Is it affordable to buy a house in Vancouver? Vancouver is the second-most-expensive city in the world after Hong Kong, though I am lucky to live in this beautiful city.
Vancouver Real Estate Affordability
Quick google search showed up that
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Employees in Vancouver, British Columbia make an average salary of $56,342.
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The median total income for households in Metro Vancouver was $72,662 in 2015.
Perhaps some families have uncounted cash income, but for Vancouver families with two salaries, I am going to assume that an income of $150,000 is above average.
What can you buy with $150,000 in annual income? The rule of thumb is that you can afford a house that costs three times your annual salary (e.g., $150,000 * 3 = $450,000). Having an average annual salary of $150,000 means that $450,000 is the highest price you should consider when buying a home. Even if we consider a family income of $200,000, still, a $600,000 home is the limit. This is far from the current price range ($1,000,000 +) of detached homes in the city.
My point here is that even for those who have above-average salaries—for example, a nurse and an electrician—buying a home is not affordable in Vancouver. Stretching mortgage payments to thirty years and paying the whole paycheck for it each month is not affordability. It is, financially, the wrong decision.
What Are the Main Drivers of Vancouver Real Estate Prices?
1. Low Interest Rates
Interest rates have been low for a while, and, in my opinion, they are the main reason for the high real estate prices. Such low interest rates exist all across Canada, but the price jump occurs mostly in Vancouver and Toronto.
2. Hype
Real estate is always in the news. Of course, it is one of the main industries in British Columbia that fills the provincial coffers with money. You have certainly met or spoken to somebody involved in real estate—whether a realtor, a mortgage broker, a flipper, or a homeowner. It is the most popular topic at the poker table, at least at the one where I am playing.
3. One of the Most Livable Cities in the World
Good parks, public transportation, and climate and low crime make this city one of most livable cities in the world. Wild nature just an hour’s drive from the city makes it a very attractive place for nature lovers.
4. Need for Shelter
This point is relevant to any city. Most people buy a home not as an investment but as a place to live, and the desire to have a high standard of living pushes people to take on a lot of debt to buy a home. A house is a tangible object—unlike investment in a business, where growing earning per share is merely something on a sheet of paper.
Who Is Buying?
Foreign buyers? I am not sure. I think that foreigners’ contribution is smaller than that of locals. Locals are the main drivers of high prices. Low interest rates have contributed a great deal to the real estate prices, loading debt on the shoulders of borrowers.
As for me, I will be waiting for prices to go down to what I can pay. One scenario in which this may happen is when the global economy significantly slows down. In such a situation, it will be very hard for homeowners to keep paying those huge mortgage payments, and somebody will need to sell. Flipping houses, another contributor to high real estate prices, will not be a good business the way it has been during times of economic growth.
This has become a messy post with all my thoughts and feelings about real estate in Vancouver. I feel torn between the rationale of not buying at these prices and the wish to have a house big enough to accommodate our family of five.
Dear reader—what do you think about Vancouver real estate?
That is heck of a post!!! Although its not promising or better say comforting, but many folks can relate and feel Okay about not buying for time being.
With $150,000 income and with good broker you probably can qualify around 800-850k mortgage with 10% down.
There is still a need to pay back borrowed money and it will be around $4,000+ monthly payment. Paying $4,000+ monthly a family with $150,000 income will not be able to save money for children education, populating TFSA and retirement (RRSP) accounts.
When I read your post that the investment in real estate is the financially wrong decision, it brings smile to my face. Just take one minute of break and check the price of the home at 2015 when you started your posts and nowadays. I believe that with all interest rate that you would pay all those years to bank (Don’t forget calculate the amount the you paid already to your landlord to cover his mortgage that will never return to you instead of covering your own mortgage), you would already see that the profit is much higher than you did by all your investment diversity.
And today by adding all the money you earned by passive income for 5 years you’ll need to take higher mortgage than in 2015 for the same house.
The same would hear you from people who purchased houses 20 years ago.
Do you really think that prices will drop in Vancouver to the convenient level for you of 450k ?
Hi Slava! Long time, no talk 🙂 How are you?
I believe you misinterpreted author`s post. The author had never mention that “investment in real estate is the financially wrong decision”, because if you read all of his posts, you`d know he had invested into real -estate quite few bucks 🙂
The idea of this post is to raise awareness of what we pay VS what we lose when paying extremely high price in cities such as Vancouver.
Some people, and its pure psychological need, will buy at any cost, and willingly pay very high mortgage, have no vacation or spare money whatsoever to spend for luxuries, but still be very happy with it. and its totally fine. But these people , probably do not have an option to save money.
Now, if you don`t save, you don`t invest. If you don`t invest, you have no passive income. If you have no passive income, you have no safety net.
If you loose a job, or you get disability that hurts your income, and having no savings….what you do???
We can talk about this forever…but all the author wants is to share his own experience and let people know that you may still be happy without buying a house 🙂
I am glad to hear all is going good for you and you are enjoying Canada!
Cheers,
Marina
Hi Marina!
Hmm, you’re talking about passive income de-facto as putting money a side and investing them.
Lets take those people who purchased 5 years ago the house and didn’t invest the money as they had not spare money and took the risk. Today if they even are obliged to sell their primary residence and return to rent that is for sure not so nice condition, will get a profit that would be enough to invest in couple of condos + some money into their RRSP and TFSA. Also taking the differences in price appreciation they can today start investing the money. As about still to be happy without your own home and some extras at our age, I agree with that. As students we were there, and were really happy, do you really want to stay at that point today ?
As for me, I prefer to have investment with having my own home but not instead.
Hi again 🙂 We should stop meeting like this….when are you traveling to our part of the coast? Will be super to happy to see you and chat about finances! I am glad you have the passion for it.
Totally agree with you…real estate did make good money for people who purchased 5 years ago, especially in Vancouver and Toronto locations, market is extremely hot for these two cities.
Again, I have nothing against owning a property, I just don`t think its very wise considering the salary vs price ratio. Also, if you are talking what makes me happy….is the fact I can retire at my 45-50, and not having to work until I am 65-70. Whether I rent or own, as long as money works for me and not the other way around, I am good 🙂
BTW, your thesis only confirms my theory that buying and owning a property is pure psychological need and nothing more…..