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October 2017

Canada city property “overvalued and highly vulnerable”

Published: Monday 30 October 2017

By Adrian Bishop  
 
Canada's housing market is overvalued and highly vulnerable in some cities, say market experts.

Housing in Vancouver, Toronto, Hamilton, Victoria and Saskatoon are highly vulnerable, according to the Canada Mortgage and Housing Corporation (CMHC)

That is despite the price of an average home in Toronto falling 20.5% since the market’s peak in April, following the introduction of market-cooling measures, including a foreign buyers’ tax.

The average Multiple Listing Service (MLS) home value is expected to rise to between $493,900 and $511,300 in 2017 and $499,400-$524,500 by 2019. This is at a slower pace than in the last four years.

Chief Economist, Bob Dugan, explains, "We continue to see a high degree of vulnerability in Canada's housing market, fuelled by moderate overvaluation and price acceleration. House price growth continues to outpace economic fundamentals like household income and population growth.”

After a boost in 2017, residential construction is projected to decline over the next few years, but will remain close to the five-year average, Mr Dugan says.

“In 2018 and into 2019, housing starts are projected to decline while house prices should increase over the forecast horizon, but at a slower rate than in the past four years." 
 
The data comes from two newly-published CMHC reports - the Housing Market Assessment (HMA) and Housing Market Outlook (HMO).

CMHC says there is a little evidence of overbuilding overall at the national level, but there are growing concerns in Calgary, Edmonton and St. John's, where the supply of new and unsold homes outweighs the demand for housing.
Among the main points in the HMA are:
  • Despite the recent easing in Toronto's resale market, CMHC detects strong growth in home prices among all housing types. The high property prices could not be explained by fundamental economic drivers such as income and population growth.
  • For the fifth quarter running, Hamilton's housing market remains highly vulnerable. House prices continue to grow more quickly than levels supported by economic and demographic fundamentals.
  • Vancouver's housing market remains highly vulnerable, due to moderate overheating and price acceleration and strong overvaluation. Demand outweighs supply in the resale home market, especially for multi-family units.
  • Victoria's overheating persists due to continued high sales for resale apartments and townhomes and very low new home availability.
  • Overbuilding remains an area of concern in Quebec, with rental vacancy rates rising.
The HMO Regional main points include:

British Columbia 

Housing starts and MLS sales in British Columbia are expected to decrease in 2018 and 2019, but will remain above historical levels. Prices are set to continue to grow at a slower pace. Rental demand will continue to be strong, with vacancy rates remaining tight and average rents rising. 

Prairies 

Alberta and Saskatchewan's gradual recovery from the oil-price shock that started in 2014 will likely boost net interprovincial migration flows, supporting housing markets. The sector is likely to transition from a buyer's market to a more balanced one in 2018 and 2019. However, overbuilding in many large cities is expected to depress new housing construction. Manitoba has a more diversified economy compared to the other two Prairie provinces, which mitigates the risk of large economic swings that the oil-producing provinces experience when prices move significantly.

Ontario 

Ontario MLS sales and starts are likely to fall, with modest growth in home prices compared to recent years. Housing demand will hold up better in eastern and southwestern Ontario thanks to higher affordability, fewer market imbalances and generally better economic conditions.

Québec 

Stronger employment growth will stimulate housing demand in 2018 and 2019 and prices are projected to rise. Meanwhile, population ageing will continue to provide support to residential construction in the apartment segment. 

Atlantic Canada 

Housing starts, MLS sales and prices are expected to rise gradually over the forecast period, but continued economic growth will rely heavily on boosting exports.

CMHC offers objective housing research and information to Canadian governments, consumers and the housing industry.

For more information, infographics and the latest currency insights, visit www.halofinancial.com/news