enslavement at “emergency” interest rates does not equal affordability, but lower prices will do the trick. Words getting out about your blog. VCI types are stats junkies, so I can see a lot of crossover happening. You are a welcome addition to the scene.

  4. Michael Wilson July 9, 2012 at 5:41 pm

    Love that first graph! It really puts the idiotic “15% overvalued” notion to shame.

  5. vreaa July 9, 2012 at 6:48 pm

    Thanks, observer, lovely stuff.

  6. Claudia July 9, 2012 at 9:07 pm

    Yep, Vancouver real estate is overpriced by waaaaaaay more than 15%. Seems to me that the market needs to come down until it’s back in line with household income. When my parents bought their house in the early-70s, it cost them the equivalent of three years’ salary. Nowadays the average household income in many of the areas of the lower mainland is about 60k, which means affordable starter homes should go for slightly less than 200k instead of a million!

    Vancouver is my hometown and I love it, but real estate prices are completely INSANE.

  7. S July 9, 2012 at 10:00 pm

    Excellent work! Thank you!!

  8. Baconator July 10, 2012 at 12:56 pm

    Observer, thanks for all your work. This blog is fantastic. Shown it to a couple of people already…. the reactions are priceless, a lot of wacky wishful thinking, a lot of surprised looks. It’s amazing how many people are playing the game, yet very very few know the rules.

    There will be blood.

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