Vancouver Housing Bubble: Part 2
Saj Karsan | Feb 29, 2012 02:06AM ET
Two weeks ago, we looked at the possibility of a Canadian housing bubble, and saw that this ratio is elevated , but perhaps not dramatically so. Recall from last week, however, that there is considerable variability with respect to housing data within the country. It, therefore, makes sense to look at this ratio for specific regions in order to identify trouble spots.
Considering Vancouver has the highest house prices in the country, it makes sense to start there. Consider the house price to income ratio* in Vancouver over the last 35 years:
That is a scary chart. For this ratio to be back in line with its levels of just 10 years ago, prices will have to fall by 50% or incomes rise by 100%...which of those is most likely? The former. Though this ratio can continue to rise for a while, with cheap money funding further asset purchases, it can't go on forever. At some point, it seems very likely that some heavy pain will be felt in this region.
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