Skip to main content

A "For Sale" sign stands in front of a home that has been sold in Toronto, Canada, June 29, 2015. REUTERS/Mark BlinchMark Blinch/Reuters

Canadian house prices climbed 27 per cent over the five years from February, 2011, to February, 2016, according to the Teranet-National Bank Composite House Price index. But many foreign buyers are seeing price declines, after currency conversion (see chart below).

The currencies of China, the United States and Switzerland have gained so much against the Canadian dollar that they have outrun the increase in Canadian house prices. As a result, the citizens of these countries can buy at a lower price than in 2011: For the Chinese and Americans, it is nearly 10 per cent less; for the Swiss, it is 5 per cent less.

In most other countries, currencies rose less than Canadian house prices. Some, like the

British pound, came up just a bit short – leaving a small price increase of 2.6 per cent. Others were further behind.

Much of the appreciation in the Chinese, U.S. and Swiss currencies was owing to a tumble in the loonie, brought on by the Bank of Canada easing monetary policy in response to the waning commodity boom. There were also fears the housing market was going to crash.

Although the decline in the loonie hasn't boosted Canadian exports a great deal yet, it may have played a role in propping up the Canadian real estate market. There is considerable anecdotal evidence that Chinese buyers have been active in Toronto and Vancouver, both of which are seeing house prices go up despite economic sluggishness.

In the five years to February, 2016, Vancouver house prices rose 36.2 per cent while Toronto house prices went up by 43.1 per cent. The increases are roughly in line with the upward trend in the strong currencies, so house prices in these cities are now more or less unchanged for buyers in strong-currency countries.

This may lessen the incentive to buy in Toronto and Vancouver. But it probably doesn't eliminate it in these cities because house prices still aren't showing increases to buyers in the strong currencies.

The currency incentive has not been eroded in other regions of Canada because their house price increases are lagging currency changes. In Ottawa-Gatineau, for example, the cumulative increase in houses price was only 4.9 per cent over the past five years – so foreign buyers in Ottawa-Gatineau would pay about 25 per cent less than in 2011.

But one must be careful about extrapolating future scenarios based solely on currency incentives since other variables can also have an impact on foreign buying. One factor may be capital and human flight from countries with intrusive governments.

This has been put forward as an explanation in the case of China. It could also become the case for the United States if a poll by New Vox/Morning Consult is right: A quarter of the respondents said they would leave the United States if Donald Trump were elected president.

Larry MacDonald is an economist, author and financial writer. His website is at

Interact with The Globe