Vancouver’s eye-popping housing industry is seemingly defying gravity, with sales in January rising nearly 32 per cent – the 2nd busiest January on record.
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With prices in Metro Vancouver slowly creeping as much as the $2 million mark, the searing pace of housing in the city has numerous worried.
But the state of the market makes sense should you consider the market like a U.S. dollar play, say economists Derek Holt and Dov Zigler of Scotiabank. Because so much of the marketplace has been fuelled by foreign buyers, many of whom purchase in U.S. currency, the Canadian dollar price surge constitutes a large amount of sense.
The Canada Mortgage and Housing Corp. estimates that foreign buyers own 3.5 per cent from the condos in Metro Vancouver, up from 2.3 percent in 2014.
But Holt and Zigler called those estimates “ridiculously low ball.”
A higher foreign investment rate would explain the surging prices and purchasers in the market even while wages remain stagnant in Canada and also the economy slows.
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The pair point out that in U.S. dollar terms, Vancouver still remains reasonable for foreign buyers and in fact is really a bargain when compared with some other cities in the Pacific Rim for example Sydney, Hong Kong and San Francisco.
The clients who are out of luck are Canadian buyers purchasing homes with domestic currency. The space between home values in U.S. dollar terms and Canadian dollar terms is at its widest in more than a decade.
“A strong USD has kept Vancouver’s house prices relatively affordable if one is entering the marketplace like a buyer with funds in U.S. dollars,” the economists write. “That has pushed Canadian dollar house prices over the top over the past couple of years. This is often taken as one piece of evidence that it is U.S. dollar flows that are driving Vancouver real estate it doesn’t matter what are most likely ridiculously low balled estimates for foreign buying.”
