The Housing Market in Vancouver & Toronto

A Perspective and a Prognosis

October 19, 2017

While there is evidence of price declines in Canada’s two hottest real estate markets – Vancouver and Toronto – it might not be something for prospective buyers to get excited about.

Prices dropped after the introduction of a foreign homebuyers tax in Vancouver last year, and in Toronto, both prices and sales have taken a mild dive since the same type of tax came into effect in April.

Some commentators expected that a combination of recent government rule changes making it harder to get a mortgage, higher mortgage rates and the foreign buyers tax might have a significant and lasting impact in cooling the real estate market in both cities.

Don’t confuse a dip with a blip

Toronto home prices, however, are still up compared to last year and some industry experts predict that, as in Vancouver, the city’s recent dip will simply be a blip. And as long as Toronto and Vancouver’s real estate markets continue to sizzle, many people will continue to find home ownership out of reach in these cities.

Let’s look at some specific numbers for Vancouver.

Impact of 15% tax on foreign nationals

Reporting for CBC News Business (August 8, 2017), Sophia Harris noted that it was in August 2016 when the B.C. government implemented a 15% tax on foreign nationals buying property in Metro Vancouver. Initially, the strategy worked. Wrote Ms. Harris:

“The benchmark or typical price for all Metro Vancouver home types declined from $933,100 in August 2016 to $896,000 in January 2017, a drop of 4%. But then prices started to climb again, rising to $1,019,400 in July, an 8.7% boost compared with the previous year. More specifically, detached home prices rose 1.9% and condominium prices jumped a whopping 18.5% over the year.”

An international perspective

Intellectual curiosity suggested that I dig deeper to discover if what was happening in Vancouver and Toronto was replicated in other parts of the world.

I checked out BuzzBuzzNews Canada – a digital media publication that covers news on major U.S. and Canadian real estate markets – and located a blog post written by Kerrisa Wilson (October 2, 2017) referencing the UBS’ Global Real Estate Bubble Index, a report that tracks the risk of housing bubbles in 20 global financial centers.

UBS defines a housing bubble as “a substantial and sustained mispricing of an asset, the existence of which cannot be proved unless it bursts.”

As Ms. Wilson reports: ‘When analyzing home price data up until the second quarter of 2017, Toronto has the highest possibility of entering bubble territory with an index reading of 2.12. Stockholm came in second place with an index reading of 2.01. An index measure above 1.5 indicates bubble risk. Vancouver took the fourth spot on UBS’s index list, sitting in bubble territory with an index reading of 1.80.’

A shift in Chinese investment

A major reason why Vancouver and Toronto may be insulated from bubble territory going forward is because there has been a distinct shift in the disposition of Chinese investors away from those cities in favor of Montreal, according to data from Juwai, China’s largest real estate portal.

According to Daniel Tencer, Senior Business Editor of HuffPost (July 14, 2017): “Toronto and Montreal, in that order, have seen the largest numbers of property searches since the start of 2017, pushing Vancouver — once the capital of Chinese property investment in Canada — to third place.”

According to Mr. Tencer, our 15% foreign buyer’s tax caused nearly half the money flowing through Vancouver’s market to disappear. The fact that Toronto followed suit means that Chinese investors are likely to focus their attention on Montreal – or any other major Canadian urban market without a foreign buyer’s tax – going forward.

Michael Fahy, The Michael Fahy Group, CIBC Wood Gundy, 604 691-7207.