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National housing market remains highly vulnerable: CMHC

Tuesday, July 31, 2018

For the eighth consecutive quarter, Canada’s overall housing market remains highly vulnerable, mostly due to evidence of overvaluation and price acceleration in Toronto, Vancouver, Victoria and Hamilton, finds Canada Mortgage and Housing Corporation (CMHC) in its quarterly Housing Market Assessment (HMA).

“At the national level a high degree of vulnerability continues due to moderate levels of price acceleration and overvaluation,” said Bob Dugan, CMHC’s chief economist, in a press release. “Regionally, we are seeing a fair amount of differences, for instance in major centres in Ontario and British Columbia a high degree of vulnerability remains while in the Prairie and Atlantic markets range from moderate to low.”

CMHC defines vulnerability as imbalances in the housing market, which occur when overbuilding, overvaluation, overheating and price acceleration, or any combinations of those, significantly stray from historical averages.

HMA results are based on data as of the end of March 2018 and market intelligence as of the end of June 2018. CMHC’s report assesses the housing market at the national level and provides summary assessment results for 15 Census Metropolitan Areas (CMAs).

In Vancouver, the HMA framework detected moderate evidence of overheating, although price growth has slowed measurably over the last two quarters, and has turned negative in some areas. Declining prices for detached properties in some areas are a result of high inventories that have accumulated due to sustained falling sales volumes.

Evidence of overbuilding remained high in Calgary, but the peak inventory count for apartment units, the largest share of inventory, took place in December 2017, and has since declined. The absorption rate of condos at completion averaged 83 per cent to date as of May 2018 compared to 67 per cent in the same period a year ago, helping to reduce inventory and mitigating the same accumulation of inventory experienced in 2017.

Evidence of accelerating home price growth remained low in Q1-2018 in Saskatoon. Among housing categories, the benchmark prices for single-family, townhouse and apartment units all fell in Q1-2018, compared to Q4-2017, and were down on an annual basis. Compared with the same quarter one year before, the price decline during Q1-2018 was significantly larger among townhouses, where supply far exceeded demand.

In Regina, downward pressure on home prices continued in Q1-2018, contributing to low evidence of price acceleration. The MLS HPI benchmark prices for single detached and townhouse units in Q1 were $291,300 and $230,900, respectively, a decline of 2.6 per cent and 2.2 per cent quarter-over-quarter, respectively. Meanwhile, the benchmark price for an apartment unit was $178,200, up 1.3 per cent compared to Q4-2017. However, prices for all three home types were down on an annual basis.

Winnipeg is showing moderate evidence of overvaluation, as the combination of rising home prices and falling incomes have created some imbalances. Real personal disposable income levels have fallen year-over-year for the third consecutive quarter, while mortgage rates have started to climb from historically low levels.

Despite slowing price growth across the Greater Toronto Area, CMHC reports that lower home prices would have to remain in place for a longer period of time in order for any evidence of price acceleration to be discounted. As a result, Toronto maintained its rating from the previous quarter.

Although overvaluation in Hamilton decreased on average, moderate evidence of it remained as home prices were still significantly higher than levels supported by some housing demand fundamentals. Population growth continues to be a key driver of housing demand in the region.

In Q1-2018, Montreal’s seasonally adjusted sales-to-new listings ratio was close to 69 per cent, only one per cent below the problematic threshold of 70 per cent. This ratio increased for the seventh straight quarter, with sales rising more rapidly than new listings. Because of this, the ratio was closer to the threshold for overheating, maintaining significant pressure on prices.

As of the end of May, Halifax experienced a 12 per cent growth in year-over-year sales, causing the sales-to-new listings ratio to rise to 62 per cent. Since this remains well below the problematic threshold of 85 per cent, the Halifax market still exhibits low evidence of overheating. The average number of days on market has trended down throughout 2018, as homes have sold more quickly in all of the city’s submarkets.

Overall, CMHC found low evidence of vulnerability in Moncton, as the indicators of overbuilding, price acceleration and overvaluation remained below problematic thresholds. However, monthly home sales in the city are setting records, due to increased immigration and improved labour market, while listings remain at historical multi-year lows and continue to fall. Resale price growth can be expected if demand continues to outpace supply.

“Policy changes to the housing market over the past 12 months have dampened home buying demand and softened price growth,” added Dana Senagama, manager, market analysis for Ontario. “However, our assessment continues to indicate a high degree of vulnerability in the Toronto CMA housing market as price growth persists above rates justified by economic and demographic fundamentals such as income and population.”

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