I get asked a lot if Vancouver Real Estate is in a bubble. Whenever I evaluate this question, I always have to ask against what are we measuring? What usually proceeds is a litany of responses from price to income to price to rent, to whatever other favorite indicator that people like to use in historical norms. So I won’t rehash it here. But I will try to bring a new perspective to this conversation today. If we are to evaluate Vancouver Real Estate using the conventional unit of measurement it would appear to the normal person that indeed, we are perhaps in a bubble. That unit of measurement happens to be good old CAD or Canadian dollar. A quick search on the REBGV site show that detached properties averaged 532000 CAD on Jan 2005 (a crude 2 second search landed me upon this date as it was the earliest date they had on this particular page I was looking at. But you can probably do this with any other date you choose, nothing special here). And the latest data in December 2019 after we have had a bit of a correction is about 1423500 CAD. Anything that went up almost three times in 15 years looks suspiciously bubblish (S&P 500 also about tripled in the same period btw).
But as any good investor knows, the unit of measurement matters when you are evaluating an investment, this is because currency values are not fixed. So I did something simple, what if I swapped the unit of measurement? What if I chose one of the oldest units of measurements we have used and measured the benchmark price in ounces of gold? Well let’s see what the results say? On Jan 3rd, 2005, the spot gold price in CAD was 519.57 dollars CAD, on December 30th, 2019, the spot price was 1978.87 CAD. This meant that if we are to price the detached benchmark prices not in CAD but in ounces of gold, we would get the following results:
- In Jan 2005, it would cost you (532000 / 519.57) or 1023.92 ounces of gold as the Greater Vancouver Detached Benchmark.
- In Dec 2019, it would cost you (1423500 / 1978.87) or 719.35 ounces of gold.
But wait a minute, so the price of the benchmark GV Detached property actually dropped 30 percent in gold terms? Hmm.. does that seem like a bubble to you? Or is it simply that the value of our conventional unit of measurement, or the good old CAD is far more worthless today than what it was in 2005? Also makes you wonder how well the average property have really performed if in gold terms they have actually dropped by 30 percent in 15 years. Maybe we are better off holding gold? This certainly makes you think doesn’t it.
PS. I simply picked Jan 2005 as a starting date but in reality what I should really do is chart this. But you can try it with any day in history. What I found when I operate in a gold framework rather than a fiat monetary framework is that the so called bubbles in the equity, bonds, and real estate markets suddenly don’t look as impressive.
Disclosure: this is not financial investment advice, it is meant to challenge people to think outside of the conventional fiat currency terms. Also I am personally long on both Vancouver Real Estate and Gold (amongst many other things), so just wanted to disclose this here in case there is any conflict of interest.
