Overvaluation and price acceleration keep Canada’s overall housing market highly vulnerable for seventh straight quarter

Canada’s housing market overall remains highly vulnerable for the seventh consecutive quarter mainly due to evidence of overvaluation and price acceleration observed in Census Metropolitan Areas such as Toronto, Vancouver, Victoria, and Hamilton, according to Canada Mortgage and Housing Corporation (CMHC).

On a quarterly basis, CMHC issues its Housing Market Assessment (HMA) to provide Canadians with both expert and impartial insight and analysis, based on the best data available in Canada. This report acts as an “early warning system” for the country’s housing markets — an important tool supporting financial and housing market stability.

Results are based on data as of the end of December 2017 and market intelligence as of the end of March 2018.

Report highlights:

  • A high degree of vulnerability is maintained in Toronto. Price declines in single-detached homes have been more pronounced during the fourth quarter of 2017, but market conditions for condominium apartments have tightened, resulting in stronger price gains. Low evidence of overbuilding remained, as inventories declined across all housing types.
  • Vancouver’s housing market remained highly vulnerable. Rising prices for homes in the sub-$1 million market segment, coupled with rising mortgage rates, have eroded overall affordability further in the fourth quarter of 2017.
  • In Victoria there is strong evidence of overvaluation as house prices remained elevated over local incomes. Evidence of overbuilding remains weak, however the inventory of completed and unsold units relative to population is trending up from a recent low point.
  • The Hamilton housing market remains highly vulnerable, although the degree of overvaluation lessened as house prices became more aligned with personal disposable income, population growth and employment.
  • Montreal still shows a low degree of vulnerability, but the growth rate in house prices has increased. If this increase continues, the level of price acceleration could be raised to moderate in a future HMA.
  • Strong evidence of overbuilding is still observed in Calgary, Edmonton, Saskatoon and Regina due to high inventories of new and unsold homes as well as high rental vacancy rates. Only in Saskatoon and Regina does this trend seem to be unwinding, as the inventory of completed and unsold units shifted lower in the fourth quarter.
  • Low vulnerability is detected for housing markets in Winnipeg and in Atlantic Canada.

CMHC defines vulnerability as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration — or combinations thereof — depart significantly from historical averages.

As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers objective housing research and information to Canadian governments, consumers and the housing industry. 

Backgrounder:

CMHC’s HMA analytical framework is designed to evaluate the extent to which there are vulnerabilities in Canadian housing markets. The framework assesses housing market conditions and considers the incidence, intensity and persistence of four main factors:

  • Overheating of demand in the housing market, wherein sales significantly outpace new listings.
  • Acceleration in house prices, which could be partially reflective of speculative activity.
  • Overvaluation in the level of house prices, which indicates that house price levels are not fully supported by fundamental drivers such as income, mortgage rates and population.
  • Overbuilding of the housing market, when the rental market vacancy rate and/or the inventory of newly built housing units that are unsold is elevated.

Each of these factors is measured using one or more indicators of housing demand, supply and/or price conditions. The table below outlines the results from the previous release in January 2018 and the current April 2018 release.

Comparisons between the October 2017 and January 2018 reports
 OverheatingPrice AccelerationOvervaluationOverbuildingOverall Assessment
  Jan. 2018Apr. 2018Jan. 2018Apr. 2018Jan. 2018Apr. 2018Jan. 2018Apr. 2018Jan. 2018Apr. 2018
Canada Weak Weak Moderate Moderate Moderate Moderate Weak Weak Strong Strong
Victoria Moderate Moderate Moderate Moderate Strong Strong Weak Weak Strong Strong
Vancouver Moderate Moderate Moderate Moderate Strong Strong Weak Weak Strong Strong
Edmonton Weak Weak Weak Weak Weak Weak Strong Strong Moderate Moderate
Calgary Weak Weak Weak Weak Weak Weak Strong Strong Moderate Moderate
Saskatoon Weak Weak Weak Weak Weak Weak Strong Strong Moderate Moderate
Regina Weak Weak Weak Weak Weak Weak Strong Strong Moderate Moderate
Winnipeg Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
Hamilton Moderate Moderate Moderate Moderate Strong Moderate Weak Weak Strong Strong
Toronto Moderate Moderate Moderate Moderate Strong Strong Weak Weak Strong Strong
Ottawa Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
Montréal Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
Québec Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
Moncton Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
Halifax Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
St. John’s Weak Weak Weak Weak Weak Weak Moderate Moderate Weak Weak


Note: The HMA detects the presence or incidence of market imbalances when indictors are above thresholds. It also measures the intensity of signals by how much indicators are above thresholds, and the persistence of signals by how long signals stand above thresholds. Generally, low intensity and persistence are associated with a lower vulnerability. As the number of persistent signals increases, the evidence of imbalances increases.

 

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