This post is brought to you by a real estate crash near you and the letter "L" which stands for Losses, as in large equity losses in real estate.
Your average Sesame Street watcher could understand what the lines on this graph mean and why Vancouver is likely to folow the pattern set so clearly by cities like San Francisco, Los Angeles, Seattle, or Portland.
This chart is courtesy of Seattle Bubble Blog.
Let us, for argument's sake, say that the Vancouver House Price Index peaked in March 2008 and that our market will follow a similar trajectory to Los Angeles. One year from now house prices will be at 92% of their current value. This means that your average $500,000 townhouse will be worth $460,000. This is a potential savings of over $3,000 per month just for waiting on a very important purchase. Can you afford to lose $3,000 per month?
Let's go out another year from there and see where our $500,000 townhouse is now. 24 months from peak in a place like San Diego would mean that our $500,000 townhouse is now worth $420,000 which translates into a loss of $80,000 or just over $3,000 per month for two years straight and prices are not finished coming down yet.
I don't know about you but paying $3,000 per month in mortgage payments on a place that is losing value at a $3,000 per month clip means that you are 'spending' $6,000 per month for housing - that is an expensive house.