Despite the last 10 quarters of high vulnerability in Canada’s housing market, there have been some positive changes, according to a report by the Canada Mortgage and Housing Corporation (CMHC).
The CMCH report examines 15 major cities across the country by taking into account four main factors: overheating, price acceleration, overvaluation, and overbuilding. According to the report’s overall assessment, the national housing market has moved to a moderate level of vulnerability, which is down from a prior state of high vulnerability.
CMHC chief economist Bob Dugan noted that the market has made encouraging improvements over the past year:
“Even though moderate evidence of overvaluation continues for Canada as a whole, there has been improved alignment overall between house prices and housing market fundamentals in 2018 in comparison to the previous year.”
Stats at the National Level
The report stated that the average home price fell by 5.4%in the fourth quarter of 2018. This was credited largely to tighter mortgage rules, which is suspected to have led to a decline in the demand for housing.
According to the authors, a combination of declining home prices and strong growth in the first-time homebuyer pool resulted in a drop of the average estimate of overvaluation in 2018’s final quarter.
With overheating and overbuilding remaining down as well, the country’s real estate market has shifted from a high level of vulnerability to a moderate one.
Hot Real Estate Markets Cool Slightly
At the local level, things have been getting better for home buyers in hotter markets as well.
Toronto real estate remained in the high vulnerability state, with overvaluation and price acceleration still present. Nevertheless, researchers found that the overvaluation of homes was starting to lift and that prices were more in line with market fundamentals. According to the report, in the first quarter of 2019 market activity continued to cool with sales-to-new listings ratios remaining balanced while overbuilding was low.
The authors noted that home price growth over the past few years significantly outpaced income growth in Vancouver. They also stated that the imbalances were narrowing based on continued economic growth and lower resale home prices. With overheating and overvaluation easing, but overbuilding and price acceleration maintaining their levels, real estate in Vancouver has kept its high vulnerability state.
So did Victoria and Hamilton, according to the CHMC. Ratings for all four indicators in these two markets have not changed significantly.
Moderate Ratings Maintained
The CMHC noted that there were clear signs of overbuilding in several markets but left the overall vulnerability level at moderate when it came to Edmonton, Calgary, Saskatoon, Regina, and Winnipeg.
In Edmonton, the rental market has been getting tighter, the report noted. On the other hand, the imbalance between supply and demand of homes for sale in Edmonton has widened. In the fourth quarter of 2018, completed and unsold units reached 17.9 per 10,000 population, which was close to the all-time high of 18 in 1995.
Builders of Calgary homes for sale have begun to slow down production and new homes sales are dropping. The market is also impacted by a number of demand factors including high unemployment, higher interest rates and a lack of growth in inflation-adjusted disposable income.
In terms of overbuilding, the Saskatoon real estate market has also seen little improvement. The inventory of new available units is below the critical limit, while rental apartment vacancy rates are above their traditional threshold, CMHC reported. The resale market conditions are in favor of buyers over sellers during the final part of 2018 and the sales-to-new listings ratio were down from the previous quarter.
Regina was also pegged as moderately vulnerable even though its overbuilding rating remained the highest out of all the 15 markets analyzed. There were fewer housing starts in the last part of 2018 but the inventory of completed, unsold units along with the rental vacancy rate remained high.
When it comes to Winnipeg, the city’s rental market shows no signs of overbuilding although there are quite a few completed and unsold homes here. Overvaluation can also be seen in Winnipeg, thus its moderate vulnerability level.
Less Vulnerable Markets
Ottawa, Quebec City, and Halifax stand out as the most balanced real estate markets, rated as having a low level of vulnerability, the report stated.
In Ottawa, the average MLS price went up over the final quarter of 2018, but this price acceleration was not considered critical. There were no signs of overbuilding, overheating or overvaluation.
Minimal overheating has been identified in Halifax though. Sales were high at the year-end mark, which is something the market has not seen since 2012. Even so, the city was not perceived as being vulnerable overall.
CMHC noted that Montreal and Moncton were also given a low vulnerability rating, although both markets were susceptible to overheating too.
Despite showing signs of overbuilding, the real estate market in St. John’s remains stable and with a low vulnerability level. Listings were up but average prices were down, and housing starts for the city also decreased. CMHC attributes this to muted GDP growth and an unchanging young-adult population.