Canada's Condominium Magazine

Canada’s housing markets a little more problematic than in spring: CMHC

Canada Mortgage and Housing Corporation’s housing market assessment chart is gradually turning an alarming red. Compared to the last assessment, which came out in April and had ten red blocks, the latest one, just released, has thirteen. What it means is that evidence of “problematic conditions” in Canada’s main housing markets has increased, especially in the areas of overvaluation and overbuilding. Vancouver is the only city of the fifteen measured to have moved from an overall moderate rating of problematic conditions to a strong one, turning from yellow in April to red in July. Toronto, on the other hand, did not change in any of the four categories measured. Conditions were strongly problematic in April and they remain so in July, according to CMHC. Canada’s overall assessment moved from weak to moderate.

Toronto’s main trouble spots, as in most other problematic cities, are price acceleration and its consequent overvaluation. Low-rise, single-detached homes cost a lot in Toronto, and there have been fewer launches of new projects “in recent years.” Declining inventories of both new and resale detached homes has driven rapid price growth. Since home price growth has vastly outpaced growth in personal disposable income, there is strong evidence of overvaluation.
Comparisons between April 2016 and July 2016 housing market assessment reports. Source: CMHC

CMHC is raising its overall assessment for Canada from a low level of evidence of problematic conditions to moderate. Driving the increased level of evidence has been increasing growth in housing prices that have pushed house prices to levels that exceed the fundamentals supporting the housing market. These fundamental factors include changes in income and population.

Halifax, seen in the picture at the top of the page, is the country’s most problem-free housing market at this time, showing green across the board in both April’s assessment and July’s. Prices have stabilized, economic fundamentals have strengthened, and overvaluation has declined.

Saskatoon, on the other hand, is the reddest of the cities, strongly affected, as is Calgary and Regina, by falling energy prices, which in turn affect the economic and demographic fundamentals that support the housing markets. High rental vacancy rates, weaker income growth, slower population growth, and elevated new housing inventory are some of the factors causing these cities to show stronger evidence of problematic conditions.

Hamilton, Ontario: feeling the pressure as Toronto buyers push home prices higher.

Hamilton’s housing market is showing signs of stress due to its proximity to Toronto. Home prices there are higher than they should be based on the city’s population, employment and income levels, CMHC says. An influx of buyers from Toronto has driven Hamilton’s sales-to-new-listings ratio through the roof. It currently sits at 84 per cent, well above the 75 per cent threshold CMHC uses to identify an overheated market. Such a high ratio means that Hamilton is a sellers’ market, which only puts more upward pressure on home prices. With so many buyers coming from outside the city, sales increase but new listings do not.

In raising its overall assessment for Canada from a low to moderate level of problematic conditions, CMHC notes that house price growth has been uneven across the country, strong in Toronto and Vancouver and a few other places, but not in energy-dependent provinces. The housing agency warns, however, that if price acceleration “intensifies” in Ontario and British Columbia, that could be enough to pull the rest of the country into the red.

Auberge on the Park-Tridel


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