Houseing bubble

Housing Bubble: Foreign Buyers May Not Be the Only Problem

Capital Economics published a letter earlier this month explaining their distaste for the notion that foreign buying is Vancouver’s real problem, blaming politicians for using this as a “blame game”, and one that they have seen time and time again.  The letter offers a handful of alternative ideas, and some food for thought.

According to the letter, Vancouver actually had a relatively low percent of foreign purchases when compared to other similar metros: Florida had 22 percent foreign purchases in 2015, and 16 percent in California – Vancouver only had 10 percent. The letter notes that price increases only went up by 7 percent last year in Miami, and 10 percent in San Francisco.

Capital Economics states that they believe the housing problem is instead caused by low interest rates and irresponsible lending in Vancouver and surrounding areas. The report does acknowledge that the low Canadian dollar has made Vancouver a more viable option for foreign purchase, and therefore doesn’t disregard the idea completely – but it rejects the notion that foreign purchase is the sole proprietor for the current housing bubble.

When looking at loan-to-income ratios in Vancouver, the report found that nearly 33 percent of insured mortgages had a ratio of more than 450 percent. In the past 12 months we have seen a further decline in interest rates, and therefore lending standards being relaxed even further. The report states that this, not foreign purchasing, is the issue at hand.

The letter expresses concern for the future of Vancouver’s economy, stating that if the new 15 percent tax on foreign purchasers scares those purchasers away from Vancouver, a significant drop in the real estate market could lead to a massive impact on the economy.

Let us know your thoughts in the comments below.