Housing Market Has Moderate Degree of Vulnerability

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Housing in Halifax. Pic: CMHC

OTTAWA: Strong price increases not supported by economic fundamentals like income and employment in some local markets means Canada’s national housing market remains moderately vulnerable.

This analysis is according to the Canada Mortgage and Housing Corporation (CMHC) Housing Market Assessment (HMA) released recently.

“Although the unprecedented income supports from governments provided temporary relief, the COVID-19 crisis negatively affected the level of permanent disposable income available to households,” said Bob Dugan, CMHC’s chief economist.

“Along with the weakening of other drivers of the housing market, overvaluation imbalances increased further or started to emerge in several markets in the third quarter of 2020.”

In contrast with the second quarter of 2020 where the initial impact of the COVID-19 crisis was felt most acutely, housing market activity across the country increased significantly in the third quarter.

While sales activity rebounded, new listings coming onto the market did not keep pace — resulting in declining inventory levels.

The tighter market conditions contributed to upward pressure on house prices in several local housing markets across the country beyond what could be justified by the fundamental drivers of house prices such as income and population growth.

This led to an increase in the number of Census Metropolitan Areas (CMAs) exhibiting either a moderate or high degree of vulnerability in the third quarter.

Highlights:
• Overall, Hamilton and Moncton housing markets moved from a moderate to high degree of vulnerability. Price acceleration and overvaluation imbalances are evident in both markets.

• Regina now shows a moderate degree of overall vulnerability as increases in house prices and declines in key fundamentals supporting prices contributed to widening the overvaluation gap.

•Vancouver, Toronto and Montréal saw a significant rebound in sales activity that outpaced a recovery in new listings coming into the market. All three markets show a moderate degree of overall vulnerability.

• Overvaluation estimates increased in Toronto and Montréal in the third quarter

• Calgary and Edmonton continue to show moderate evidence of overbuilding. The dual impact of the COVID-19 pandemic and oil price softness on the economy and jobs continues to weigh on these housing markets.

• Victoria and Halifax remain moderately vulnerable due to overvaluation.

• Ottawa’s overall assessment is maintained at a moderate degree of vulnerability as persistent imbalances between supply and demand continue to contribute to overheating and price acceleration.

• Low overall vulnerability continues in Saskatoon, Winnipeg, Québec City and St. John`s.
*The December 2020 overvaluation ratings are based on 2020 Q3 preliminary estimates. With the economic, demographic and financial impacts of the COVID-19 pandemic, it is all the more important to keep track of emerging imbalances and vulnerabilities in the Canadian housing market and report on them in a timely manner.

In a context of high uncertainty and data volatility, the HMA allows Canadians to keep a pulse on the overall state of the housing market in Canada and its metropolitan regions.

The current assessment is based on preliminary data from the third quarter of 2020, and market intelligence up to November 2020 at the national level and detailed results for 15 CMAs.

CMHC issues the HMA on a quarterly basis to provide Canadians with expert and impartial insight and analysis, based on the best data available in Canada.

The report provides a comprehensive view of housing market vulnerabilities and identifies imbalances. The HMA is not intended to identify long-term challenges related to housing affordability.

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