Today in New York Bloomberg held a Canadian Fixed Income Conference where Stefane Marion, a Montreal-based economist and strategist at National Bank of Canada commented on the future of the Vancouver housing market. According to Marion, “Vancouver’s housing market may enter a correction with price declines of 10 per cent,” going on to call it a “healthy correction.”
Being a millennial who lives in Vancouver I can certainly attest to the amount of controversy surrounding our housing market. Nearly everyone you speak to here has an opinion as to why house prices have become so incredibly expensive, and most lead back to the idea of foreign investment. I can’t say that I have a strong opinion as to why our house prices have gone into massively unaffordable territory (nearly a million dollars for a two-bedroom apartment downtown is just ridiculous – and there are several listed in and around my neighbourhood), but I believe there are many factors at play including foreign investment, spacial constraints on development and growth with water surrounding much of Vancouver and record low interest rates creating easier access and higher demand.
I must say I am relieved to see the housing market cool off: according to this article, “the B.C. tax on purchases by foreigners contributed to a 26 per cent decline in transactions in Vancouver in August.”
There has been some concern about a real estate crash in Vancouver with our record high housing prices and record low interest rates. The Financial Post published this article today that discusses the number of Canadians at risk should the Bank of Canada (BoC) raise interest rates even 0.25% in October, when the BoC meets again to discuss its next move. If and when rates rise (which they are expected to), the amount of interest that mortgage owners will have to pay back to their lenders each month as the bulk of their mortgage payment will also increase. Considering the crazy high prices home owners have been paying recently, it is quite likely that there are many folks who are already pushed to their financial limits (or fully leveraged), with their monthly mortgage payments and will find themselves in a stressful cash crunch when rates do rise.
Read the original article by Greg Quinn and Jacqueline Thorpe from Bloomberg and published in the Financial Post on September 13, 2016, here.
Feature image of downtown Vancouver by Ellen Atkin.
