Home price acceleration, alongside continued overvaluation, as home prices further detach from fundamental factors, such as labour income, has created a high degree of vulnerability in Canada’s housing market. This according to the latest Housing Market Assessment released by Canada Mortgage and Housing Corporation (CMHC). High vulnerability at the national level is largely a reflection of problematic conditions in several local housing markets across Ontario and Eastern Canada. A high degree of vulnerability means the housing market is more vulnerable to a potential downturn, with greater consequences if the downturn were to happen.

Historically low interest rates, government supports, and the rollout of mass vaccination programs provided higher purchasing power, disposable income levels, and employment amongst Canadians in the first half of 2021, however, recent home price growth was not fully explained by these improving housing market fundamentals.

“Exceptionally strong demand and home price appreciation through the course of the pandemic may have contributed to increased expectations of continued price growth for homebuyers in several local housing markets across Ontario and Eastern Canada,” said Bob Dugan, CMHC’s chief economist. “This, in turn, may have caused more buyers to enter the market than was warranted.”

The number of home sales in Canada reached a historic high in the first quarter of 2021, with demand far outpacing the supply of available homes. Sales moderated in the second quarter of 2021, albeit to a still historically elevated level, with market overheating still detected at the national level.

There is low evidence of excess inventories in the national housing market. This means there is not an unusually high level of vacant, newly built, and unsold housing units. As well, the rental apartment vacancy rate is not significantly above normal levels.

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Provided by: CMHC