As in the previous quarter, Vancouver’s housing market is still showing “strong evidence of problematic conditions,” according to the Canada Mortgage and Housing Corporation’s latest quarterly Housing Market Analysis, issued October 26.
However, for the first time, the housing agency is citing the housing market across Canada as also showing strong signs of “problematic conditions.”
Every quarter, the CMHC examines real estate in 15 major metropolitan centres and identifies four high-risk indicators:
- overheating of demand in the housing market (demand significantly outpacing supply);
- acceleration in the growth rate of house prices;
- overvaluation in the level of house prices (home prices above levels supported by financial, economic and demographic fundamentals); and
- overbuilding of the housing market (supply significantly outpacing demand, which can reflect excess new construction and/or a decline in demand for existing homes).
The risky conditions in Vancouver are driven entirely by its high home values, which the federal housing agency says are showing strong signs of overvaluation. The other three factors were considered to be of less concern in Vancouver, with only “moderate” signs of overheating and price acceleration, and “weak” evidence of overbuilding.
Robyn Adamache, CMHC’s market analysis principal for Vancouver, said, “Strong employment growth and migration are supporting housing demand, but cannot account for current price levels by themselves. In addition, there is moderate evidence of overheating and price acceleration. As a result, the HMA framework continues to suggest strong evidence of problematic conditions … for the Metro Vancouver housing market.”
In its Housing Market Outlook, issued the same day, the CMHC said that Vancouver home sales are “forecast to slow to the end of 2016 with a further weakening of sales in 2017 before leveling off in 2018.”
It added, “Average MLS® prices will be higher in 2016 [than in 2015] with strong price growth in the first half of the year. Prices are expected to increase modestly in 2017 and 2018.”
Across the country as a whole, the Canada Housing Market Analysis said that the “strong evidence of problematic conditions” were also driven by signs of overvaluation in a number of different markets – most notably Toronto, Hamilton and Quebec City, leading to the upgrade in overall risk status.
It added that Victoria was seeing an increase in price acceleration, and upgraded Victoria’s risk status in terms of price rises to “moderate" from "weak.” However, the city’s overall assessment was maintained as showing “weak evidence of problematic conditions” due to there being no signs of overbuilding or overvaluation.
The analysis authors wrote, “A downside risk to our [national] outlook stems from the recent detection of overvaluation in nine major Canadian centres, and uncertainty over how these imbalances will unfold in specific housing markets.”
In its nationwide Housing Market Outlook, the CMHC said that it expected home sales across the country as a whole to fall next year compared with 2016’s figures, but that prices would likely continue to increase, although at a slower rate than last year. The report said that housing starts would also be lower in 2016 and 2017, compared with 2015.
It added, “While we expect a slowdown in housing markets at the national level, there will be strong variation in housing-market activity among provinces. Reflecting global economic trends, slower growth in oil-producing provinces (Alberta, Saskatchewan and Newfoundland and Labrador) will be partly offset by stronger GDP growth in British Columbia and Ontario.”