Vancouver Real Estate Serves Up Bubbles

What’s for Dinner

Have you happily been eating ‘bubble’ fodder on your Vancouver real estate plate?

If so, then Sherry Cooper, BMO’s Capital Markets Chief economist just changed what’s being served.

Vancouver Balloons

Regardless of rising household debt, low interest rates and high Vancouver home price, Cooper’s report says that it is unlikely that a sudden correction will happen.

According to Cooper “the housing boom is more likely to cool than correct. An exception she claims is “pricey Vancouver”, where the number of unoccupied newly built condos is high owing to the Olympic Village construction in 2010. “But,” she states, “Montreal has more vacant condos than Vancouver and a much higher condo rental vacancy rate.”

Not to Worry

“Concerns about a “bubble” stem from a doubling in nationwide house prices and a rapid increase in household debts over the past decade. Average prices have grown more than twice as fast as family incomes since 2001. Consequently, comparing the current ratio of average resale prices and personal incomes with its long-term trend suggests a moderate degree of over valuation, though less than before the early 1990s correction.”

“The main take away is that the national housing market appears somewhat pricey, but is far removed from bubble territory.”

Then Again!

Vancouver’s ratio currently sits at 10 times higher than average household income.

The caveat is that there are three risks to BMO’s outlook:

  • risk of a material correction if interest rates were to spike
  • a severe recession would reduce affordability and demand
  • if foreign investment stalls due to a hard-landing in Asia

Even so, Cooper tells us that “barring one of these triggers, a dramatic correction is unlikely. In our view, the national housing market is more like a balloon than a bubble.”

Sherry Cooper’s BMO Report Financial Post View CBC’s Perspective Image National Geographic via Infoniac

About Larry Yatkowsky

Larry is a recognized real estate expert. A veteran professional, his experienced counsel leads Vancouverites in his west side community to place their trust in a man passionate about his work. Uncompromising ethics bring a balanced approach to realizing your real estate dreams.

When Life Moves You - contact Larry:

*Disclaimer: Statistics Courtesy REBGV. While believed to be accurate they are not guaranteed.
**Numbers provided may vary as they are dynamically posted by the REBGV.

Reader Comments:

Mr T Says:
January 30th, 2012 at 9:23 pm

Real estate is now the riskiest asset to buy at this time. If there is a large correction, that would leave behind huge debt when interest rates rise. Condos are the most at risk as there are many areas of the city are overbuilt. The sales of new condos have slowed to a halt. This spring, look for sale pricing for many condo developments. It would be cheaper to buy new than resale units. So patience if you’re looking for a condo.

fish10 Says:
January 30th, 2012 at 9:58 pm

Larry

The aforementioned Sherry Cooper is trying to sell her $3M house right now:

http://www.greaterfool.ca/2012/01/30/guidance/

No mention of that in her report 🙂

January 30th, 2012 at 10:06 pm

@fish
that my friend is called ‘Excellent timing!’ Must have been advised by a great Realtor 🙂

BubbleBoy Says:
January 30th, 2012 at 10:19 pm

Larry,

What happen to “no love for greaterfool”? You didn’t let me post that link once.

Sherry Cooper has had her home on the market for several months now. She might be already too late as the flood of listings are about to hit the market. The GTA area is slowing down like out here, exception to pockets of the city are still selling fast. Just like Van east, some properties sell really fast and over asking price too.

January 30th, 2012 at 10:26 pm

@bubbles
selective dementia

Reasonfirst Says:
January 31st, 2012 at 9:19 am

“It’s more like a balloon that inflates and deflates,” he said. “The air is coming out of the balloon, but the bubble is not bursting.”

http://davidlereahwatch.blogspot.com/2006_03_01_archive.html

I hope you all know who David Lereah is.

(Credit to Jesse at VREAA for finding this gem)

January 31st, 2012 at 10:08 am

@reason
Not defending the guy but in all of that is a disconnect. Guess I’m missing the relevance.

Reasonfirst Says:
January 31st, 2012 at 10:28 am

I’m sure some of your readers will get it.

Boombust Says:
January 31st, 2012 at 4:29 pm

“I’m sure some of your readers will get it.”

I do! I do!

(Sherry Cooper and David Lereah are one and the same. Get it?)

vangrl Says:
January 31st, 2012 at 5:36 pm

Wow, it’s like Sherry Cooper read this right before she released her report:
“We have had five consecutive record years, and you can’t sustain that forever,” David Lereah, chief economist for the National Association of Realtors, said at the New England Realtors Conference held in Boston yesterday. “2006 is a year to catch our breath.”

Lereah said predictions reported by some economists that a real estate bubble is on the verge of bursting are misleading.

“It’s more like a balloon that inflates and deflates,” he said. “The air is coming out of the balloon, but the bubble is not bursting.”

Lereah said most local housing markets are healthy, though home sales in 2006 will likely not be as strong as in recent years. But sales could bounce back in 2007 and for the rest of the decade.”

… I’m thinking she probably wishes that she listed her place a bit sooner than 3 months ago.

January 31st, 2012 at 5:48 pm

@vangrl et al

And on the other side of the coin –

from the Financial Management Institute

Dr. Cooper received the Lawrence R. Klein Award for U.S. forecasting accuracy in 2010, beating out a panel of 50 economists predicting the four-year period from 2006 to 2009—the period encompassing the U.S. housing bubble, financial crisis, recession and recovery.

Canada’s national newspaper calls Dr. Cooper “the megawatt celebrity economist.” She leads a highly respected economics team and has been repeatedly cited as one of the most influential women in Canada.

“Dr. Cooper has an M.A. and Ph.D. in economics from the University of Pittsburgh and began her career at the Federal Reserve Board in Washington, D.C. Following five years at the Fed, she joined the Federal National Mortgage Association (Fannie Mae) as director of financial economics and moved to Canada in 1983 to become Chief Economist at Burns Fry.”

From my ‘unbiased’ perspective she does have cred and seems to have earned her stripes.

BTW, she is not taking me to dinner on Friday. 🙁

YLTNBoomerang Says:
January 31st, 2012 at 7:13 pm

She may have won the award in 2010 but one can only be right until they’re wrong. No economist, no analyst, no individual has always been right at predicting economies; Buffet did not bad. Anyway, my point is that the longer someone has been right, the more likely they will be wrong; statistically speaking that is as the fat tail always gets you!

Reggie Says:
January 31st, 2012 at 7:44 pm

Hi Larry,

Bernanke thought there was no systemic issues with US real estate before it burst. He has a bunch of fancy school/degrees too. Sherry is paid to give a message.

In my humble opinion, and much to my surprise and shock, the locals here in the market seem to be getting nervous.

Any coffee talk updates?

Larry, as always, thank you on behalf of all your blog followers for your posts/efforts, hope you are doing well!

RL

vangrl Says:
January 31st, 2012 at 8:15 pm

oh, that is quite an impressive review of Dr. Cooper.

still think we’re in a big bubble and not a slowly deflating balloon…

Re-diculous Says:
January 31st, 2012 at 10:02 pm

“TIMBER”….this baby’s coming down!

beard of bees Says:
January 31st, 2012 at 10:08 pm

Thanks Larry for finding a story where Dr Cooper beats the market. I will balance that with this one.

http://www.cbc.ca/news/business/story/2001/11/09/dollar091101.html

Looking forward to the Jan averages! Will be interesting. Some uber high end properties sold which will skew the distribution upward.

Peter Pan Says:
January 31st, 2012 at 10:59 pm

Sherry Cooper would have difficulty predicting tomorrow’s sunrise if it was an economic event… Sorry to pop her “balloon” (pun intended).

http://www.cbc.ca/news/business/story/2001/11/09/dollar091101.html

Let us revisit November 2001…

“At the close of official Bank of Canada trading, the loonie was at 62.37 cents US, down 0.17 cents from Thursday’s record low close of 62.54 cents US.

BMO Nesbitt Burns chief economist Sherry Cooper said the loonie’s slide is inexorable and she urged Canada to adopt a common currency with the United States.

“What makes us think we can buck this tide? Let’s dollarize and get it over with while we still have something to bargain with,” she wrote in an e-mail sent to clients Thursday.”

Great call Sherry!

Reasonfirst Says:
February 1st, 2012 at 2:13 pm

🙂

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