The Mysterious Vancouver Housing Bubble: Part 2

It seems to be a weekly occurrence now to hear about some new data attempting to explain the ever-rising home prices in Vancouver. This week, Benjamin Tal, deputy chief economist at CIBC, pointed to some data from Landcor Data Corp. which estimated that only 10% of foreign transactions in Vancouver over the past five years were worth more than $1-million. The five-year average for foreign transactions was $600,000.
However, rather than using those numbers to suggest that Chinese investors were not, in fact, responsible for the housing boom, he pointed to the methodology to suggest that the numbers actually underestimated the real picture to some extent. The data is derived from tracking the location where property tax assessments are mailed. Thus, a “foreign transaction” refers only to those in which this assessment is mailed to a non-Canadian address. Tal argues that since many of these Chinese investors are actually immigrating to Canada and laying roots down here, the numbers underreport their affect on house prices.
In my earlier post on the Vancouver bubble, I highlighted a potential issue of concern for the Bank of Canada. Namely that increases in Canadian mortgage rates wouldn’t have as much of a downward effect on Vancouver prices given the large influx of foreign wealth. Given the suggestion that many of these investors are actually setting up lives in Canada, it’ll be interesting to monitor whether these individuals (when compared to externally based investors) will respond to monetary policy changes or simply continue to inflate the bubble.