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December 05, 2013 12:15 ET

BMO Economics Housing Report: Vancouver Housing Market Springs Back to Life

BMO Economics Report "Tale of Four Cities" examines the state of Canada's four largest housing markets

- Vancouver home sales vaulted 50 per cent from earlier lows to near normal levels

- Housing prices sitting at eight times the median income - the highest among the four largest cities

- Vancouver swings from "buyers" market to "balanced" according to BMO Housing Market Scorecard

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Dec. 5, 2013) - After a prolonged slide in sales and prices, the Vancouver housing market has swung from "buyers" status to "balanced", according to a new report from BMO Economics on Canada's major housing markets.

The report titled "Canadian Housing Update: Tale of Four Cities" examines the state of the housing markets in Canada's four largest cities: Vancouver, Calgary, Montreal and Toronto.

"At the lowest point, sales were down 33 per cent year over year, but have since pole-vaulted 50 per cent to near-normal levels," said Sal Guatieri, Senior Economist, BMO Capital Markets. "Buyers held the upper hand last year, but the pendulum has swung toward balanced today. New home inventories, normalized for population growth, are only moderately above long-term norms."

Mr. Guatieri noted that last year's price drop of 6 per cent pales in comparison with the average 22 per cent correction that Vancouver has suffered on four other occasions since 1980. "The worst was a 35 per cent slide in the early 1980s, while the other three corrections clocked in at 22 per cent in the late 1990s, 17 per cent in the early 1990s and 15 per cent in 2008. Whatever you want to say about Vancouver's market, boring it's not."

The report showed that affordability continues to be a challenge for the Vancouver market, with benchmark prices still topping eight-times family income. "Detached house prices are likely to fall moderately when interest rates normalize and the opportunity cost of owning an expensive house goes up, while Vancouver's detached house prices should decline moderately in the medium term," stated Mr. Guatieri.

Meanwhile, condos will remain an affordable option for young buyers as prices have fallen slightly in the past year and are little changed from six years ago. "Mortgage service costs on a Vancouver condo consume 29 per cent of median family income, still within reach of most buyers," said Mr. Guatieri. "We expect condo prices to remain flat in 2014, as healthy demographic demand from echo boomers and immigrants counters the downward pull of a moderately high number of vacant unsold units."

Henry Donkers, Regional Vice President, Vancouver Westside and Richmond, BMO Bank of Montreal, reinforced the importance of ensuring long-term affordability when making a home financing decision.

"It's prudent that prospective buyers work with their financial institution to stress test their mortgage against a higher interest rate to ensure long term affordability in the event that interest rates rise in the coming year as many expect is likely," said Mr. Donkers.

BMO Housing Market Scorecard for Four Major Cities and Canada

Calgary Toronto Vancouver Montreal Canada
Market Balance Sellers Balanced Balanced Buyers Balanced
Existing Sales (y/y % change) 23.0 19.7 50.3 2.0 12.3
Sales vs. 10-year Mean (% change from average) 19.8 8.9 -3.0 -9.1 3.0
Prices (y/y % change) 7.6 4.1 -0.8 2.4 8.5
Prices vs. Family Income (ratio of annual family income) 4.1 6.6 8.3 4.1 5.0
Mortgage Service Costs (% of family income) 23.1 39.3 50.2 23.1 29.0
Median Family Income 100,500 72,400 72,800 73,200 76,700

The full report featuring the complete and sourced version of the scorecard above, can be downloaded at bmocm.com/economics.

About BMO Financial Group

Established in 1817 as Bank of Montreal, BMO Financial Group is a highly diversified North American financial services organization. With total assets of $537 billion as at October 31, 2013, and more than 45,000 employees, BMO Financial Group provides a broad range of personal and commercial banking, wealth management and investment banking products and solutions.

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