Vancouver housing prices: How high can they go?

Vancouver housing prices: How high can they go?


This new listing in Dunbar for a 1,700-square foot rancher on a 33-foot lot was asking $2.275 million this week and is under contract to be sold for $2.575 million. In November, the typical price for a home on Vancouver’s west side hit $2.87 million, according to the Real Estate Board of Greater Vancouver.

Photograph by: Mark van Manen, PNG


Two recent charts depicting Vancouver’s eye-popping real estate market are especially interesting to put together for a look at the state of the city’s stratospheric home prices.

One shows the Real Estate Board of Greater Vancouver’s typical home prices for single-family homes on the city’s west and east sides during the past five years. The two lines representing the prices of single-family homes in each area are definitely tracking in tandem and look like they may be coming closer together.

Housing by The Vancouver Sun

Some observers still see two very separate markets: one that has been lifted by overseas cash and another that is more affordable.

“There is more and more foreign investment in Vancouver, especially in very expensive houses. But I’m not sure the sale of a $5-million house impacts that of a $700,000 one. The two don’t talk to each other,” said Toronto-based CIBC World Markets deputy chief economist Benjamin Tal.

However, buyers and sellers on the ground have been seeing what this chart shows: price increases for a typical single-family home on the city’s more expensive west side are taking place on the east side too, and rippling elsewhere as well.

The typical price for single-family detached homes sold on Vancouver’s west side reached $2.86 million in November, up 23 per cent over the past year. On the east side, it hit $1.21 million, which is 26-per-cent higher than a year ago.

Vancouver Real Estate by The Vancouver Sun

Vancouver’s most expensive homes are not only a bellwether of rising local prices, they are also topping charts such as Knight Frank’s Prime Global Cities Index, which ranks the top five per cent of homes in the metro areas of 35 cities around the world.

In Vancouver, this category is represented by prices specifically for detached homes on the west side and in West Vancouver, according to managing broker Kevin Skipworth at Dexter Associates Realty, which submits information about Vancouver home sales to Knight Frank’s researchers in London.

“It’s been a very significant year in terms of price growth,” said Skipworth.

For the year to June 2015, Vancouver led other top contenders, Miami and Sydney, according to the Knight Frank index. Then, in October, Vancouver posted a 20.4-per-cent increase in prices, far outstripping Sydney’s increase at 13.7 per cent and Shanghai at 10.7 per cent. Overall, the index only rose 1.9 per cent compared to 7 per cent two years ago.

To gauge frothy housing markets, Swiss bank UBS a month ago launched its Global Real Estate Bubble Index, defining a bubble as a “substantial and sustained mispricing of an asset.” It gave a bubble rating to the housing markets in London and Hong Kong based on price-to-income, price-to-rent and other ratios.

Sydney and Vancouver were not deemed as bubbles but were “significantly overvalued” based on “deviations from the long-term norm.”

It’s a relatively exceptional situation in Vancouver that has observers wondering how high prices could go, or not.

So what is on the horizon for the oft-bandied drivers of high home prices in Vancouver: low interest rates, very tight supply (in particular, of single-family homes) and foreign capital? And what is happening in other markets that have risen because of the same reasons?

Interest rates and tight supply



It’s expected that when the U.S. Federal Reserve raises interest rates in mid-December for the first time in six years, fixed mortgage rates in Canada could also go up. Rising rates usually dampen home prices.

But some wonder if the impact of rate hikes might be more muted in certain more buoyant markets such as, for example, San Francisco, where a critical mass of buyers with cash made at the many technology companies in the area has been soaking up the supply of expensive homes.

The number of single-family homes for sale in Vancouver, according to Knight Frank, dropped 32 per cent in October year-on-year due to both local and foreign interest.

In Vancouver, chief economist at Central 1 Credit Union Helmut Pastrick agrees that this tight supply of homes has resulted in higher prices.

He also says: “Canadian mortgage rates will drift upward because of the higher cost of funds. With Vancouver’s economy expected to grow at a robust pace (of) 3 per cent of more, housing sales will not be dampened very much, if at all. Improved growth brings improved consumer confidence, more employment, higher incomes, higher in-migration, all of which could offset the increase in mortgage rates.”

Others caution against thinking of the impact of high-tech employees in the Bay Area as akin to buyers with money from mainland China in Vancouver, even though both have been connected to stoking intense demand for homes.

“In a normal market supported by income and employment growth, such as San Francisco or New York, all this wouldn’t matter much because the increase in rates will be small — no more than 25 basis points — and the next increase will likely be a year or more into the future,” said Andrey Pavlov, a real estate finance professor at Simon Fraser University’s Beedie School of Business. “But there is virtually no income or employment growth in Vancouver, and Canada in general. In fact, with the decline of oil and materials prices, we’re losing jobs and incomes are declining. So real estate prices in Vancouver are entirely supported by increased borrowing and foreign demand. Even a small uptick in mortgage rates would put the increases in borrowing on hold, thus removing the main driver of domestic demand.”

Of note, home prices in Sydney this week recorded their largest monthly fall in about five years. Banks there have been ordered to tighten lending restrictions and increase mortgage rates to shield themselves against an overheated market. November prices in Sydney fell by 1.4 per cent, the biggest drop from a month earlier since December 2015, according to property researcher CoreLogic Inc. Although Sydney home prices are still up by 12.8 per cent during the past 12 months, this November drop is being seen as a first indicator of a cooling market.

Foreign capital

Trying to decipher the impact of capital from mainland China on Vancouver home prices has been rife with pitfalls and emotion. What we know is these buyers include Canadian citizens, residents and visitors. Some live in Canada, but keep or earn money overseas, and others are in China looking to buy abroad. Starting in 2012, Chinese nationals could apply for a 10-year, multiple-entry visa, sparking a new mobility to travel and buy property in Vancouver.

Several studies by local real estate companies, as well as researchers and journalists in Vancouver, all generally point to buyers with cash from mainland China playing a significant role in the real estate market, especially for more expensive properties on the west side.



All of this is in line with a much wider story that is also happening in cities elsewhere. Both personal and corporate funds from mainland China in the hundreds of billions of dollars are seeking safer investment havens and better returns outside the country.

Families with access to some of that wealth want for their children a better life with cleaner air and a fairer, more well-rounded education, things they cannot buy in China for any amount of money.

At the end of November, The New York Times and The Wall Street Journal both ran stories about the flow of Chinese money into high-end real estate markets on both coasts, from Manhattan to Silicon Valley, and now newer destinations such as Texas.

The Journal said that after a “five-year real estate binge, Chinese nationals surpassed Canadian snowbirds as the top foreign buyers of U.S. homes for the year ended in March.”

However, it also said there could be a “Chinese pull back from U.S. property investments” as some buyers reel from “China’s stock-market selloff, slowing economic growth, currency devaluation and tightened restrictions on capital outflows.”

That same week at the end of November, the International Monetary Fund gave the Chinese currency, the renminbi, a coveted designation that puts it alongside the dollar, euro, pound and yen. The move recognizes China’s financial and economic rise and the reform of its systems, but is also seen by some observers as a carrot pushing Beijing for more, and possibly volatile, change in the country.

How the majority of buyers with access to mainland Chinese cash might bet on or against this shifting landscape by putting more or less money into overseas real estate markets such as Vancouver is challenging to predict, and no one seems to agree, except to say the ebb and flow needs to be closely examined.

During a recent panel discussion, Evan Siddall, CEO of the Canada Mortgage and Housing Corporation, departed from the agency’s muted and general assessment that foreign capital has not been a significant factor in Vancouver’s housing market: “Both domestic and foreign investment activity (in real estate) can be speculative, (but) foreign investment may be more mobile and subject to capital flight. This would increase volatility in domestic housing markets.”

Lastly, contrarian analysts elsewhere, such as London, which has also seen high home prices due to low interest rates, tight supply and foreign capital, are now looking at perception and the drawing of government policy pushed by discontent over high prices as new factors that could alter the upward momentum of prices.

“The dinner party perception that prices for prime London property have always gone up is potentially a reason to worry,” wrote Deutsche Bank analyst Sahil Mahtani. “Timing any turn is hard and it has long been a losing battle to call an end to the froth in this market. But perhaps we are close to the turning point. There are many arguments for the rise and rise in prices. Most, however, are plain wrong.”



“There are multiple catalysts to suggest that 2015 is the turning point (for London). The most significant are: impending higher interest rates, tighter macro-prudential policies and a deepening politicisation of the housing issue. Again, all that needs to happen is for investors to think price outcomes are asymmetric, with low upside and large downside.”


This new listing in Dunbar for a 1,700-square foot rancher on a 33-foot lot was asking $2.275 million this week and is under contract to be sold for $2.575 million. In November, the typical price for a home on Vancouver’s west side hit $2.87 million, according to the Real Estate Board of Greater Vancouver.


Photograph by: Mark van Manen, PNG

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