Even though real estate remains unaffordable, other factors provide “substantial support” to the market, says report
A crash in the Vancouver real estate market is “unlikely, given still-solid economic underpinnings,” according to a national housing report released by RBC April 24.
Although it identified affordability “stress” as a key risk factor in the Vancouver housing market, and despite a “small improvement… mostly in the single family market” in pricing in late 2016, the report observed that prices are on the rise again and foreign buyers seem undeterred by additional taxation.
The authors said, “Prices have picked up slightly in February and March. Provincial statistics show that some (although not all) foreign buyers had returned to the area by the late stages of 2016 after moving to the sidelines following the introduction of the foreign buyer tax.”
RBC identified a strong economy with low unemployment rates as another key factor in sustaining the elevated home prices in Vancouver.
“The job situation in Vancouver has been positive in 2016 and early-2017 with employment up by 1.9% in March from a year ago, and the jobless rate falling to the lowest level (4.7%) since 2008. Labour market developments do not pose any immediate threat to the housing market. On the contrary, they offer substantial support currently.”
It also pointed to demand continuing to outstrip even the record levels of supply as underpinning high real estate prices, as the risk of oversupply remains extremely low.
“On its own, the rising number of single-family homes under construction suggests an increasing (albeit moderate) risk of oversupply in the period ahead; however, low inventories of unsold single-detached homes helps to mitigate that risk.
In terms of multi-family unit construction, the report said, “Fueled by very strong housing starts in 2016, the number of multi-family units under construction rose to a new record level, thereby signaling a greater-than-usual risk of imbalance in this market segment. Such risk is tempered by the still-tight market conditions in the resale market and low inventories of newly built and unsold units.”
However, one factor that concerned the RBC economists was Vancouver’s population growth, which they observed had reduced its growth rate over the past year.
The report said, “The rate of adult population growth has dipped marginally below the threshold (1.5 per cent) signaling the presence of elevated risks. Any sustained period of slower-than-usual growth in population could cause some issues for the high levels of housing construction in the area.”
To read the full report, click here.