Barbara Yaffe: CMHC insists Vancouver housing market not over-valued

posted on November 26, 2014

By Barbara Yafffe, Vancouver Sun | Link to Article

Say what? Vancouver’s housing market is not overvalued, but Montreal and Quebec City are at risk?

By Barbara Yafffe, Vancouver Sun | Link to Article

Say what? Vancouver’s housing market is not overvalued, but Montreal and Quebec City are at risk?

This latest finding in a report this week by the Canada Mortgage and Housing Corp. makes sense when you read the fine print.

What the federal housing agency is flagging in the two eastern cities, along with Toronto, Calgary and Halifax, is that economic and demographic conditions in those markets are not sufficient to keep prices steady.

In Montreal and Toronto, in particular, the problem is tied to over-building.

In Vancouver, where building starts are pretty flat and new residents just keep on coming, the threat of homes being over-valued is less apparent. In other words, chances are good that people will, as in the past, keep paying the prices, however lofty, being set by the market.

The prices in Vancouver are “supported by local growth in personal disposable income and long-term population growth,” the CMHC report stated.

Doubtless the influx of wealthy foreigners helps keep the Vancouver market sustainable.

In its House Price Analysis and Assessment report, CMHC acknowledges the eye-popping nature of the Vancouver market, citing price growth of 6.3 per cent between January and September, the highest in Canada, except for Toronto which recorded 8.1 per cent growth.

Growth rates notwithstanding, the average home in the Vancouver area, at $812,394, remains much pricier than in Toronto, with a $563,639 average.

In a separate report focusing exclusively on Vancouver, the federal agency elaborates further on reasons why the market is in healthy shape:

• Employment gains for the 25-44 age group — a big home-buying cohort — increased 5.1 per cent since the start of the year.

• After three years of decline, net migration to Vancouver is anticipated to jump 11 per cent this year, bringing more than 26,000 newcomers.

• “The over-all inventory of completed and unabsorbed housing” in the Vancouver area is set to drop, from a 3.2-months supply last year to a 2.6-months supply.

CMHC is predicting that in the next two years, a shift in demand will occur in the Vancouver area, “towards less-costly housing options.”

Developers will shift their attention more to multi-family housing as Vancouverites increasingly opt to live in townhouses and apartments, and further from the core of the city.

Demand is also expected to keep growing for “mortgage helpers, such as laneway homes and accessory suites, especially in the city of Vancouver where single-detached homes average well over $1 million.”

Indeed the majority — eight in 10 — of new-build detached homes started in Vancouver in the first eight months of 2014 were being outfitted with such mortgage helpers.

This trend also has been apparent in Surrey, Coquitlam and Burnaby.

Average prices will post “more muted gains” in 2015 and 2016 than in the recent past, CMHC says.

Gradually increasing interest rates toward the end of 2015 will take some sizzle from the market. But sales forecasts are expected to remain above a 15-year average. That, CMHC says, is because of the steadier employment growth and higher migration levels.

The type of immigrant coming to B.C. is expected to change following the end of the federal investor-class immigrant category, with an influx of skilled labourers rather than high net worth people.

That said, wealthy Pacific Rim buyers are not about to quit Vancouver since foreign investment in Vancouver’s real estate is to remain unfettered.

Meanwhile, Vancouver will keep struggling to accommodate its renters, with an existing vacancy rate of 1.9 per cent set to drop to 1.8 per cent in 2015.

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