Making Sense Of Canadian Real Estate Prices

April 4, 2010

 Canadian real estate and money supply

Real estate as an asset class is subject to supply and demand like any other goods that are in demand by people. The historical prices for Vancouver real estate may have a close relationship with crude oil prices and the supply of money for Canada and the world (global supply).

The following table summarizes the prices for real estate, crude oil, gold and the supply of money as recorded for January of 1990, 2000 and 2010 – for a period of 20 years.

Time Period Jan/1990 Jan/2000 Inc. 1st 10 Yr Jan/2010 Inc. 2nd 10 Yr Inc. 20 Yr
Van SFH $300K $380K 27% $950K 150% 216%
Van Thse $190K $220K 16% $355K 61% 87%
Cdn $ Supply $18 Billion $33 Billion 83% $55 Billion 67% 205%
Global $ Supply US$17 Trillion US$26 Trillion 52% US$64 Trillion 146% 276%
Crude Oil/barrel US$20 US$27 35% US$68 152% 240%
Gold/oz US$380 US$280 -27% US$1100 293% 189%

Charts and data source: Real Estate Board of Greater Vancouver, and Kitco.

First 10 years – 1990 to 2000

During the above 10- year period, the home prices for single family homes and townhomes in Greater Vancouver made moderate gains of 27% and 16%. The increase in crude oil price and the supply of money were 2 to 3 times more. During this period, the money flow into real estate was moderate. In fact, there was a rapid gain in home prices from 1990 to 1994, followed by 5 years of price decline and low demand for homes in Greater Vancouver.


Second 10 years period – 2000 to 2010

As you can see from the table above,Vancouver single family home price gain, crude oil and global money supply were closely related. The Canadian money supply was increasing at half the rate of global money supply. Some of the global money could have been invested in the Canadian real estate market. Real estate prices all over the world, especially in the developed countries all experienced double digit gains.

smallglobalmoneysupply.jpgNew money and old money

The rapid rise in home prices, easy money policy from CMHC and low interest rates all helped to fuel the real estate boom.  Canadian banks were very liberal in giving out “home equity lines of credit” to home owners whose homes had more than double in values.  With rapidly increasing values, real estate looks like a sure winner.

image002.jpgWill real estate prices collapse?

This may not look likely if real estate is treated like an asset class and an investment that can gain in value – so far this had worked over the past. As an investment, real estate consistently out-performed many other forms of investments.

kitco.gifAs can bee seen from the data above, real estate prices are in syn with crude oil prices, global money supply and gold. China has a strong influence on Canadian real estate, and for many years the flow of money from China has not slowed down. Canada as a favoured country for immigration and investment, will continue to enjoy the confidence from local and overseas investors.

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