Biggest market risk is not a housing crash, contrary to popular belief

Biggest market risk is not a housing crash, contrary to popular belief

Biggest market risk is not a housing crash, contrary to popular belief

BMO chief economist Douglas Porter has warned that the greatest risk to the Canadian market considering current trends is not a housing crash, but a significant reversion to “nosebleed levels of price growth.”

This is because while lower interest rates are a godsend for borrowers, the trend might also encourage a renewed surge of speculation by moneyed foreigners taking advantage of Canada’s housing markets.

“Domestic policymakers [in Canada] may need to consider other ways to control [real estate] speculation – especially from abroad – in a world where interest rates stay below inflation, or even below zero,” Porter cautioned in a recent client note, as quoted by the Vancouver Courier.

Fifty of Canada’s largest metropolitan markets saw over 20% growth in the share of empty residential properties from 2006 to 2016, according to research by Point2 Homes.

Up to 1.3 million homes across Canada stood empty by the end of 2016, the study noted. Such properties are almost always vehicles of speculation, remaining empty while changing hands fairly rapidly – and the value steadily increasing with each transaction.

This was particularly serious in Grande Prairie (with a 181.4% increase in unoccupied homes during the time frame), Leduc (172.4%), and Ford Saskatchewan (146.8%). Other notable hubs were Winnipeg (42.7% growth), Montreal (36.3%), and Edmonton (32.5%).

In Vancouver, the pain was somewhat eased with the BC government’s introduction of its speculation and vacancy tax.

The provincial ministry reported last month that the levy generated around $115 million in its first year – much higher than the initial $87-million estimate.

A significant proportion of the 12,029 who paid the tax by July 2 were foreign owners (4,485 taxpayers), the ministry added.