Well, well, one of the big banks finally put out a report that says what many of us has known for quite some time - houses are too expensive for most people and the situation is unsustainable.
Here is the report.
Here are some quotable quotes:
"There is little doubt that current trends are unsustainable. The current housing boom is now the longest of the post-war era (going on nine years) and has seen one of the largest cumulative real price gains (more than 60%). Builders have become more cautious as mortgage rates drift up and cost pressures mount, but total housing starts are still well above annual household formation levels of around 180,000.
Moreover, there is growing evidence of overvaluation in home prices in some parts of the country — a precursor to a period of softening conditions. To identify which domestic markets may be more vulnerable, we have calculated the percentage deviation of real house prices from their long-term trend. While a relatively simple benchmark, it nonetheless provides an indication of current valuations relative to historical norms. Our analysis looks at 15 major markets across the country for which comparable data are available."
"Nevertheless, the further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction. The 1976 and 1989 housing peaks were both followed by some adjustment in real prices. In the past, this adjustment has normally occurred though a period of inflation erosion as opposed to nominal price declines."
They also gave specific overvaluation numbers for each of the 15 major cities in Canada with Vancouver being 13% overvalued compared to some long term trend which I don't quite understand yet. I'll have to give it a more thorough read when I get the time.
In all the report is fairly balanced and is by no means a doom and gloom report. It takes national view and stays away from commenting too much on certain markets.