This diagram shows historical nominal house prices in Canada and Vancouver, BC:
 |
| Nominal house prices in Canadian $. The latest date shown is June 2017. |
The target price for Vancouver is derived based on the house price that
given the current mortgage interest rate results in a constant mortgage
cost (inflation adjusted). The mortgage cost is the annual amount of
interest to be paid to carry a mortgage for the house price shown. E.g. in November 1993 and in November 2016 buyers had to pay the same anual amounts of interest to carry their mortgages at the then prevailing mortgage interest rates.
Now the nominal house prices are adjusted for
inflation and related to the interest rates of the mortgage. The diagram shows that while house prices have undoubtedly risen, the (inflation adjusted) mortgage costs have fluctuated, but have not shown any similar long term trends:
 |
| Mortage rates are 5-year lending rates. House prices in Canadian $. Inflation adjusted to June 2017. |
The
historical average mortgage cost during the period shown is $34,846. In
this diagram the green line shows, for a given mortgage rate, which house
price will result in the average mortgage cost. The red line shows
the actual Vancouver house prices. In comparison to the historical
average, house prices above the green line are therefore “high”, while
prices below the green line are “low”:
 |
| Mortgage rates are 5-year lending rates. House prices in Canadian $. Inflation adjusted to June 2017. |
Data sources: 1) House prices,
Adapted from Bank of Canada
publication
Chart 16. 2) House prices: Adapted from
Canada Mortgage and Housing Corporation, CMHC Housing Now – Canada monthly and CMHC Housing Now - Vancouver monthly, 2011-2017. This does not constitute an endorsement by Canada Mortgage and Housing Corporation of this product. 3) Inflation data,
Statistics Canada, Table 326-0020. 4) Mortgage rates,
Statistics Canada, Series V122497.
