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Greater Vancouver’s housing market is unlikely to crash in the near term, despite extremely poor housing affordability and decelerating population growth.

According to RBC’s Canadian Housing Health Check published on Monday, the region is not at risk of experiencing a housing downturn because of solid economic underpinnings.

To determine if a market is healthy, the Canadian bank focuses on indicators that have been linked with housing crashes and declines in the past three decades.

Indicators include affordability, existing home market balance and demand and supply fundamentals.

Even though Greater Vancouver is considered safe, the region faces potential risks that may lead it into dangerous territory.

“There’s still a lot of significant vulnerabilities in that market and affordability, or the lack thereof, continues to be a concern for us,” RBC Senior Economist Robert Hogue tells BuzzBuzzNews.

Vancouver remains the nation’s most expensive housing market, with an aggregate affordability measure of 84.8 per cent in the fourth quarter of 2016.

RBC’s affordability measure for a market is based on the average pre-tax household income required to pay mortgages (principal and interest), property taxes and utilities for the median market price of homes.

Poor affordability in the region’s single-family home and condo segments puts the market’s health in jeopardy.

After Vancouver hit a peak of home resales in the winter of 2016, RBC says poor affordability is likely one of the contributing factors to dramatic declines in home sales, along with the 15 per cent foreign-buyer tax introduced in Metro Vancouver last August.

However, RBC suggests the effect of the tax may be wearing off as some foreign buyers had returned to the region by the end of 2016, after observing the market from the sidelines following the implementation of the tax.

Even though poor affordability is a concern, it may not be hindering demand in the market.

Since last spring, demand-supply conditions have cooled in the region and home prices have stabilized, even though they are well above year-ago levels.

The sales-to-new listings ratio in Greater Vancouver dropped from 0.89 in January 2016 to 0.56 in August 2016, but rebounded in February to March to 0.72.

“It’s [sales-to-new listings ratio] not pointing towards any kind of imminent major price inclines in that market and in fact the last couple of months we’ve seen some month to month increases after a period of five months of month to month declines,” says Hogue.

Along with poor affordability, declining population growth is another vulnerability named by RBC.

The region’s population growth has dipped from 1.9 per cent year-over-year in March 2016 to 1.4 per cent in March 2017.

This drop in population growth falls below the threshold of 1.5 per cent, which RBC says signals a concern for elevated risks.

“The fact that population growth has slowed, which is a little bit surprising to us given that population growth has accelerated pretty much across the country, it might be a little bit of a reflection of poor affordability that’s becoming an issue for people to move into the Vancouver area,” says Hogue.

Greater Vancouver’s market is also healthy as measured by several key indicators tracked by RBC. In February, the number of completed and unsold single-detached and semi-detached units rose to 0.45 units per 1,000 people, up from 0.31 in May 2016.

Despite the modest increase, RBC says the absorption rate of these homes remains at a safe level and well below the long-term average of 0.60 units.

In response to a lack of supply in the single-family home segment last year, housing starts rose dramatically by 12 per cent compared to 2015.

The potential concern of oversupply in the market is unlikely to manifest at current low inventory levels.

“At this stage, we’re considering this high construction level as part of the solution to this incredible tightness in the market,” says Hogue.

“But if population continues to slow at the time when there’s new supply coming in there might be a risk of overbuilding at some point, but at this stage this risk remains quite remote,” he adds.

Although conditions for Greater Vancouver’s homebuyers segment have eased since last year, the same cannot be said for its renters.

Rental units in the region became more scarce last year, as the vacancy rate hit an eight-year low of 0.7 per cent in October 2016 — one of Canada’s lowest rental vacancy rates.

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