We hear all the time if the Vancouver Real Estate market is in a bubble or if the bubble is going to burst. In order to answer this question we likely need to determine what is a real estate bubble? We also need to determine what constitutes a bubble bursting?
First off what is a bubble and what is a real estate bubble?
My take is a bubble is something that has been propped up for a single reason, or for reasons that are more filled with emotions than reality. When a penny stock goes from 10 cents to 10 dollars it’s usually because a massive wave of buyers were scared to miss out.
They may not even care what the stock is or why people are buying it. They just know that their friend bought it for 10 cents and is now drinking margaritas pool side after making a fortune. But when the momentum changes, and people see the stock coming down, they all jump ship as they don't really even know what this stock is that they own. They also don't have a purpose for this stock.
Blue chip stocks are expensive, and they serve a valuable purpose in our daily lives. Apple, Nike, CN Rail etc. These are companies that we all use and know. We don't look at these stocks as being in a bubble when they go up and when they dip down we don't run for the hills.
So how does this relate to real estate? Let's use Northern Alberta for example. When there is talk about a new pipeline or big drilling going to a small town we see those prices sky rocket. Investors buy because they see a shortage of housing and tremendous job growth. Workers are being paid well as it's hard to find workers to go to these areas. These same workers are willing to spend more for a home as they are making substantially more. But when the oil dries up or the project is over these towns crumble. This is because they were propped up by only ONE factor.
Now let's look at the Vancouver Real Estate market in terms of why it boomed.
1) Foreign Buyers
Obviously buyers from China had a influence in our market. But within the group of Chinese buyers we had typical off-shore investors as well as families relocating, students moving for school and developers moving their money here. We also had other groups. Iran, Russia, USA and Mexico have also been very influential in the amount of money that has landed in Vancouver.
2) Lack of Supply
The City of Vancouver has done an amazing job of retaining our view corridors and limiting the size of towers. With that they have also limited the number of homes that could be built within the city. When the boom was happening we simply had way too much demand compared to supply.
3) Population Growth
Vancouver's population growth has been tremendous as well. According to this article the city of Vancouver went up by nearly 500,000 people between 2010 and 2019. Our tech industry is growing and with more jobs available more people will continue to move here. Amazon coming to Vancouver is a great example.
Simply put, Vancouver is a beautiful city and one of mildest climates that you will find in Canada. Retirees want to live here due to accessibility of health care as well as the ease of not living in a snowy region.
5) Money Laundering
With all of the news recently, we need to talk about this. Was this the reason the market boomed? Likely not. But to say it didn't have any impact is likely foolish. Illegal money was definitely put into the real estate market. How much and for how long? We will likely never know, and it is my guess that there will continue to be some illegal money going into this sector.
As the market was booming, buyers flooded the market hoping to not miss out. Similar to the 10 cent stock we discussed earlier, as people saw their friends, colleagues and family members reap the rewards of the booming market, buyers rushed in. Investors stretched themselves and moved money from stocks to real estate.
These are the main 6 reasons why I believe that we saw the growth that we did in the market. In 2005 the Benchmark price in Metro Vancouver was $386,200. In May 2018 the same benchmark price went to $1,104,400. That is an increase of $718,200 in 15 years or nearly $50,000 per year!
So let’s go back to the bubble phenomenon that we keep hearing. Has our bubble popped? Let’s go through our list of 6 reasons why it’s increased the way it has.
1) Foreign Buyers - Do we still have foreign buyers coming into Vancouver? Yes, although slower and more cautious we still have foreigners immigrating to Vancouver daily. The new taxes have drastically put a damper on this; however, we are still seeing foreign buyers in our market.
2) Lack of Supply - We are still surrounded by mountains and the ocean. The city is still being reluctant to allow infill housing, although the new duplex zoning should help increase some density.
3) Population Growth - Our population growth continues and likely will for the forceable future.
4) Scenery/Weather - Forest fires aside, Vancouver remains one of the most desirable cities to live in.
5) Money Laundering - The government is putting in regulations to curb money laundering. It will slow down but will likely always be a factor.
6) Speculation - We are seeing MUCH LESS speculation these days. Taxes that have been implemented and a general cooling of the market has really slowed down this pillar.
When I look at this list 2, 3, and 4 will likely never change. Foreign buyers have slowed down, money laundering has likely slowed down and speculation has definitely slowed down. There is no question why we have seen a slow down, but I by no means see this as a BURSTING BUBBLE.
At the beginning of this blog I discussed bubbles being propped up by singular factors and the way I see it we will always have at least 3 pillars driving our market.
For that reason I expect to see regular corrections and regular inflation, but I DO NOT consider our market a bubble and I by no means see a hard crash landing.
If you have any questions about this topic or any others feel free to reach out to us directly. We would love to hear your feedback and any topics that you would like us to discuss.