Vancouver’s housing market is at “an elevated risk of correction,” according to a new report by BMO Capital Markets.
“A Tale of Three Canadian Housing Markets” assesses housing markets in Vancouver, Toronto and Calgary.
“Riding a wave of wealthy immigrants, Vancouver’s house prices have nearly tripled in the past decade, spiralling beyond the reach of most first-time buyers or non-lottery winners,” the report by senior economist Sal Guatieri reads.
He notes that an average priced Vancouver home is now “an astounding” 11.2 times family income – more than double the decade-earlier ratio and the current national figure. He adds that Vancouver’s prices are 71% higher than Toronto’s.
“While land-use restrictions and high quality-of-life rankings can justify elevated prices, current steep valuations could prove unsustainable if foreign investment ebbs or interest rates climb,” he said, noting that corrections in 1981, 1990, 1995 and 2008 saw an average price decline of 21%.
But in an interview, Guatieri noted that a correction isn’t likely to come out of the blue.
“Something bad has to happen to trigger that correction: an increase in interest rates, another recession and people losing their jobs, or if some of the foreign demand that’s partly contributing to the housing strength wanes,” he said.
Guatieri’s report says that Toronto’s house prices have nearly doubled in the last decade and notes that the prices could soften or at least stabilize if mortgage rates rise moderately, as BMO is predicting.
The report assesses that Calgary’s housing prices, which started spiking five years ago and then corrected 17% between mid-2007 and 2009, have “yet to reclaim pre-recession peaks.” As such, he argues that the city’s housing prices “stand a reasonable” chance of growing alongside incomes in coming years.
Calls to BMO were not returned by press deadline.
Jenny Wagler
Twitter: JennyWagler_BIV