bubble watch

There seem to be conflicting opinions out there as to whether or not Vancouver's real estate market can be said to be in a "bubble," defined in this November 2006 article in the Tyee as a market condition in which real estate values rise, through speculation, to more than what people are willing and able to pay. The real question investigated by the article is whether or not Vancouver's recent dramatic climb in real estate prices "have risen to levels that reflect the current state of our economy, or whether they've risen too high (and will fall)." The key concern about a real estate bubble, of course, is that it eventually has to pop, sending real estate prices plummeting back down to levels reflective of the economic success of a given city, and leaving homeowners who 'bought high' owing far more on their homes than they can hope to recuperate in the short term.

Realtors and real estate developers, perhaps not surprisingly, hold firmly that the prices in Vancouver are reasonable and based on a variety of factors: the continued success of Vancouver's economy, the city's desirability as a destination for global visitors and retirees, and of course, the upcoming Olympics. But the article points out, too, the potential for a conflict of interest in asking realtors and developers to predict the future: naturally, the rosy picture they paint has the potential to benefit them directly, as potential buyers take the plunge with high expectations for upcoming growth. On the other hand, it is of course possible that they are right, and the real estate values that seem hopelessly inflated to locals are simply reflective of a wider demographic shift - thousands of baby boomers from across the country trading their expensive single family homes for a smaller condominium in what they view as a more desirable location, and being willing to pay a lot more than local first-time homebuyers, the traditional buyers of condominiums, are able to shell out. There is also the argument that globalization, which lies very close to the heart of the question of real estate in Vancouver, has resulted in a globally-competitive real estate market, with higher prices - and the accompanying higher levels of urban disparity - across the board.

But since the writing of this article in late 2006, there are already signs that the market madness may be slowing down. RBC's quarterly Housing Affordability Index shows - for the first time in a long time - that "both new listings and sales are cooling off simultaneously," likely indicating a controlled market cool-down rather than a dramatic bursting of the bubble per se. Keep in mind, too, that this recent trend (as of June) doesn't have house prices decreasing, just not increasing as quickly. It remains to be seen whether Vancouver's real estate is valued accurately when compared with the city's recent economic performance, and can be expected to grow even further in the future, or if, as UBC real estate specialist Tsur Sommerville suggests, "we had a really great party, but now the party is winding down."