Vancouver’s housing market will continue to cool, but won’t collapse as some have predicted, according to a report released Wednesday by RBC Economics.

Home sales in the city have slid since the B.C. government introduced a 15 per cent tax on foreign homebuyers in August. Even amid recent signs of cooling, RBC said Vancouver is still positioned to attract wealthy investors. This comes as Vancouver’s most expensive house was just listed on the market for $38 million – four times the price it was bought at two years ago.

According to RBC senior economist Robert Hogue, even though a further decline in demand and a moderation of prices is likely, there are five “highly uncertain” factors that could “trip up” Vancouver’s housing market:

1. Policy

Policy implemented by various levels of government may be the biggest factor to influence Vancouver’s housing market – but also the most difficult to predict, according to RBC.  Even though home sales in Vancouver plunged 33 per cent in September and 26 per cent in August, it’s still too early to measure the true effects of the tax, Hogue said.

Policy now the biggest risk to Canada's housing market: RBC

A new report from RBC says while Vancouver's real estate market is set to cool, don't expect to see a hard landing. Senior economist Robert Hogue tells BNN why he sees home prices only mildly contracting and how changing housing policy is now one of the biggest risks to Canada's housing market.

2. The ‘foreign element’

In the five weeks leading up to the foreign buyers’ tax, foreign nationals accounted for 10 per cent of all home buyers in Metro Vancouver, according to data released by the B.C. government. That number decreased to one per cent as foreign buyers scrambled to register transactions at the Land Title Office prior to the Aug. 1 deadline.

There has been speculation about whether the would-be foreign buyers in Vancouver will start tapping into other hot markets, like Toronto. But Hogue said foreign nationals may regain interest once the initial shock from the tax wears off – and that uncertainty of foreign buyer activity poses a risk to the market.   

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3. Speculation

Speculation is a “grey area” that could tip the market over, according to Hogue. Data released by the B.C. government earlier this year indicated that there was only a small uptick in property flipping, but the uncertainty and lack of detailed data could hurt the market.  Hogue said that listings are the first place to spot early signs of trouble.

4. Too much supply

Housing starts in B.C. have soared 46 per cent since the start of 2016, according to recent data from CMHC.  These record-high levels of construction could potentially overshoot demographic requirements, RBC argues. “It is important to note that construction timing uncertainty can be substantial — especially for multi-dwelling projects,” Hogue wrote in his report.

5. Local economy’s dependence on housing

Even with Vancouver’s highly-skilled workforce, the provincial economy largely depends on the housing market, the report noted. Residential construction and real estate industries represented 21.1 per cent of provincial GDP in 2015, according to data from Statistics Canada, exceeding the national average share of 14.6 per cent.

“The flip side of this dependence is that it is also the province most vulnerable to a housing downturn. Any sustained period of significant weakness is likely to have material adverse consequences for the local economy,” the report said.