American Buyers Drive Up Property Values in BC

.....writes Derrick Penner/Vancouver Sun (Oct 14, 2005):

Real estate has been good to Americans, so much so that many don't have to be multimillionaires to play in foreign property markets, which has TD Bank Financial Services economist Carl Gomez estimating that up to 10 per cent of people in Vancouver and Victoria's residential sector are stateside buyers.

Gomez said that level of activity is enough to help artificially push up prices in both markets, and also makes them more vulnerable if the bottom were to fall out of the equity gains that American buyers have enjoyed at home and used to fuel purchases abroad.

The TD economist admits his 10-per-cent estimate is mostly anecdotal based on a survey of market activity in Whistler conducted a few years ago by Canada Mortgage and Housing Corp., and the sales experience of Vancouver real estate marketers such as Bob Rennie.

In an interview with The Vancouver Sun, Gomez said there is a big trend in the United States of property owners leveraging the equity gains that they have made in their home properties to buy recreational real estate.

And as they look around from markets where property values have rocketed into the stratosphere, Gomez said Vancouver doesn't look so expensive.

"If you're playing with the gains that you're having, and you've got this irrational exuberance dictating your view of real estate, it starts to migrate up to other recreational [property] markets," Gomez said.

He added that with a large number of such buyers in B.C. markets, "to some extent, that may be driving activity in the overall market and be pushing prices beyond fundamentals."

Gomez's work was quoted by the Los Angeles Times in an article that explored the premise that B.C., along with locales such as Baja California and London, are becoming part of a world housing bubble being fuelled by low U.S. interest rates and the desire of buyers to find better investments than offered by sluggish stock markets.

"My concern is that, if we look at what's fuelling [the buyers'] gains to purchase property in B.C., a lot of that is predicated on 'bubbly' markets in the U.S." Gomez said.

However, if conditions in those so-called "bubbly" markets change to erase the equity gains Americans are enjoying, they might feel pressure to liquidate their recreational real estate holdings abroad.

Gomez said that if there were a correction in the U.S. housing market that saw prices decline, it is not likely that all American buyers in Vancouver or Victoria would pull their money out right away. The correction, however, would spill over into the B.C. markets.

Gomez added that on the positive side, the stronger employment growth and positive population migration into the province would help offset the extent of any damage.

"The fallout from a correction would be fairly mild, if it were to occur," he said.