WSJ – ‘Chinese Fuel Vancouver Home Boom’

Excerpts from the ‘Chinese Fuel Vancouver Home Boom’, by Monica Gutschi, WSJ 1 June 2011 –
“A fresh wave of Chinese buyers, coupled with Canada’s already frothy home prices, has vaulted Vancouver into the ranks of the world’s most unaffordable real-estate markets.
Bungalows—small, detached, single-story homes, some in need of significant repair—can command prices well above a million Canadian dollars (US$1.02 million.) One local website, crackhouseormansion.com, invites visitors to guess whether homes pictured on the site are property sold for more than C$1 million or are alleged crack houses.” …
“Sales of homes worth more than C$2 million soared by 118% in Vancouver in the first four months of this year, real-estate brokerage RE/MAX reported in May. The average price in the high-end segment now tops C$3 million.” …
“Vancouver real-estate agents say Chinese buyers dominate the high end of the market, fanning demand and prices across the city. The strong demand for high-end homes has helped drive up prices for more modest houses. Some Vancouverites are selling their now richly valued homes and buying more-expensive ones, while new buyers are scrambling to buy before prices rise further, agents say. “It creates this positive vibe, this dynamic to the market that is upbeat,” says Elton Ash, vice president for western Canada at RE/MAX. …
The city always has been more expensive than most in Canada. Its location, sandwiched between the sea and the mountains, constrains the supply of available land. Vancouver also has long been near the top of global surveys in terms of quality of life. The 2010 Winter Olympics helped showcase the city to the world.” …
Some economists are starting to wave warning flags. Royal Bank of Canada says monthly carrying costs—mortgage payments, property taxes and utilities—for a detached bungalow represent 72% of the average Vancouver household income. That is more than double the 32% threshold that Canadian banks use to gauge whether a borrower can handle a loan.
“The prices appear disconnected to the level of activity and the balance of demand and supply,” RBC economist Robert Hogue says.”

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For the record, the author of this WSJ article had a conversation with vreaa during it’s writing. Obviously the article is of interest, and is important to students of our RE market, because it gives prominence to the ‘Chinese Fuel Vancouver Home Boom’ meme in a respected international publication with wide readership. As a story about the Vancouver RE market, it is, however, lacking. Mention is made of low interest rates, easy borrowing, and “new buyers scrambling”, but, in our opinion, it should have put all the facts together and explicitly concluded that local buyers are responsible for this speculative mania. China is a subplot. It is remarkable that a US based publication, circa 2011, can’t see a housing bubble for what it is. – vreaa