Only 26%? Fitch report blasts Vancouver housing as overinflated and local realtors weigh in

A Fitch Ratings report pegs British Columbia housing prices as 26% above actual value, and predicts a correction within the next several years. Is this really possible? We asked local real estate professionals.

This sweet bungalow could have been yours. This was the largest home for sale in Canada in 2008, compliments of LuxuryRealEstate.com, and it was in the Vancouver area. Priced to sell at $13,000,000, its square footage was listed at 44,340.

BC leads Canada in 'overvalued' real estate prices

Do you think Vancouver real estate is grossly overpriced?

The Globe and Mail published an article covering the latest Fitch Ratings report on the Canadian housing market, and it looks like Fitch agrees with you.

Surprise, surprise; British Columbia is leading the pack in terms of overinflated real estate:

“This story is similar throughout Canada,” it added. Its estimates of the overvaluation in Ontario, Alberta, British Columbia and Quebec are 21 per cent, 15 per cent, 26 per cent, and 26 per cent respectively.

That money quote is from Appendix C of the report itself, which is titled "Canadian Residential Mortgage Loan Loss Model" (subscription link). The paper itself focuses on potential losses faced by Canadian mortgage pools, but the issue of property costs linked to those mortgages is as inescapable as it is quotable.

It's clear why the Globe and Mail would focus on the home-pricing aspect of the report: it's as easy to grasp as it is spectacular. However, for those with experienced in the real estate market, the article raises as many questions as it purports to answer.

I spoke to several local real estate agents to get their take on the issue.

It all comes down to buyers & sellers

North Shore broker Jack Ying said, "In my local market, the North Shore, I don’t really think that it’s overpriced or anything like that. Nobody’s forcing anybody to buy stuff over here. [...] It all comes down to buyers and sellers. If nobody’s willing to pay, then [those properties] won’t sell.

"Those [expensive] areas are just more in demand. That’s it. If you want to say it’s overpriced by 20%, then based on what? Who’s paying that 20%? If we want to blame foreign investors, well, they’re buyers, too. Nobody knows how long that’s going to last. If investors think that [Vancouver] is no longer a good deal, then they’ll move on to something else. All these things are ongoing.”

Predicting the future

Point Grey specialist Ken Wyder told me, "For now, [the market] is stable. It's all tied to broad economic factors. If interest rates were to rise dramatically, then we’d see a change. Unless that happens, though, people are living. I had a strong opinion back in 2008 that the bidding going on was not sustainable, and I was right. Now, though, who knows? I can’t really predict the future.”

Look at the trends

Another broker, who wished to remain anonymous, responded not to the Globe & Mail article itself, but to the trend that the article suggests: “All you have to do is look at the trends. The transactions are off. There are just not as many sales out there. There has been a leveling off, but now things are picking up. How long that lasts is anybody’s guess.

"Ultimately, property values are set by the market. As long as there is one buyer for one property, that is the value of that property.”

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