This is where I have trouble with the whole foreign money is driving the market arguement. No question that foreign money is partially (fully?) responsible for $3M+ houses on the westside. But there's no way that 80 year old houses in east van are getting bought by Chinese billionaires.
So yes, the lack of supply in the west side is driving buyers further east, but why are those buyers engaging in bidding wars and mortgaging themselves to the hilt? It's not like Vancouver west of Main constitues more than, what, 5-10% of available SFH in metro Vancouver?
In my mind, the crazy prices around metro Van are the result of local buyers driving themselves into a frenzy, fueled by realtors and the media feeding the "buy now or be priced out forever" narrative. As you said, average salaries don't support current prices. And the trajectory we're on will have a rancher in PoCo priced at $2M in 10 years. Who's going to buy that? No one.
So because a) I can't imagine the global elite coming and buying homes in PoCo, and b) local salaries simply won't support the status quo for much longer, I see a correction coming to prices at some point in the future. The numbers just don't add up in my mind for things to continue the way they have in the last 5-10 years. Or maybe it's just wishful thinking on my part and in 10 years I'll only be able to afford to rent a basement suite in Chilliwack from the billionaire upstairs.
it's a combination of math and psychology, which includes as you pointed out local buyers being in a frezy. while that behaviour can be considered irrational, it's what is happening. you have these buyers engaging in bidding wars because they want a house and previous experience tells them if they don't act quickly or arent' willing to go above asking then they may not get the home they want; it's as simple as that.
so, as the foreign money buys up the supply in desireable areas, the locals who can no longer afford those go to the next lower priced desireable area and compete with others in the same situation for the same home. as this cycle repeats, eveyone gets pushed further east.
as an example, let's consider the house i reno'd with my ex back in 2004 or so that was just off the drive. she bought it at full price at $543K with no conditions only a few days after it was listed. there was significant interest in the home and it mght have even fetched more if the realtor had let it go to the open house and take offers. i feel she managed to get it because she dangled the listing of her own property, a half duplex 3 blocks away on the other side of the drive, to the realtor. her duplex had multiple offers and sold for over asking at $460 i believe.
back to the detached home. after about $200K in renos and living there a few years there she decided to list (a few years after we had split). she originally thought she would be happy to get close to $900K but the market at that time for that type of property was rare and it got listed at $949 iirc. this was a heritage renovation, everything had been done. all the original wood work that had 5 or 6 coats of paint was stripped and refinished, etc. it was a great house. the property got several offers, including one from a couple who had been outbid 4 times already and had just gotten outbid a few weeks before. the house ended up selling for $1.275M, more than $300K over asking. now this might be a bit of an outlier example, but it illustrates what's happeing in desireable areas and that puts pressure on all the markets below it.
2-3 years ago i used to think i might be bale to get back into a house again in the area i want. now however, i've pretty much given up on that unless i win the lottery. i could buy a home if i went out to surrey, poco, langley, etc, but i don't want to live that far out of the city so it means i'm stuck with at best getting a townhouse. missed opportunites from the past are what kill me the most - i had an opportunity to buy a house when i was in my early 20's.