Finance Minister Jim Flaherty dismissed speculation about a Canadian housing bubble, telling reporters in New York on Wednesday that he sees no need to tighten the country’s mortgage rules further.
“We have seen in the past year some softening in the Canadian housing market, in part due to the tightening of the insured mortgage market rules that we did earlier this year … That’s an appropriate result from that tightening,” Flaherty said during a news conference. “It will take clear evidence of a bubble in the housing market in Canada, which we have not seen.”
Flaherty made those comments despite Royal LePage’s finding in its quarterly housing survey released on Wednesday that the average detached home price in Vancouver in the third quarter rose 17% on a year-over-year basis to more than $1 million. That’s three times the national average.
The soaring prices in Vancouver have largely been influenced by a flood of foreign money being invested into wealthy neighbourhoods like Richmond, Phil Soper, president and CEO of Royal LePage, said.
Asian investors, who are surrounded by some of the most inflated real estate markets in the world – especially in Hong Kong and Australia – typically see Vancouver’s prices as a bargain.
Soper said he believes the Vancouver market will likely soften next year because of slowing domestic demand, but the steady flow of foreign money into the city will likely reduce the amount of overall moderation.
“Vancouver is being influenced at the margin by foreign investment. I believe that that is a sustainable scenario,” he told CRE Online.
Foreign investors tend to purchase homes in Vancouver with cash. That means they are in no way influenced by the Bank of Canada’s interest rate policy. “So that investment will cushion the downside to the Vancouver market because most of those foreign buyers are purchasing with cash,” he said.