Canada Mortgage and Housing Corporation (CMHC) is finding strong evidence of problematic conditions for Canada overall. Home prices have risen ahead of economic fundamentals such as personal disposable income and population growth, resulting in overvaluation in many Canadian housing markets. However, the combination of overvaluation and overbuilding should help slow the growth in resales and house prices and lead to a moderation in the pace of housing starts.

This analysis is the result of combined insight from two major CMHC reports published concurrently for the first time, today: the Housing Market Assessment (HMA) and Housing Market Outlook (HMO).

According to the HMA, Canada now shows strong evidence of problematic conditions overall due to overvaluation and price acceleration. CMHC's last HMA report in July flagged the likelihood of seeing this evidence, by the fall. In addition, overvaluation continues to be detected in nine census metropolitan areas (CMAs) across the country and overbuilding in seven. The HMA serves as an early warning system, alerting Canadians to areas of concern developing in our housing markets, so that they may take action in a way that promotes market stability.

Meanwhile, the HMO highlights important regional differences in housing activity which will gradually dissipate over the forecast horizon. At the national level, housing starts and MLS^® sales are expected to decline slightly in 2017 before stabilizing in 2018 to levels more consistent with economic fundamentals and demographic changes. The HMO is a forecasting tool which provides a range of possible outcomes to better help Canadians in their decision-making process.

 Report Highlights

• There is strong evidence of problematic conditions for Canada overall. Overvaluation and overbuilding remain prevalent concerns in several of Canada’s major housing markets. That said, housing starts and MLS^® sales are expected to decline in 2017 and stabilize in 2018.
• Housing demand in Vancouver is partially supported by robust employment growth, a growing population and low mortgage interest rates. These factors are expected to remain solid through 2018. That said, some moderation in housing starts and resales is forecast for 2017 and 2018, as the market continues to adjust to recent policy changes as well as an overvaluation of home prices. Price growth is also expected to slow, which should help to alleviate some of the imbalances currently detected by our HMA.
• The Toronto housing market is showing strong evidence of problematic conditions, in part due to imbalances between house prices and fundamental drivers like incomes and population growth. These imbalances are expected to moderate through a slow-down in home price growth in 2017 and 2018 as factors such as rising mortgage rates and modest job growth later in the forecast period lead to resales moving off their record highs.
• In the Prairie region this year, low commodity prices continue to impact investment, employment and housing demand. The result is slower new home construction as builders focus on selling their existing stock of new homes, especially multi-family units. Housing starts are forecasted to stabilize in 2017 as inventory reduction continues to hold back growth. By 2018, reduced inventories, stronger economic and employment growth will help boost new home construction