Photo: Kenny Louie/Flickr
In case Vancouver’s mountainous home-price gains aren’t a clear enough sign of how expensive the city’s real estate market is getting, BMO economist Sal Guatieri ran some numbers and found the city may soon be more than the priciest market in Canada.
Within two years, it could be the most expensive market in North America, he tells BuzzBuzzHome News.
“There’s a chance — a reasonable chance — it could happen, just the way trends are going now,” says Guatieri.
The BMO economist compared recent year-over-year price growth in Greater Vancouver and the San Francisco Metro Area, home of the priciest housing market on the continent, and discovered if trends persist, Canada’s third-largest city would over take the Californian housing hotspot before March 2018.
That’s based on San Francisco’s year-over-year price growth of 12 per cent this March, which pushed the median price to $806,600 US, and Vancouver’s scorching annual 25-per-cent gain last month, lifting the benchmark price to $844,800 in Canadian funds.
Guatieri homes in on reasons we could be looking at this scenario soon, not least of all because of foreign investment. “There’s a good sense that the inflow of foreign wealth will continue; there seems to be very little holding it back,” he says.
Even if the federal or provincial governments commit to further action, Guatieri estimates it would be at least a year, maybe longer, until anything comes of it, he argues. “You know, we’re still compiling the data on foreign wealth in housing markets,” he points out.
In March, the 2016-17 federal budget saw the Liberals earmark $500,000 for Statistics Canada to look into foreign investment in real estate. “It’s going to take a while before any meaningful measures are put in place — if they’re put in place at all,” the economist adds.
So Guatieri doesn’t foresee foreign investment abating in the near-term. Nor does he imagine interest rates, at historically low levels, will climb for another year. Unsurprisingly, a Vancouver looming recession isn’t on his radar, either.
“So really nothing stands in its way of continuing to rise except for the fact prices are already at nosebleed levels, and at some point you’re just pricing so many people out of the market,” Guatieri tells BuzzBuzzHome News.
“Even wealthier foreign investors or international migrants who are moving to that area will start looking elsewhere to other cities in canada, for example, because prices are just so high,” he suggests.
Nearby Victoria has seen luxury property sales surge 45 per cent last year, according to a recent report from upscale broker Christie’s International Real Estate.
At the same time, Guatieri anticipates price growth in San Francisco to cool — based on the slowing US economy and the expectation that stateside interest rates will grind higher this year — further helping Vancouver home prices play catch-up.
In a way, Vancouver already is more expensive than San Francisco — at least for locals.
“The typical person in Vancouver is earning about 33 per cent less than the typical family or individual in San Francisco, so that more than compensates for the price differential,” explains Guatieri.
Vancouver isn’t the only Canadian market with a shot at surpassing San Francisco. Toronto’s 12.6 per cent year-over-year price growth last month was tracking roughly in line with the Golden Gate City’s.
“It would take longer than for Vancouver to eclipse San Fran’s home prices, but if trends continued and if San Francisco’s prices cooled off over the next two to three years, at some point, yeah, Toronto would just become pricier,” he confirms to BuzzBuzzHome News.
Still, there is more than one “if” there, and Guatieri shares what’s so hard about forecasting how white-hot markets will perform.
“You just can’t say, ‘Oh, family incomes are growing this much, and we expect job growth so much over the next year and interest rates to do this’ — those are no longer driving the housing markets, especially in Vancouver,” he explains.
“What we do know is that affordability is just getting completely out of whack with the fundamentals.”