Is Vancouver in the midst of a real estate bubble? Will it burst?

Affordability is such a hot topic in Vancouver right now, one that affects everyone in the city. But we’re sick of repeating the same old stories about rising house prices. We don’t just want to keep telling you that it’s happening, we want to find out why it’s happening and what can be done to tackle it.

Vancouver Affordability Series

Part 1: How Vancouver got so expensive and what you can do about it
Part 2: Why are wages so low in Vancouver compared to other cities?
Part 3: Is Vancouver in the midst of a real estate bubble? Will it burst?
Part 4: Opinion: Why I chose to move to Vancouver
Part 5: Land-locked region: Is geography a factor in Vancouver’s affordability crisis?
Part 6: What exactly does it take to afford to buy a home in Vancouver?
Part 7: Here’s what $448,000 can buy you in each Vancouver neighbourhood

For the past decade, housing prices in Vancouver have undoubtedly soared to the point of absurdity. Every month, new records are broken, and demand far outstrips supply in the city. So does this mean we’re in the midst of a real estate bubble that has the potential to catastrophically burst?

The Bank of Canada recently released a report that calls the rapid growth of home prices in Vancouver “unsustainable.” They say the potential for a downturn in prices in the city is becoming likelier.

In spite of what this might suggest, the nation’s bank was careful to note that this was merely speculation, and while it’s not guaranteed that the bubble will burst, it might happen.

Thomas Davidoff with UBC’s Sauder School of Business believes that as long as foreign investors continue to flock to the city, things will likely stay on an upward trajectory.

“When demand grows, we don’t get more supply, so much as we get higher prices,” he tells Daily Hive. “In the long run, there’s going to be more rich people chasing after Vancouver real estate for sure – in the last year, we know there’s been an exodus of money from China.”

A weak looney likely contributed to even more international buyers chasing the dream of the ocean, temperate climate, and natural beauty Vancouver has to offer, says Davidoff.

“I think there’s legitimate stimulus that’s probably not going away.”

With the influx of foreign money comes the “fear of missing out,” as Davidoff puts it. With short supply and more people flocking to the shores of Vancouver, many locals are clamouring to get into the housing market before they’re completely priced out and because the investment opportunities are irresistible.

“People say ‘jeez, prices went up 20% per year, I ought to buy,'” he says. “I think a lot of people have the belief that you can’t mess with Vancouver real estate, and I think with the surging international demand, that’s a view that has been correct to date.”

Davidoff adds that even if prices did fall by as much as 40%, nobody would call Vancouver’s home prices a bargain.

“That wouldn’t do anything for rents, and if you don’t have a large downpayment, you’re still out of luck.”

In the end, it’s impossible to predict what will come of Vancouver’s housing market, so proceed with caution.

“I wouldn’t want to bet on where the outcome is, but I think there’s a huge amount of volatility around where prices will be a year from now.”

“What the fundamental value of a home in Vancouver is a very, very hard question to answer.”

Even if money from China runs dry, Vancouver could see foreign investors from other countries coming to the city.

“We are a tax haven and we’re stable and we’re attractive, so there’s all kinds of reasons for people to have astronaut family structures or pied-à-terre vacation homes here as opposed to almost anywhere else in the world.”

“I think without the foreign money, the local market would collapse, I really do,” he adds.