Just reading this post out of the Vancouver Real Estate Anecdote Archive:
Vancouver has the highest percentage of young adults by government definitions (18-30) living at home in Canada. Much of this is cultural, where members in certain communities (Asian, East Indian just like Greeks and Italians in Toronto) do not leave home until they are married as renting is a huge waste of money in their eyes. When you leave at home for a couple years, it is very easy to accumulate a large DP when you have no expenses (someone making 30k living at home is much better off than someone making 60K having to rent). Factor in that 40% of the city is made up of primarily two ethnic minorities, and that people are getting married later, you have a situation where FTBS come to the table with very very large DPS that more than offset the high cost of houses. The do not need massive salaries to afford their homes…
[DP = Down payment, FTB = First Time Buyer]
I referred to the “Cultural Factor” as being a relevant determinant in terms of the expensive Vancouver real estate market.
I don’t think it is the “live at home” factor that accounts for a latent demand factor in Vancouver Real Estate valuations – looking at the demographic bulge would suggest that there are relatively less people of the domestic 18-30 year bracket that would be moving into their own dwellings, compared to the people coming in (immigration factor).
I do think that having a very heavy Chinese ethnic component in the Lower Mainland is a significant cultural demand component – I don’t think any other culture values real estate and education as highly as people having Chinese origins. Combine this with the perception of price stability (compared to the amount of money lost in the stock market) and it creates demand for an asset class that is perceived to be a “sure thing”.
My rational framework (which is not at all supposed to model real life reality) suggests Vancouver real estate is over-valued around 40%. But the famous quote, “the market’s ability to remain irrational longer than your ability to remain solvent” always applies, especially with real estate.