• Sun
  • Dec 21, 2014
  • Updated: 9:53am
The Hongcouver
PUBLISHED : Wednesday, 07 May, 2014, 9:07am
UPDATED : Friday, 09 May, 2014, 7:10pm

Vancouver house prices took a record fall, so is the market really ‘steady and stable’?

Has volatile housing market been affected by the cancellation of immigrant investor scheme?


Ian Young is the SCMP's former International Editor. A journalist for more than 20 years, he worked for Australian newspapers and the London Evening Standard before arriving in Hong Kong in 1997. There he won or shared awards for excellence in investigative reporting and human rights reporting, and the HK News Awards Scoop of the Year. He moved to Canada with his wife in 2010 and is now the SCMP's Vancouver correspondent.

In March 2014, just a few weeks after the Canadian government announced it was shutting down the Immigrant Investor Programme, average house prices in greater Vancouver suffered their biggest month-on-month fall on record, plunging more than 11 per cent. This came amid a three-year period of price volatility so severe that it has never been matched in the history of the city’s real estate market.

Wait, let me try that again. In March 2014, just a few weeks after the Canadian government announced it was shutting down the Immigrant Investor Programme, the Home Price Index (HPI) for greater Vancouver continued to rise to near-record levels, amid what real estate board chief Ray Harris called “steady and stable market conditions”.

Which of the preceding paragraphs is accurate?

Both of them. And therein lies a problem for anyone trying to get a handle on Vancouver’s property market, and whether the cancellation of the Chinese-dominated Immigrant Investor Programme (IIP) is a game-changer or of utter irrelevance.

The apparent disconnect between average prices and the Real Estate Board of Greater Vancouver’s (REBGV) preferred price metric, the HPI, has been noted on plenty of occasions. In contrast to the average-price calculation (total sales value divided by total sales), the HPI employs a sophisticated formula to track the price of a typical or benchmark property, creating a “like-for-like” price comparison. The 26-page explanation of its formulation describes it as “a reliable, consistent, and timely way of gauging changes in home prices”.

Critics have dubbed it the “Franken-number”. That’s a little unfair, since the reason for devising an alternative indicator to average prices makes perfect sense: Average prices do not take into account month-to-month variance in the type or location of homes being sold.

The net effect of the HPI formula is to flatten out the peaks and valleys that can beset average price charts. REBGV chief economist Cameron Muir told me the HPI is a “much more robust” pricing measure than average prices, in part because it “takes that volatility out of the equation. It gives us a better handle on where pricing trends and directions are going.”

But what if the volatility itself, as opposed to the price point in any given month, is telling an important story?

Lest there be any misunderstanding, I have no doubt the HPI is a superior measure of prices in Vancouver compared to other gauges, including average prices. But the fact that the HPI has obscured the extreme and unusual volatility in average detached home prices may itself be a problem. Few home buyers or sellers are likely aware that it is even occurring. It certainly hasn’t been widely reported.

Since early 2011, average house prices have changed direction by a factor of 10 per cent or more five times. Such volatility had never happened before, and the swings are getting wilder. Between June 2013 and February 2014, average prices soared 22 per cent, hitting a record C$1.36million. As noted earlier, this was followed by a one-month price drop of more than 11 per cent (to C$ 1.21 million), the greatest plunge in a single month on record.

Yet not a single report on the March stats highlighted this fact. During the 2008-2009 global financial crisis, 10 per cent swings occurred twice. Before that, you have to go back to 1996, when pre-handover immigration from Hong Kong dried up, to find a 10 per cent swing downwards (in that case it took eight years before an upswing made up the lost ground).

So the 2011-2014 average-price swings have been very unusual. This is beyond dispute.

It’s still too early to tell whether the announced cancellation of the 28-year-old IIP is having any effect on the market. However, the current spate of price volatility roughly coincides with a period of widespread doubt over the fate of the IIP, a scheme which made Vancouver the world’s most popular destination for millionaire immigrants. In 2010, its benchmarks were doubled. In 2012, new applications were frozen and rumours that the scheme would be shut down swept the Chinese immigration industry.

Although the federal government announced in February that the IIP would indeed be cancelled, this decision only goes into effect in June, when the federal budget is passed. That is when more than 60,000 rich would-be immigrants will be informed that their bids to move to Canada have been scrapped. About 40,000 of these applicants, representing 12,000-15,000 households, had hoped to move to Vancouver.

How many of these had already bought homes in the city? And how many will be seeking to sell, when their dreams of living in Vancouver are officially dashed?

The Hongcouver blog is devoted to the hybrid culture of its namesake cities: Hong Kong and Vancouver. All story ideas and comments are welcome. Connect with me by email ian.young@scmp.com or on Twitter, @ianjamesyoung70.


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This article is now closed to comments

Very good points Ian. You're correct: both charts are accurate. The HPI should be used for buyers intending to own for a significant time, ie. look at the market stability in the long-term; however, both sellers and buyers need to understand that monthly, even weekly or sometimes daily, events within the greater market can significantly influence the sell-ability or price of a property.
I've seen a number of examples of this of the last 10 years where the market turned dramatically upward in a weekend as well as a segment of the market near halting at the change of mortgage rules.
It is important to be as up to date on all facets of not only the real estate market, but of economic and geopolitical policies as well.
The impetus in causing an irregular property market in Vancouver (or elsewhere) is not just by the newly enacted immigration policy. One shouldn’t discount the influence of Xi Jinping’s anti-corruption campaign. As a Chinese citizen, hiding unlawful money in property even in abroad is vulnerable from concealment of ownership.
If you plot the time series of logarithm of home prices, you will get a less exaggerated picture of asset inflation over this 37 year period. Moreover, with a companion linear scale for time series of Chinese immigrants in Vancouver, you can get a handle on how Chinese home buyers are driving up detached housing prices.
I suppose you can't do this because many SCMP readers are math challenged.
Don't forget too, some native born Canadians near retirement age now aware of new immigration rules are getting jittery and cashing out.
Let's hope they stop coming and sell their Canadian property so those of us who were born here get a chance to own property. Our shameless government has created this mess and has sold out our city and made it unaffordable and unfriendly.
Hi whymak: Yes, a logarithmic representation looks far less dramatic (in terms of the price increases), though the 2011-2014 price instability remains unprecedented. The Hongcouver blog previously examined the very strong correlation between Vancouver home prices and immigration here ****www.scmp.com/comment/blogs/article/1440792/immigration-property-prices-and-vancouver-experts-view . Causality remains unprovable.


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