While there may be many rich asians propping up the real estate market in Vancouver, the reality is that the value of real estate is determined only by what is sold. I don't have stats for Vancouver, but the biggest city next door, Victoria (where I live), only 5% of homes exchange hands each year. That means, 100% of homes have their value determined by the 5% that sell each year. I imagine in Vancouver the sold % / year is very similar within 1 or 2% points. So this is how a real estate bubble in Vancouver can also be sustained - All that's required is that ~5% of specuvestors can be found each year, most of which are rumoured to be from abroad.
If China pops the big one, and foreign capital dries up, it's not going to be the locals with less than 100K/year family income that can sustain 1 Million dollar average prices. This bubble has gone on far far longer than it should have, but that will only make the bust even bigger. Earlier this year, I actually saw some interesting news articles about average people who actually live in Vancouver lobbying the government to limit or eradicate foreigners from being able to buy real estate, as they had been priced out of the market. I don't think that went very far, but just another tell tail sign that affordability has erroded to new highs.
I've been watching this bubble for about 5 years now. Originally I was thinking that an increase in interest rates and mortgage rates by extension would kill it. But alas, the global recession has kept those rates artificially low for an extended period that may drag on for another couple of years (See US fed "low interest rates to 2013"). Canada isn't very original with their interest rate policies, any historical interest rate chart will quickly show we mostly just mimic the USA with a very small margin of difference.
This means that the bubble does have some chance of growing to even greater heights, unless we see another major leg down in equity markets and/or China bubble pops, or the US stops printing money and running on ZIRP. Further, the Albertan oil pipe to Texas, if it happens, may add even more fuel to the fire as some of those folks are known for investing in real estate in Victoria and Vancouver after they make their $$ in the oil rigs. That said, even those $100K/year jobs, will find it hard to purchase $1 Million+ crack shacks.
One thing is for sure, I don't see the average Vancouverite being able to support anywhere near the current housing prices based on average incomes, so external factors are the things to keep an eye on and if that 2008 dip is any indication of how fast prices can collapse (15% in just a few months). Then I expect nothing but increased downside risk, as this roller coaster continues to rise - for now.
Lastly, to anyone considering to "invest" in Vancouver real estate, may want to consider the chart below: As fast as Vancouver home prices have been rising, the price of gold has been out-pacing the rise in Vancouver housing for many years, and if anything that rise is likely to accelerate if we've just entered 'stage 3'.
OUNCES OF GOLD REQUIRED TO BUY CANADIAN REAL ESTATE (each year fewer ounces are required)