John Shmuel
The Vancouver Sun
Steve Bosch/Postmedia NewsIn U.S. dollar terms, Vancouver still remains affordable to foreign buyers and in fact is a bargain compared to some other cities in the Pacific Rim
Vancouver’s eye-popping housing market is seemingly defying gravity, with sales in January rising nearly 32 per cent — the second busiest January on record.
With prices in Metro Vancouver slowly creeping up to the $2 million mark, the searing pace of housing in the city has many worried.
But the state of the market makes sense if you look at the market as a U.S. dollar play, say economists Derek Holt and Dov Zigler of Scotiabank. Because so much of the market is being fuelled by foreign buyers, many of whom purchase in U.S. currency, the Canadian dollar price surge makes a lot of sense.
The Canada Mortgage and Housing Corp. estimates that foreign buyers own 3.5 per cent of the condos in Metro Vancouver, up from 2.3 per cent in 2014.
But Holt and Zigler called those estimates “ridiculously low ball.”
A much higher foreign investment rate would explain the surging prices and sales in the market even as wages remain stagnant in Canada and the economy slows.
The pair point out that in U.S. dollar terms, Vancouver still remains affordable to foreign buyers and in fact is a bargain compared to some other cities in the Pacific Rim such as Sydney, Hong Kong and San Francisco.
The buyers who are out of luck are Canadian buyers purchasing homes with domestic currency. The gap between home prices 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 market as a buyer with funds in U.S. dollars,” the economists write. “That has pushed Canadian dollar house prices through the roof over the past couple of years. This can be taken as one piece of evidence that it is U.S. dollar flows that are driving Vancouver real estate regardless of what are likely ridiculously low balled estimates for foreign buying.”
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