It is no secret that Vancouver is the most expensive place in Canada to buy real estate, and that housing prices are way out of line relative to income levels compared with other cities across the country.
Vancouver’s real estate prices recovered quickly after the 2008 recession, but that doesn’t mean that the market here is immune to changes in economic conditions, according to a new BMO report. If the cost of borrowing were to increase, the study argues, affordability would plunge.
Currently, the average family in Vancouver spends 62% of its income on mortgage payments to buy a bungalow. When borrowing costs eventually increase, this will drive affordability much lower. For example, if borrowing rates were to increase two percentage points, this would mean families were spending 75% of income to buy a bungalow.
The result would be cooling of the Vancouver real estate market – but not necessarily by much.
The same would happen in Canada’s largest city – although prices there remain considerably lower than they are here.
“Pricey Vancouver and Toronto are likely to face moderate price declines [when borrowing costs eventually increase],” said BMO Capital Markets senior economist Sal Guatieri.
