“I made $185K in 2001; $215K in 2010. Ten years more experience accounts for some of that increase. How can prices of high-end houses have sustainably tripled!!? What has changed since 2001, except interest rates and stupidity?”

TIME MACHINE at vancouvercondo.info January 1st, 2011 at 11:09 pm writes – “Houses that sell for $800K today were in many cases much less than $300K [ten years ago]. Take a look at this link listing some 2001 Vancouver sales.
1105 W 32ND AV is interesting. In 2001 someone paid $585K for a 3000 sq ft house on a corner lot in Shaughnessy that is at least 50 feet wide. That house would be a minimum of $1.8m today.
What has changed since 2001, except interest rates and stupidity? In 2001, BC had a healthy forestry industry. What industry does it have now, other than real estate development??
I am at the top end of income earners in this city. I made about $185K/year in 2001. In 2010 I made about $215K. Ten years more experience accounts for some of that increase. How can prices of high-end houses have sustainably tripled!! when my high-end income hasn’t even gone up by 20%?
Please don’t mention rich Asians, etc. because they have been here for decades, and were certainly here long before 2001.”

Great comment, TIMEMACHINE; directly to the crux of the matter.
Growth in price of housing cannot sustainably depart from growth in incomes. See the illustrative chart below. And see this post for the source of the temporary divergence. -vreaa

25 responses to ““I made $185K in 2001; $215K in 2010. Ten years more experience accounts for some of that increase. How can prices of high-end houses have sustainably tripled!!? What has changed since 2001, except interest rates and stupidity?”

  1. A friend put it best: “When I moved here I knew I was moving to a resort town, not a large, cosmopolitan city.”

    So if she could figure it out even before she got here, I am sure eventually the people living here will too.

  2. What exactly is the justification for linking home/real estate prices with an individual’s personal income?

    • Are you serious dude….
      That is how we measure all sorts of things particularly housing affordabilty.
      That is when most astute investors know when to get in and especially when to get out. The greater fool, usually the bottom of the barrel citizens are always last to the party and always left holding the bag.

    • It’s a price-earnings ratio for real estate. An investor would look at the price-rent ratio or net yield as he would look at the revenue and earnings of a corporation.

    • This is the funny thing: society’s lost sight of the fact that wages do have to pay for all the debt … and that wages servicing mortgage debt aren’t stimulating the rest of the economy.

      • Not surprising. Most people have no idea what money is (work) and what debt is (a promise to work in the future).

  3. THANK YOU – FINALLY.

    The crux, indeed. Have you anyone in your immediate circle whose AFTER tax income has tripled in 10 years?

    Most people are falling behind.

    Union sinecures in the dead Forest Industry are over.

    RE, money laundering and drugs – are the main industries here. Don’t talk to me about Hollywood North – that died a few years ago.

    Nasty times ahead for a lot of brain dead people.

    In spite of gloomy above – we can get out of this mess by raising rates and getting the pain over now. Forestall much longer and oy, vey.

    • RE, money laundering and drugs – are the main industries here. Don’t talk to me about Hollywood North – that died a few years ago.

      So has the gaming industry which was once “Hollywood North 2.0”. So it goes.

      BTW, a real estate correction in and on itself will not fix the problem. I am not quite sure what could be done in the lower mainland to actually get good paying jobs and businesses to move in. It seems for all it’s beauty it’s rather slacker central.

  4. I’m going to mention rich Asians, because there are a lot more of them now than there were 10 years ago. I live in West Richmond. In 2001, my neighborhood in west Richmond was maybe 30-40% East Asian. Now it is 90% East Asian. The original 1960s houses are 90% gone, replaced with big box homes. The prices are high because there are people (mostly rich East Asians) willing to pay these prices for the benefits of living here.

    • 4SlicesofCheese

      Yup there are asians coming here, not all rich.
      Even if there are a lot of rich asians coming here and buying up homes, where do the people that owned those homes go?
      They don’t disappear.
      Unless they all became renters I do not see how this makes any difference. Those people who sold to the “rich asians” also buy back into a overpriced market, but with local wages. In time that will sort itself out.

      • Here are the stats on immigrants for you:
        http://www.theprovince.com/life/Xenophobes+beware+more+immigrants+coming/4026180/story.html
        According to this article (which derives its data from StatsCan), 5558 immigrants came to BC in 2009 in the “Investor” category, meaning that they claim a net worth of $1.6 million. (The article might have it wrong, I think it was only $0.8 million for 2009.) The most common country of origin for the BC immigrants is China. And the most common destination for the immigrants is Greater Vancouver.

        So, you are right, not all immigrants are rich. But there are a lot of rich ones too.

        Of the SFH owners I know who left the neighborhood, 1 moved to Alberta, 1 died at the age of 93, and 1 downsized to a local condo. This is a very small sample. But certainly not all stayed local. It would be nice to have more anecdotes on this topic.

      • 4SlicesofCheese

        “Generally, people coming in the “skilled worker” and “family” categories dominate B.C. immigration.”
        So these immigrants are in the same boat as the local population.

        Interesting I recently saw a documentary on CTV W5 about skilled workers in Canada, the people in the doc regret they ever came to Canada and most discover there are no jobs in their field allowed them to apply for the skilled worker category in the first place. They have gone as far as creating a website called http://www.notcanada.com although it has since been shut down.

        I know alot about the “rich asians”, my wife is from Taiwan, my best friend is from China and recently some of his aunts and uncles have immigrated here. Probably on investor visas since I do not see them working. They are all real-estate crazy. Just because a lot of these investor class Chinese people buy real-estate does not mean it is a good investment. My best friends family owns a factory in China, but that does not mean they are business savvy at all.

        I am curious, other then real estate, what else can they invest in? A BBQ restaurant? A food stall at Crystal Mall?

    • Just out of curiosity: Did it ever occur to you that those aren’t “rich Chinese” but rather Chinese immigrants that have gone to the bank and got a mortgage?

      That’s the biggest problem: Asian person buying house –> Rich Asian.

      Don’t know about you, but I have met many Canadians that look very Asian to me but have only visited distant family in China.

      I know that ICBC keeps “track” of sex, age, race (though I guess they’d call it cultural background) etc. so I am sure the banks do the same thing. Would be nice to have someone wikileak their mortgage portfolio.

      • I only vaguely know 2 of the new East Asian families that moved into the neighborhood. Both are Chinese. From what I can tell neither of the fathers live in Canada, and neither of the moms work. Does a mortgage on a Canadian house have to come from a Canadian bank? Can the father get a mortgage from a Canadian bank if he doesn’t work in Canada? If not, I guess “Rich Asian” is an accurate description.

        I agree, more solid data would be very interesting.

  5. an example like this one, if you made 185k in2001 inrCease to 210k in 2010, and if you still cannot afford to own a big house in this town, dont blame the market. Blame yourself first. Unfortunate, people dont see how bogus it is.

  6. The market sets the value on assets/real estate/gold etc. The appropriate price is whatever someone is willing to pay for it. Tying the value of RE to someone’s wages is irrelevant to market value.

    • Raj -> That ignores the experience of millions of other individuals in innumerable RE markets around the world.
      RE price growth always reverts to income growth.

      • Raj is rich. He cannot understand the earners POV. For the rich the price is dictated by the market for the earners the price is dictated by affordability
        (amount they can pay for housing while being able to maintain their standard of living).
        Crystal clear!

    • The market is, in the majority, made up of people who make money by working.

      Those who are truly wealthy beyond wages aren’t a huge percentage of the population; and further, if those truly wealthy people went on to own Most Of The Real Estate, they would find that the rental return on their investment sucks – people can’t take out mortgages to pay their rent.

      “The market” isn’t a magical genie. It’s people spending the money they have.

    • Ah, you are one of those people that believe in Eternal Growth, eh?

      The amount of resource available (in this case cold hard cash or earnings if you want) IS a limiting factor.

      The “all knowning markets” don’t know anything they are are purely driven by wild guesses and reaction to events outside of it’s sphere.

      Or to put it differently: The market is dumb, if you know when it is really dumb and invest accordingly you win. If you believe the market knows best you’re going to get fleeced.

  7. To add to the comments; It is important to note long term growth of real estate as the aggrigate of a specific market has historically kept pace with inflation. To see why consider the simple truth that real incomes in developed countries don’t grow. Therefore there is only a certain ammount of income that can be allocated to real estate. For every dollar that is allocated there that is one dollar not allocated elsewere.

    A similar and just as relivant parallel can be drawn towards commodities. They have never gone up in real prices over the long term. This is because they are an input to the cost of doing business. I think the only commodiy that can be excluded from this is Oil due to scarcity however is still just a “tax” on non oil business.

    If you wan’t to see some interesting graphs:

    Cotton
    http://www.commoditycharts.com/ccharts.asp?sym=CTH11&code=XVSN&domain=commoditycharts&hideheader=y&showquote=y&studies=Volume;&cancelstudy=&a=M

    Sugar
    http://www.commoditycharts.com/ccharts.asp?sym=SBH11&code=XVSN&domain=commoditycharts&hideheader=y&showquote=y&studies=Volume;&cancelstudy=&a=M

    Graphs look the same for almost every commodity. Note that the growth in these out paces the growth of

    1) savings rate
    2) corporate earnings growth
    3) inflation swaps are rising and will soon outpace the savings rate

    Note these trends are not sustainable.

  8. Unagi don: Foreign buyers ie. buyers who live outside of the country can qualify for a Canadian mortgage, with a 30% downpayment and proof of income etc. A foreign buyer can also secure an international mortgage. Lloyds of London for example offer variable rates and various options of paying in different currencies. However, if you are not a resident of Canada, when you sell your Canadian property you are subject to a 25% federal tax on any gains on the value of the property. I believe that to maintain your resident status you must reside in Canada for a minimum of 180 days a year. If the father is not residing in Canada, then then the mother could be subject to the non-resident tax status.

    The reference to rich Asians, one would assume is to Asians who are immigrants who are residing in Canada. For the record, HSBC told us that they would give us a mortgage with 40% down even though we had returned from working overseas after a long period away and no longer had a credit history here and no income in this country.

    Raj: Sounds like a typical realtor.

    • Yep with a large enough DP there is close to zero risk for the bank. The bank gets its money no matter what, even after foreclosure, save fraud, a calamitous drop in prices, or a massive uninsured catastrophe.

    • . I believe that to maintain your resident status you must reside in Canada for a minimum of 180 days a year.

      That’s what it in the end works out to, but they average it out over five years.

      There are also exceptions, if you’re married to a Canadian citizen but live abroad the clock isn’t ticking on your PR status, likewise, if you work for a Canadian company that sends you abroad your PR does not expire.

      So, it’s quite possible for the guy not to be in the country but retain his PR (or maybe he even has citizenship, in which case he can live wherever he pleases for as long as he pleases).

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