Vancouver Housing Market “Vulnerable” to a “Downturn”: Bank of Canada

Joannah Connolly
June 9, 2016

Canada’s hottest two real estate markets are at significant risk of a correction in prices, according to a strong statement issued June 9 by Bank of Canada governor Stephen Poloz.

In the Bank of Canada’s June issue of its semi-annual report the Financial System Review, the governor was generally optimistic about the future of the overall economy, but added that there was a “caveat” when it came to the housing markets in Toronto and Vancouver.

Poloz wrote: “The pace of house price increases in Toronto, and especially Vancouver, is unlikely to be sustained, given underlying fundamentals… Indeed, the potential for a downturn in prices in these markets, although difficult to quantify, is growing.”

Poloz warned that home buyers need to take this into consideration when budgeting for their home purchase, adding, “[The potential for a downturn] suggests that prospective homebuyers and their lenders should not extrapolate recent real estate price performance into the future when contemplating a transaction.”

However, Poloz’s note suggested that he was not concerned that such a correction would trigger a wider recession. He added, “A significant decline in house prices could have material consequences for some individuals and for some entities in the mortgage business. However, the financial system as a whole is resilient enough to handle the potential impact.”

The report came as many in the industry are calling on the federal government to come up with measures to cool Canada’s most active housing markets.

Last week, major banks including the National Bank called on Ottawa to raise the minimum down payment to 10 per cent across the board – a proposal that has received criticism for penalizing mostly first-time buyers.

On June 8, Finance Minister Bill Morneau said the federal government was conducting a “deep dive” of research into the factors affecting Canada’s major real estate markets, in order to come up with effective measures to help Canadians get into home ownership.

And Prime Minister Justin Trudeau told BNN June 9 that high housing costs in Vancouver and Toronto are putting a drag on Canada’s economy. 

He said, "Rising home prices and uncertainty around being able to buy your first home or upgrade as you want to grow a family is a real drag on our economy and a real drag on Canadians’ opportunities.”

Joannah Connolly
Joannah Connolly is editorial director of Glacier Real Estate, Glacier Media's real estate division. Joannah writes and curates real estate news for Glacier Media's local newspaper websites, including the Vancouver Courier, North Shore News, Burnaby Now, Tri-City News and others. She also oversees editorial content in Real Estate Weekly Homes, West Coast Condo, Western Investor and Glacier's special real estate publications. A dual Canadian-British citizen, Joannah has 22 years of journalism and editing experience in Vancouver and London, with a background in construction, architecture, healthcare and business media. Joannah has appeared on major local TV outlets as a real estate commentator, has moderated and spoken on various industry panels, and spent two years hosting the Real Estate Therapist radio show on Roundhouse Radio.