Ladies and gentlemen, just remember that economic bubbles aren't only bubbles in assets, finance, and the structure of the economy, but also the psychology of the people.
The number is actually closer to 1-2%.
Btw ... I am the child of immigrants so have no problems if these homes are being bought up by Chinese Canadians. I do have a very big problem if these homes are being bought by illicit funds or funds that have not been taxed correctly. I pay my share (and it is a big share .. every professional couple in Canada is essentially in the 1% and paying for it despite all the student loans we incurred). We have all these financial controls that apply to us about reporting foreign income and paying taxes, etc. This needs to be applied fairly and across the board.
One other datapoint: the listing agents in the area have websites in Chinese and with prices in Yuan. Any delusion I had that the money is coming from incomes earned in Canada is firmly gone.
People have talked about ideas such as taxing second homes and requiring residency or citizenship to buy a home. Both seem good ideas that will never be implemented. How about mortgage income tax relief for Canadians (like the US or even more aggressive than that)? Allow full borrowing against RRSPs and prevent buyers from discriminating against offers based on financing conditions. The freaking MLS data is regulated anyways so might as well.
As for people selling and moving into a new house? Again, they're accepting the risk that they will be able to get bridge financing and sell their existing house.
Conditions have monetary value to both the purchaser and the seller. If you are losing out to people with clean offers, bump your offer by 5% and you'll find that sellers will wait another 2-4 weeks for their money. That's what I had to do to get a house in San Jose (just moved in!).
It's the same as the "discount for debit cards and cash" you can get in electronics stores.
Get a good real-estate agent that _knows_ the area, and listen to what they say the house will sell for. Ours was spot-on 100% of the time.
Next, you need to realize at what points in the sale the power in the relationship changes. Up to offer acceptance? The seller has the power, so offer more money to keep contingencies on the sale. After acceptance power starts to shift to the buyer. Here in California building reports are attached to the house, so a bad foundation is information everyone gets. This means the seller is likely to negotiate the price down or fix things if a bad report comes in. Of course, you have to spend $$ to find that out, and your mortgage application fees are then throw-away, so...
Finally, be honest about what you can afford. If you're not at the tippy-top of your price range, you will be able to stretch just a little bit to get that really sweet house you want.
For example, New Zealand (another market I'm familiar with) is currently running at 4%/yr for a 2yr mortgage and 5.5% for a 5yr. However, for budgeting purposes, most people will budget at 8%/yr, since that's the long-term average.
Just to completely freak you out, during the GFC, I hit 12% annual interest. My parents hit 20% during the Canadian inflation crisis of '81. :)
Go for the high end, don't be afraid of a smaller house, build up the equity and then move. However, be aware that closing costs are significant, so it's best to amortize them over several years - that's why housing calculators ask how long you will live in a house.
Frankly? If you're afraid of 5%, you probably don't want to own a house, or at least, you don't want to own _that_ house.