CMHC Red Warning Sticks Around for 2nd Quarter

The ominous status given to Canada’s housing market is here to stay, according to the nation’s top housing agency – the Canada Mortgage and Housing Corporation (CMHC) reported last week that steep “problematic conditions” have lingered into a second consecutive quarter.

The main culprit – and latest housing danger buzzword – is spillover, as once relatively-affordable regions like Victoria and Hamilton real estate see prices and demand swell alongside Toronto and Vancouver. Meanwhile overvaluation continues to plague Canada’s largest centres; while house prices rose 7% nationally year over year in the third quarter, growth would have been flat with Toronto taken out of the equation.

Stated CMHC Chief Economist Bob Dugan in the institution’s Quarterly Housing Market Assessment (HMA), “We continue to detect strong evidence of problematic conditions in Canada. Price accumulation in Vancouver, Victoria, Toronto and Hamilton indicates that home price growth may be driven by speculation as it is outpacing what economic fundamentals like migration, employment and income can support.”

A National Cause for Caution

While CMHC has given individual markets the dubious “red” distinction in past assessments, last October was the first time the Canadian market as a whole fell into the category. The HMA is designed to act as an “early warning system”, calling out concerning conditions in 15 specific markets. Its most recent edition finds:

  • Overvaluation and overbuilding remain the most prevalent problematic conditions observed across the 15 centres covered by the HMA.
  • Overvaluation and overbuilding are detected in eight centres.
  • Evidence of problematic conditions has increased in Victoria since the previous assessment due to moderate evidence of price acceleration and overvaluation.
  • Evidence of problematic conditions has decreased in Calgary since the previous assessment as some housing markets in oil-dependent centres are now rebalancing.
  • Strong evidence of problematic conditions continue to be detected in Vancouver, Toronto, Regina, Saskatoon and Hamilton.
  • Evidence of problematic conditions in Ottawa and Atlantic Canada remains weak.

RBC Releases Top Market Weaknesses

Red Warning 2.0 isn’t the only dire report recently out on the market – RBC has released a similar analysis on what it pegs as the greatest weaknesses facing Canada’s four largest housing hubs. While the bank finds the chance of a “steep and widespread” downturn within the next 12 months is very low, it points to ongoing problems in the following:

Vancouver: While prices have fallen 3.1% since the foreign buyer tax mortgage affordability test took effect, RBC says the city still has “extremely poor affordability”, making it an extremely vulnerable centre.

Calgary: Too many condo and rental units remain unoccupied, the result of migration fallout following the oil downturn. However, RBC expects this to improve this year, as the oil industry “rebalances”.

Montreal: The overbuilding of multi-family units has put pressure on the market, despite strong annual sales. However, a slowdown in new build activity should help bring balance in the year to come.

Toronto: Ontario’s biggest city continues to be a particular area of concern, as spiraling real estate prices prompt RBC to muse it could be the next target of specific policy measures designed to cool prices, despite claims to the contrary from Canada’s Finance Minister Bill Morneau.

Too Few Houses to Go Around

However, attempts to calm prices would only be so effective, as the true issue lies in the lack of available homes for sale, a fact driven home by new home association BILD. “We have a shortage of housing supply in the GTA that is approaching crisis level,” reads a statement from Chief Executive Brian Tuckey. “Housing is selling as quickly as the industry can bring it to market and the lack of developable land that is serviced with infrastructure, excessive red tape, out-of-date zoning and NIMBYism are hindering our ability to bring more to the market.”

The organization also finds the average house price in the GTA region is now $1,264,604.

About Penelope Graham

Penelope Graham is the Managing Editor at Zoocasa, and has over a decade of experience covering real estate, mortgage, and personal finance topics. Her commentary on the housing market is frequently featured on both national and local media outlets including BNN Bloomberg, CBC, The Toronto Star, National Post, and The Huffington Post. When not keeping an eye on Toronto's hot housing market, she can be found brunching in one of the city's many vibrant neighbourhoods, travelling abroad, or in the dance studio.

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