There’s a lot of housing market talk again this week with the January numbers coming in, and B.C. taking some measures in its 2016 budget. In addition to the transfer tax changes, B.C. is also promising to collect better data on the impact foreign buyers are having on the local market. While we still don’t know exactly how big their impact is, what we have known for a while now is that the fundamentals in Vancouver and Toronto are strong enough on their own to drive solid price gains. Consider these three simple facts (can also see AM Charts):
1) Demand is strong: Population growth in the 30-39 age group (prime first-time or move-up buying years) is accelerating in Toronto and Vancouver. At the same time, these two cities have accounted for 75% of Canada’s net job growth over the past two years.
2) Supply is constrained: Vancouver’s geography is well documented, but in Toronto, development restrictions contributed to 2015 seeing the lowest annual number of detached home completions in 37 years (and that’s not a population-adjusted number!).
3) Financing is cheap: Demand is robust, supply is constrained, and those two forces are butting up against each other in a record-low interest rate environment. A five-year fixed mortgage is barely above the expected long-run inflation rate. The longer this lasts, the hotter these markets will burn. In some cases (like 16% y/y gains in Vancouver condo prices), fundamentally-driven price gains appear to be morphing into something more—something that usually doesn’t end all that nicely.