liveable cities housing market

Housing market vulnerable despite easing overvaluation: CMHC

Monday, February 11, 2019

Although overvaluation has eased in Toronto and Victoria, the national housing market remains vulnerable for the tenth quarter in a row, finds the most recent Housing Market Assessment (HMA) released by Canada Mortgage and Housing Corporation (CMHC).

According to the HMA, despite house prices and housing market fundamentals becoming more aligned in the previous quarter, moderate evidence of overvaluation continued to be detected nationally in Q3-2018. Vancouver, Victoria, Toronto and Hamilton are all experiencing a high degree of overall vulnerability due to overvaluation, although evidence of overvaluation has been downgraded to moderate in both Toronto and Victoria.

In the Greater Toronto Area, the decline in the evidence of overvaluation is due to the gaps between actual home prices and price levels estimated by narrowing fundamentals, according to Dana Senagama, CMHC’s manager of market analysis and market insights for the central region.

In Metro Victoria, evidence of overvaluation declined due to an increase of the population of young adults in the region in Q3-2018, adding support for home price growth, reported CMHC’s Braden Batch, senior analyst, economics and market insights for the West. According to Batch, the support from the population growth in the region was mitigated by a slight decline in disposable income and an increase in mortgage rates.

Meanwhile, imbalances in Metro Vancouver’s housing market have eased in recent quarters, but home price levels are still high relative to local economic fundamentals, resulting in overvaluation continuing to be detected.

In the Hamilton CMA, evidence of overheating and price acceleration continue to be detected. Despite overvaluation slowing over the past few quarters, there is still moderate evidence of it being detected. With the inventory of completed and unsold new homes falling, evidence of overbuilding remains low. Housing demand in the region is being driven by an influx of people in the 25 to 34 age group, as it remains strong due to high immigration levels and high in-migration from the GTA.

In Q3-2018, both Calgary and Edmonton continued to show a moderate degree of overall vulnerability. However, as the rental apartment vacancy rates fell, the evidence of overbuilding has been revised from high to moderate in these two regions.

The Saskatoon, Regina and Winnipeg CMAs all continued to show a moderate degree of overall vulnerability. In Saskatoon, the inventory of unsold completed units has stayed below CMHC’s threshold over the past three quarters, resulting in the evidence of overbuilding revising from high to moderate. In Regina, evidence of overbuilding remains elevated due to a high vacancy rate and new housing inventory. Meanwhile, Winnipeg continues to see a moderate degree of both overvaluation and overbuilding, and the overall assessment of the housing market remains unchanged from Q2-2018.

A low degree of overall vulnerability remains in place for Ottawa, Montreal, Quebec City, Moncton, Halifax and St. John’s. The resale market in Montreal continues to be closely watched due to a tightening between supply and demand, creating significant upward pressure on home prices.

Results of the HMA are based on data as of the end of September 2018; the annual rental apartment vacancy rates are from October 2018 and market intelligence as of the end of December 2018. The report provides the housing market assessment nationally, as well as summary assessments for 15 Census Metropolitan Areas (CMAs).

“We are seeing overvaluation pressures unwinding in Toronto and Victoria, despite the fact that Canada’s overall vulnerability remains high,” said Bob Dugan, CMHC’s chief economist, in a press release. “Nationally, overheating and overbuilding remain low. It should also be noted that price acceleration may be downgraded in upcoming reports which would lead to Canada’s overall vulnerability moving from high to moderate, provided other HMA factors do not change.”

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