Vancouver’s red-hot housing market could be heading into bubble territory, topping the list of Canada’s least affordable housing markets.
RBC Economics senior economist Robert Hogue fears that frenzied housing prices are becoming increasingly disconnected with local demand conditions, raising the risk of a “painful market disruption.”
“I associate ‘bubble’ with irrational behaviour, and there might well be some irrationality in the pricing,” Hogue told Business in Vancouver Friday morning. “It might not be irrationality on the part of local buyers it might be from the foreign buyers.”
The local real estate market has been filled with tales recently of foreign buyers, notably from Asia, snapping up properties on Vancouver’s west side, even prompting bidding wars.
According to RBC’s latest housing trends and affordability report, brisk real estate activity in Vancouver increased B.C.’s home prices in all three housing categories during the first quarter of the year.
RBC said strong demand for high-end homes boosted prices in Vancouver between 4.7% and 7.2% in the first quarter.
According to Royal LePage, the average two-storey house rose 9.7% in value in 2011’s first quarter year-over-year, exceeding the $1 million mark.
Recent price increases have outpaced household income gains, further eroding affordability, RBC said.
Hogue is concerned the current situation could disrupt the local market.
“The best scenario I can think of is the market will flatten out possibly for an extended period of time,” he said.
“I think we might see some actual price declines at some point in the remainder of this year. For certain market segments it might look significant, but considering how much they’ve risen so far it might not be that dramatic, especially at the luxury end of the market which is where it appears to be bubbling … but we’ve been proven wrong many times in Vancouver.
“It’s been an expensive market for some time, that’s why I’m a little hesitant to be calling [any] huge market correction there, but when I look at what the numbers are telling us, this is a market that’s getting closer and closer to extreme unaffordability levels and that is never a good thing for a market.”
Joel McKay
@jmckaybiv