Vancouver Housing May Correct 10% or More, NBF’s Marion Says

  • BoA’s Enenajor sees need for nationwide housing solution
  • Marion, Enenajor, RBC’s Desjardins speaking in New York

Vancouver’s housing market may enter a correction with price declines of at least 10 percent, according to Stefane Marion, Montreal-based chief economist and strategist at National Bank of Canada.

“There is downside to single family homes in Vancouver,” after policy changes in the last year such as higher down-payment requirements and a provincial tax on foreign buyers, Marion said Tuesday at the Bloomberg Canadian Fixed Income Conference in New York. Price declines will be moderated by the province’s strong job growth, he said. “I don’t think it sends the economy into a tailspin. It’s a healthy correction,” Marion said.

The Pacific Coast city is the focus of concern about a crash, with prices surging well past C$1 million ($760,000) on the lowest mortgage rates in decades and a constrained supply of land for new properties. The British Columbia provincial government set a 15 percent tax on foreign home buyers that took effect last month, following several rounds of federal government action to tighten mortgage rules.

Longer-term forces like low interest rates will help Canada avoid a crash, and policy makers must guard against cracking down on regional markets in a way that adds to the risks, said Emanuella Enenajor, senior Canada and U.S. economist at Bank of America Merrill Lynch in New York.

“I wouldn’t be surprised if, barring any meaningful regulatory shifts, housing continues to outperform,” she said. “Putting a foreign tax on the Vancouver housing market, perhaps that pushes demand into other markets such as Toronto, creates other kinds of distortions in the economy. I think there is a need for a national solution.”

Governments have tried to keep a lid on house price gains. The B.C. tax on purchases by foreigners contributed to a 26 percent decline in transactions in Vancouver in August, though Toronto’s market continues to soar, with prices up 18 percent on average in the month.

For an analysis of Canada’s fight to cool elevated home prices, please click here.

Canada’s bigger problem right now is the lack of growth led by private spending, something Bank of Canada Governor Stephen Poloz has been counting on, Enenajor said, adding that makes a cut in his 0.5 percent policy interest rate more likely than an increase. “We are rotating in the wrong direction, we are getting a mix of growth that’s not very healthy or sustainable,” she said, referring to a growth in household leverage.

Data show the economy struggling to gain direction amid a raft of contradictory signals. While job creation rebounded in August after a slump in July, a slide in hours worked and a rise in the unemployment rate suggest labor-market slack is building. While the economy grew at the fastest pace in three years in June, and exports surged in July, the Bank of Canada said last week that risks to inflation and growth were tilted to the downside.

Weakness in Canada’s non-energy exports is somewhat “inexplicable” in a time where Canada’s dollar should be low enough to provide a boost, said Dawn Desjardins, Toronto-based deputy chief economist at Royal Bank of Canada.

The risk of a Vancouver housing market crash is tied more to the wider economy than the fundamentals of that city, where prices are supported by barriers to growing the supply of housing, Desjardins said.

“While we do think that prices won’t be growing at 30 percent as we go forward, unless you see some significant change in terms of employment or the economy generally, it’s really hard to say we are going to see a big crash there,” she said.

Before it's here, it's on the Bloomberg Terminal.
LEARN MORE