CMHC Cautions Canada’s Housing Market Overheated, Highly Vulnerable

According to Canada Mortgage and Housing Corporation, a potent combination of factors, including home price growth acceleration and continued overvaluation and stagnant labor incomes, has created a high level of vulnerability in Canada's housing market. Original story

In its latest quarterly Housing Market Assessment, CMHC stated that "high vulnerability at the national scale is largely a reflection on problematic conditions in many local housing markets across Ontario or Eastern Canada."

According to the Crown Corporation, historically low interest rates, government fiscal assistance programs and mass vaccination against COVID-19 have provided Canadians with improved employment prospects, purchasing power and disposable income in the first half 2021.

However, CMHC stated that the improved fundamentals are not sufficient to explain the recent extraordinary growth in home prices, which increased by 13.3% to $663,000.500 in August according figures from the Canadian Real Estate Association.

Bob Dugan, chief economist at CMHC, stated that "exceptionally strong demand and an increase in home prices over the course of the pandemic could have contributed to higher expectations of continued price increases for homebuyers across several local housing markets throughout Ontario and Eastern Canada." "This may have led to more buyers entering the market than necessary."

According to CMHC, the peak in sales activity during the first quarter has contributed to the trend of demand outpacing supply.

Although sales have slowed since then, CMHC stated that there is little evidence of excessive inventories on the national housing market. "This means that there are not unusually many vacant, newly constructed, and unsold housing units." The vacancy rate for rental apartments is also not high compared to normal.

As such, the degree of vulnerability is not equally distributed. This is especially evident in Ontario and Atlantic Canada, which are more vulnerable than other regions.

According to CMHC, the Greater Toronto Area and Hamilton, Ottawa, Halifax, Moncton, and Halifax showed high levels of vulnerability in the second quarter. These markets had significant demand-supply inequalities that led to overheated price rises.

Montreal's vulnerability level has also shifted from moderately high to high as home prices have risen sharply, CMHC stated. This is in spite of the fact that they are far higher than what fundamentals such as labour income warrant. "There are signs that there is overheating, despite a falling pace of sales and the availability of more properties to sell in the second quarter 2021."

Moderate market vulnerability was noted in Victoria, Calgary and Edmonton. However, inventories were generally able to keep pace with demand in these areas.

Vancouver's vulnerability decreased from moderately to a low level. CMHC attributed the slowing of price growth to the slower pace of market sales. This has facilitated the market by allowing homeowners to list their homes in greater numbers than usual.

Saskatoon, Regina, Winnipeg, and Quebec all exhibited a low degree of vulnerability in their local housing markets, CMHC said.


 


Sandi Branker is a Real Estate agent and a Think Ely Real Estate Team member at Zolo Ottawa. She can be reached at (613) 408–7935 or by email at sandi@thinkelyrealestate.com. Facebook| Google My Business |Website Home Page |
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