Vancouver vs. Los Angeles Real Estate:

In recent months, Canadian consumers have been admonished repeatedly by Mark Carney, head of the Bank of Canada and Jim Flaherty, Canada's Minister of Finance about the necessity for Canadian consumers to keep their wits about them when borrowing money to purchase a home.  In light of that, I want to revisit Vancouver's real estate market, the hottest market in Canada and the United States.  I'll look at the affordability of a median home measured using the Demographia concept of median multiple which is defined as the median price of a home divided by the median household income in that market.  Keep in mind that Demographia defines markets with a median multiple of more than 5.1 as a "severely unaffordable market"; historically, real estate markets are most affordable when the median multiple is 3.0 or less. 

Let's look back in time at changes to Vancouver's median multiple since 2005 as shown on this graph:

Now let's look at what has happened to the median price of a home in Vancouver since 2005:

The median price of a Vancouver home has risen by 81.9 percent since 2005 in contrast to the median gross household income that has only risen by 12.9 percent, from $56,500 to $63,800.  Those two numbers alone explain the drop in affordability in Vancouver's market.

Now, let's look at what has happened to real estate in another West coast market, Los Angeles, one of the most unaffordable markets in Demographia's universe for three years running prior to the housing bubble collapse in 2007.  The two markets are relatively comparable; both cities are located on the west coast, both have an affluent population and both cities are among the largest real estate markets in their respective countries.  Before I get into the details, here is a quote about the Los Angeles real estate market that I found on the Bloomberg Businessweek website from April 11, 2005:

"For 2005 homebuilders are still optimistic about demand. There's a backlog of unfilled orders for new homes, and Los Angeles-based KB Homes, for example, recently raised its fiscal 2005 profit forecast. Ryan Brown is one real-estate investor who remains upbeat. He and his business partner, Jeffrey Lewis, buy and remodel homes in the Los Angeles area. Their latest project is a three-bedroom, three-bath house in the Hollywood Hills that is listed for $1.49 million. "The whole bubble thing is really overrated," Brown says. Yet even he has reduced his price expectations, figuring appreciation may slow to about 3% or 5%. For the industry as a whole, higher mortgage rates will inevitably cut orders. By 2006 home construction will become a drag on the economy.

More important than housing's direct effect on the economy will be fallout from the slowdown in home-price appreciation. This is where the economy will be most vulnerable. Thanks to the easy availability of refinancings and home-equity loans, consumers have gotten used to tapping into the equity built up in their homes." (my bold)

Annual price appreciation slowing to 3 to 5 percent?  Didn't see the looming storm coming, did you Mr. Brown?

Back to the data.  Here is what has happened to Los Angeles' median multiple since 2005 when Mr. Brown was so confident about the future:

Here is what happened to the price of a median home in Los Angeles over the same time period:

In Los Angeles, since 2007, the price of a median home has fallen by $263,600 or 44.8 percent.  One can quite readily see how easy it would be for mortgage holders to find themselves underwater when nearly 50 percent of the equity in a home vanishes into thin air.  The median multiple has dropped from a severely unaffordable 11.5 to a still severely unaffordable 5.7 but housing is much more affordable in 2011 than it was in 2007.

To summarize, yes, I realize that things are somewhat different in Vancouver, British Columbia, particularly with the influx of hot Asian money.  That said, as in all things, one can never say never.  Just ask residents of Los Angeles   Vancouver's real estate market is so vastly unaffordable by the majority of its residents that eventually, market forces will take over and the city's real estate market will follow that of Los Angeles back to a state of sustainable equilibrium.  When that will occur, no one knows but I can guarantee that in 2005, residents of Los Angeles didn't see it coming either, nor did they suspect the magnitude of the readjustment.  Just ask Ryan Brown.

What A Million Dollars Will Buy In Vancouver

Recently, the Canadian Real Estate Association released its quarterly forecast stating that, for the first time in many quarters, national real estate prices were expected to dip by 1.1 percent in 2012 to $359,100, largely because of a drop-off in multi-million dollar condominium sales in Vancouver.  Here is a look at what CREA projects for all provinces noting that British Columbia prices are only expected to soften by a paltry 4 percent to $541,800:

With that in mind, I thought that it was time to revisit the real estate market in Vancouver, British Columbia, the most expensive real estate market in Canada in both real terms and when measured using the multiple of median household income to median house price, an affordability measure used in the Demographia annual study.  Keeping in mind that Demographia considers homes severely unaffordable when the median multiple exceeds 5.0, here is a graph showing what has happened to home affordability in Vancouver over the past few years:

In this posting, I'll concentrate on what buyers of single family homes in Vancouver can get for a cool million dollars.  Certainly, if you visit the MLS website, there are homes available in that price range that have more "curb appeal" than the four examples I'll provide but I'll leave that up to you.  Here then, is a sampling of what buyers in Vancouver might buy for a million dollars:

1.) Here's a two bedroom, two bathroom 1500 square foot home on a 36 foot wide lot being sold "as is, where is" and listed for $1,038,000:

There is no age attached to the house, rather, the realtor has described it as an "old timer".  Most helpful when you're laying out seven figures for a house, isn't it?  There are also no pictures of the inside, suggesting that it's a "fixer upper", a conclusion that is more-or-less confirmed by the realtor comment "Build your new home here".  This tells me that the potential purchaser is paying just over $1,000,000 for a 36 by 110 foot building site.

2.) Our next listing, a 60 year old, three bedroom, two bathroom 1320 square foot bungalow, is listed for $1,039,000 as shown here:

It has updated kitchen appliances and roof but my suspicion is that neither of those "upgrades" are intended to help sell the home.  No interior photos are available and the lot size is also not included.  The realtor has stated that the property is "priced at lot value, this is a property for those willing to do some updating to get into the Edgemont Village area, or start over and build a new home.".  Once again, we have a million dollar building lot for sale.

3.) Here's a cute, little 1400 square foot bungalow built in 1947 listed for $1,050,000:

This house has four bedrooms and one bathroom with an added bonus of a fireplace.  It is located on a 40 foot by 122 foot lot.  The two photos of the interior look passable but the exterior and landscaping definitely need upgrading.  My suspicion - another tear down; notice that the houses on either side are much larger than the listed home as shown on this Street View screen capture:

Yet again, a million dollar building lot.

4.) For my last example of what a million dollars plus will buy potential home buyers in Vancouver, I'm going to jump a hundred thousand dollars to this home which is listed for $1,128,000:

The listing realtor describes the home as a three bedroom, two bathroom 1886 square foot two story (although, where I live it would be described as a bungalow) built in 1954.  There are no interior pictures but the home is described as "...in mostly original condition...".  It is located on a rather large 44 by 152 foot lot.  The realtor describes the property as one that can be held, renovated or built on, suggesting that the lucky purchaser may well level the current dwelling and rebuild.  At the very least, it certainly sounds like the home needs tens or hundreds (most likely) of thousands of dollars in upgrades.

To summarize, I find it interesting to note that, basically, there are homes listed in the inner part of Vancouver for more than a million dollars that are basically slated for demolition.  Purchasers are willing to pay a million dollars or more to buy a lot with an existing home, pay to demolish and then pay again to rebuild, likely spending another half a million dollars before they move in to their new purchase!

That said, it is reassuring to know that there is no housing bubble in Vancouver and that CREA only predicts a 4 percent "readjustment" in prices.  It's nice to know that they have that kind of confidence in Vancouver's real estate market.   It's also comforting to know that, at long last, our Minister of Finance is taking every opportunity to remind Canadians that they should not buy more house than they can afford; apparently, a lesson that has not been learned by some.

Vancouver B.C. - A really expensive place to live

Back in August, I did a posting on the least expensive real estate in the countries of Canada, the United States, Australia, New Zealand, Ireland and the United Kingdom. It turns out that Detroit, Michigan had the most affordable housing in the aforementioned countries. According to the study entitled the "6th Annual Demographia International Housing Affordability Survey 2010", Vancouver, British Columbia has the least affordable real estate among the 6 nations surveyed. Demographia calculates affordability by using the median house price divided by gross annual median household income. The higher the number, the less affordable the housing. In Detroit, the median multiple was 1.6; by comparison, Vancouver's median multiple was 9.3. In other words, a house that falls in the middle of the pack between the most expensive and the least expensive in Vancouver cost 9.3 times the income of a household whose income falls in the middle of the pack between the highest income and the lowest income. Demographia also defines housing affordability by using the same median multiple; when the median multiple is over 5.1, houses are considered to be "severely unaffordable". In that case, Vancouver is off the chart and living in another universe!

Here's a screen capture from the report showing the top 10 least affordable places to live:

According to the Canadian Real Estate Association, the average price for a house in Vancouver in November 2010 was $699,009 compared to the national average of $344,268.

Enough definitions.

As background information for those of you who aren't familiar with Vancouver, it is located on the west coast of Canada. It is Canada's third largest city and had a metropolitan area population of 2.38 million people in 2009. It is the fourth most densely populated major city in North America after New York City, San Francisco and Mexico City. It is often ranked as one of the most liveable cities in the world; it's climate is relatively mild by Canadian standards although it does tend to get abundant rain most of the year with dry months in July and August. Snow is rare and when it does fall, it rarely accumulates. The north and west side of the city border the Coast Mountains; in combination with the adjacent seascape, the area has few rivals for natural beauty. On the downside, the traffic from the outlying communities can be quite heavy but the recent building of a light rail transit system should help somewhat.

Here is a look at some of the houses available in Vancouver from the REALTOR.ca website. Let's begin with what would be considered a starter home.

Here's a floating 1120 square foot, 2 story, one bedroom, one bathroom home on a leasehold property (with moorage costs of $869) for only $149,000 in North Vancouver. When I searched for single family homes (excluding condominiums), this is the only property that came up over a large part of Vancouver, North Vancouver and West Vancouver.

When I changed the search terms to increase the maximum price to $200,000, this was the next single family dwelling on the list.  Once again, the home is a 900 square foot floating home located in North Vancouver with a leasehold moorage property (i.e. you don't own the "land" the home is located on).

That's all fine, but let's say that you really want buy a lawn mower and cut some grass. I had to increase the maximum price to $400,000 before I actually got a house that was located on a bit of terra firma.  Here it is:

It looks like a reasonably nice 2 story, 1150 square foot house that needs renovating. But (and it's a rather large but), please notice that it is one of three houses located on a single 55 by 122 foot lot, a lot that I would consider a rather standard city-sized lot. Each of the other two houses, found here and here are listed at $389,000! On the upside, maybe you can save a few bucks since you likely won't need to buy that lawn mower after all.

Now let's skip a few brackets and see what you can get for between $750,000 and $1 million.  Here's a nice looking detached 2 story on a 25 by 122 foot lot with a full basement rental suite, 5 bedrooms and 2 bathrooms. As a bonus, it's located relatively close to downtown Vancouver It does sound like the interior is in "original condition" and may need renovation. Should you happen to have $828,000 burning a hole in your pocket, this may be the house for you!

One last listing. I thought I'd take a look and see what a couple of million dollars would buy.  Here's a brand new 2819 square foot home located in tony Kitsilano close to the University of British Columbia. Kitsilano has some of the highest property values in Vancouver and some of the highest rental rates, yet it has a very low vacancy rate. The median household income in the neighbourhood is $67,795 (2006). This particular house has 6 bedrooms and 4 bathrooms and a legal 738 square foot two bedroom suite on the lower level. The house is located on a 33 by 122 foot lot, smaller than I like but then again, I prefer the privacy of country living. Should you happen to have something in the neighbourhood of $2.2 million lying around looking for a place to live, this is the house for you. As an aside, if your family income is around the median, the Demographia median multiple would work out to a nice solid 31. Recall that Demographia defines a media multiple over 5.1 as severely unaffordable!

Just in case you were wondering, the taxable value of the house is assessed at $529,000 and the 2010 property taxes are $3076.08. I guess if you have the $2.2 million, you really don't need to ask how much the property taxes are!

I hope that you enjoyed your little real estate tour of Vancouver. Having spent many years living in the west part of Canada and visiting Vancouver many times, it is definitely a world-class city.....but (and it's a big but), I still think I'd have trouble shelling out the kind of money necessary to buy a house there. But like they say, it's a lifestyle decision.