Chart: BMO Economics

The same force is to blame for jaw-dropping home prices in Toronto and Victoria, suggests the chief economist of one of Canada’s biggest banks — foreign buyers.

“We have enough history now to distinguish the clear divergence between Vancouver (down) and Toronto (still straight up),” writes Douglas Porter, BMO’s chief economist, in a client note published this morning.

There is now enough history, Porter indicates, because several months have passed since the BC government boldly introduced a 15 per cent tax on any non-residents purchasing residential real estate in Metro Vancouver.

Since the tax was announced in July and took effect on August 2nd, home prices in Greater Vancouver have fallen but continued on an upward trajectory in Toronto, according to a BMO chart based on transaction data from the Canadian Real Estate Association (CREA).

“And, in case there was any doubt what force is at play, note that Victoria has tracked closer to Toronto’s behaviour than Vancouver’s,” writes Porter, adding that city also lacks a foreign-buyer tax.

Greater Vancouver home prices in December were down roughly 3.1 per cent from where they three months earlier, according to the CREA’s Composite Home Price Index of house and condo values.

Over the same period, residential prices climbed about 2.5 per cent in Victoria and 3.8 per cent throughout Greater Toronto.

“Note that if we instead looked at average transaction price, the gap is much more extreme,” he concludes.

BMO Economics has drawn attention to the role it says foreign buyers are playing in the Canadian housing market.

“While many downplay this factor (‘it’s only X% of the buyers!’), Economics 101 will tell you that the marginal buyer sets the price,” Porter and his colleague BMO Senior Economist Robert Kavcic wrote in a June 2016 report.

“If you introduce a wave of new buyers on an already tight market, prices will soon reach for the sky as the demand curve shifts even slightly to the right,” the BMO economists added.

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