There is some evidence Vancouver’s housing market has already begun to cool and, with its recently implemented foreign buyer’s tax to boot, a rise in unemployment could lead to further price declines, according to Fitch Ratings.

“We believe there is some risk to residential house prices in Vancouver if there is a rise in unemployment. The city’s job market has been strong. Statistics Canada reported that Vancouver added 83,500 jobs over the prior year,” the ratings agency said in a recent research note, entitled Vancouver Tax Raises Employment Risk to House Prices. “Its unemployment rate fell to 5.5%, the lowest rate in the country. However, Canada’s other major metropolitan areas have seen much slower growth. In July, Ontario’s unemployment rate was unchanged at 6.8% and Montreal’s stood at 7.9%.”

Not to worry just yet, then.

Still, the agency cites affordability as a concern, with the average price up 24% year-over-year in July.

And that the government estimates 7.9% of housing investment in Vancouver between June 10 and July 14 came from foreign nationals. That influence is likely on the decline, however.

“The tax is part of a broader effort to slow the country’s housing markets. Last year, the minimum down payment on loans insured by Canada Mortgage and Housing Corporation was increased to 10% on the portion of the loan over C$500,000,” Fitch said. “This June, the finance minister announced the formation of a working group that will make recommendations designed to increase affordability and bolster the market’s stability.”

And while the recent measures will likely cool the market somewhat, Fitch believes the market may already be experiencing a slight decline.

“Canadian Real Estate Association data indicated that the number of national sales fell by 2.9% since last July,” Fitch said. “Vancouver’s monthly sales have declined substantially by 21.5% since they peaked in February. While there is no direct relationship between the number of sales and prices, we believe declines in the number of sales of high magnitudes are worth consideration.”

Risks Present in Canada’s Hottest Housing Market by Justin da Rosa | Canadian Real Estate Wealth