5 Canadian housing markets at risk

The Canada Mortgage and Housing Corporation (CMHC) released its quarterly Housing Market Assessment (HMA), announcing overall problematic conditions, despite a few housing markets making an improvement in the last three months.

“While the overall assessment for Canada has not changed from the previous quarter, the level of overvaluation has been downgraded to moderate,” says Bob Dugan, Chief Economist, CMHC. “Regionally, eastern markets show weak evidence of overvaluation while this factor is stronger in western centres and markets in southern Ontario where economic fundamentals have not kept pace with recent price growth.”

Last quarter, there were eight centres showing strong evidence of overvaluation and now only 6 centres are at a strong risk. In Victoria, evidence of overvaluation went from moderate to strong, and there are also signs of price acceleration and overheating. Vancouver is also still at risk of price acceleration and overvaluation.   

“CMHC's latest Housing Market Assessment continues to show strong evidence of problematic housing market conditions in Victoria,” says Eric Bond, Senior Market Analyst (Victoria), CMHC. “The last quarter of 2016 was dominated by strong sales and low supply which pushed house prices beyond levels that are supported by fundamentals such as income and population growth. For these reasons, we detected increased evidence of overvaluation in the Victoria market.”

In Toronto and Hamilton, price acceleration, overvaluation, and overheating are strong issues. With supply not meeting demand in the rental, resale, and new home markets, price/rent growth has intensified. Toronto, Hamilton, Saskatoon, Vancouver, and Victoria were the housing markets with overall problematic conditions.  

“Rapid growth in house prices above rates warranted by economic and demographic fundamentals such as income and population growth has meant the continued detection of problematic conditions in the Toronto CMA housing market,” says Dana Senagama, Principal Market Analyst (Toronto), CMHC.

The only housing markets to show improvement include Regina, Montreal, and Quebec. Also, supply is adjusting to demand in Moncton and St. John’s. Out in the prairies, there is a strong risk of overbuilding, but there are signs that it’s levelling out with Regina being downgraded to moderate.

Vancouver

CMHC definitions of problematic conditions:

Overheating: Sales outpacing listings

Overbuilding: When vacancy rate or unsold inventory increases

Price Acceleration: Partially reflective of speculative activity

Overvaluation: Prices not supported by fundamental drivers, including income, mortgage rates, and population.