Garry Marr
The Vancouver Sun
There’s a housing bubble in Vancouver but it’s not caused by foreign buyers, says a note out Friday from Capital Economics.
Paul Ashworth, chief North American economist with Capital Economics, said media reports showing a decline in housing sales in Vancouver following the implementation of a new tax on foreign buyers is missing a key part of the story.
Sales were down 26 per cent in August, 2016 from a year earlier — a decline that coincides with an additional 15 per cent property transfer tax on foreign buyers that was announced July 25 and took effect Aug. 2. Some in the real estate industry said July sales were boosted by foreign buyers moving transactions forward to avoid the tax.
“Most of those media reports failed to mention that Vancouver home sales were down by an even bigger 27 per cent year over year in July,” said Ashworth. “The foreign buyer tax had very little impact on Vancouver home sales, which have been on a downward trend since February. That supports our claim that, rather than foreign buyers, it is irresponsible lending and rising domestic debt that has been driving Canada’s housing bubble.”
The economist points out that Vancouver sales have declined 40 per cent since peaking in February and show a marked decline in the annual growth rate of house prices in Vancouver. “We would be amazed if sales didn’t fall further over the next six months,” he said.
Ashowrth said the Canadian housing is a tale of two cities, adding Toronto to the theory of inflated markets. He added interest rates, as low as two per cent on five-year fixed rate mortgage, have boosted the market.
“This begs the question, if interest rates are going to remain unusually low, what else could trigger a downturn in Toronto? Our answer to that would be another question: What exactly happened back in February to trigger the slump in Vancouver home sales? It’s true that global financial markets were volatile in February specifically, but the downturn in stock markets was quickly reversed. Since then, stock markets and commodity prices have rebounded, while interest rates have fallen further. That should have been a positive environment for house prices,” said Ashworth.
“The truth is that, for all the talk of so-called triggers, when they get that big, bubbles often end up collapsing under their own weight.”
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