The dream of owning a single-family detached house in the Vancouver region won't be within reach based on local incomes, even if typical prices in Canada's most expensive real estate market were to tumble 30 per cent, according to a new report by Royal Bank of Canada.
While policy initiatives may make it easier for some buyers to snap up condo units in high-rises, "owning a single-detached home in Vancouver is unlikely to ever become affordable by Canadian standards," RBC senior economist Robert Hogue said in a research note Wednesday.
He emphasized that while there remain risks of prices decreasing, "a wholesale collapse is unlikely" due to economic and demographic strength, as well as the Vancouver region being "still well-positioned to attract wealth and investment despite the new tax on foreign buyers."
The average price for detached properties sold in Greater Vancouver hit $1.53-million last month, up 8.8 per cent from September, 2015, but down 16.1 per cent from the peak in January, 2016.
The price for detached houses sold within the City of Vancouver averaged $2.6-million in August, compared with $1.21-million within the City of Toronto that same month, according to data from real estate boards.
Benchmark prices, a gauge used by the real estate industry to represent the sale of typical properties, remain strong in the Vancouver area.
Mr. Hogue said policy moves by the B.C. government have been aimed at addressing concerns about sky-high prices in the Vancouver region.
In February, the province unveiled a new tax on B.C. properties that sell for more than $2-million. The B.C. government also implemented a tax on purchases by foreign home buyers in the entity known as Metro Vancouver, effective Aug. 2.
And last week, the federal government announced measures to close tax loopholes used by some foreign buyers while also tightening mortgage rules.
Early data from the B.C. government show the number of foreign buyers who closed deals in Metro Vancouver's housing market dropped in August, the first month of the province's 15-per-cent tax on buyers who are not Canadian citizens or permanent residents, although it is unclear how much of the decline was due to the tax.
"We have no doubt that the new tax will put a damper on foreign buyer interest in Vancouver in the near term," Mr. Houge said. "However, we believe that Vancouver will continue to attract investment from wealthy individuals – especially those from China given the strong connection already established – once the initial shock from the tax has run its course."
The RBC report noted that prices for typical properties have rallied, especially since early 2015. The benchmark price for detached homes sold last month reached a record $1.58-million, up 56.4 per cent from January, 2015. In the condo sector, the benchmark price hit $511,800 last month, a 33.7-per-cent gain when compared with January, 2015.
"Vancouver offers a sought-after lifestyle and prestige for wealthy Chinese that only a handful of other international cities can boast. These cities include Hong Kong, Singapore, Sydney, Melbourne and London – all of which impose some form of restrictions on foreign buyers," Mr. Hogue said.
The B.C. government's data show that of the total number of transactions, the proportion of foreign purchasers who closed their deals to buy homes in the Vancouver region was 0.9 per cent between Aug. 2 and Aug. 31, down from 13.2 per cent in the seven weeks leading up to the implementation of the tax.
"An arguably even more powerful force in the Vancouver-area market is the strong base and inflow of wealthy immigrants that keeps fuelling home buyer demand, especially at the higher end of the scale," Mr. Hogue said. "We expect that Vancouver's 'brand' will remain strong among wealthy immigrants, as will housing demand from them."
A robust B.C. economy, limited land for development and an influx of people domestically and in particular internationally have combined to produce expensive housing prices, according to the RBC report.
"A 'collapse' in prices often is meant to be a 25-per-cent to 30-per-cent decline. In the case of the Vancouver area, however, a drop of this order would roll the clock back only nine or 12 months," Mr. Hogue added.