Housing prices in the Lower Mainland are predicted to rise a modest three per cent in 2015, while Canada’s highest prices, in Vancouver, will be sustained by demand from Mainland Chinese buyers.
That’s the view from RE/MAX’s 2015 national housing outlook, in a relatively optimistic report that suggests Greater Vancouver real estate is well supported by a variety of supply and demand factors.
RE/MAX’s report diverges strongly from a new Bank of Canada report that warns parts of Canada’s housing market are overvalued by 30 per cent.
RE/MAX’s report says average residential prices in Greater Vancouver increased from $781,517 in 2013 to $838,400, and are projected to rise to $863,600 in 2015.
Price gains in Vancouver will continue to be driven by hot demand and limited supply for detached homes in west-side neighbourhoods, RE/MAX predicts, while buyers who hoped to break into Vancouver’s market on the east side and lost multiple bid battles may drop out of the market in 2015.
Frustrated buyers won’t limit the market, though, because “the pipeline of demand for the region will continue to grow,” according to RE/MAX.
“Offshore buyer demand from Mainland China continued throughout the year,” the report says. “Demand for westside homes will continue to be driven by offshore buyers who can afford to pay the two million dollar-plus price tag.”
Cory Raven, managing broker at RE/MAX Select Realty in Vancouver, say agents report that “the mindset” of Mainland Chinese buyers focuses on “parking wealth” in Vancouver, rather than seeking price appreciation. That means a significant group of buyers in Vancouver is content to buy higher and higher, agents believe.
“Assuming that tap stays open, the higher end of the market will (continue to see aggressive gains),” Raven says.
There has been speculation that the flood of cash pouring from China into Vancouver real estate will be limited with the ending this year of a federal immigrant investor program. The South China Morning Post has reported a replacement program will be much smaller in scope, and will subject applicants to rigorous audits. But Raven says the perception among realtors is “the tap” will stay open.
“Many realtors have told me that the way business is done (in China) is very different, and the wealthy can always find a way to get their money out.”
Meanwhile, in a new report, the Bank of Canada studied worrying debt loads carried by homeowners across Canada, and calculated that some markets are at risk of correction, with homes overvalued by up to 30 per cent.
But Helmut Pastrick, chief economist of Central 1 credit union, says he believes the Bank of Canada’s data and study method is “constrained” and does not account for unique supply and demand factors in Vancouver’s housing market.
Pastrick says limited land supply in Vancouver is the main factor justifying high housing prices, and demand from Chinese buyers impacts Vancouver’s west side, and West Vancouver. But even if the flow of investment from offshore were to end, according to Pastrick, there would not be a significant drop in Greater Vancouver home prices.
Pastrick says he sees RE/MAX’s prediction of a three-per-cent rise in home prices across the region as reasonable.
“This market is not booming, but it is pretty solid,” he said. “It certainly is not a bubble.”
Pastrick says while U.S. officials appear ready to raise historically low interest rates within half a year, the Bank of Canada probably will not raise rates until late 2015 or longer.
While the Bank of Canada warns that high home prices and heavily indebted households raise risks of a housing correction, Pastrick believes the only real risk is an economic recession.
A drastic fall in oil prices that caught almost all economists by surprise will impact Alberta and other areas of Canada, but actually could support provincial economies such as B.C. that are net importers of oil, Pastrick believes. At this point, he sees no recession risk for B.C. on the horizon.
Source: Sam Cooper, The Province