Residential real estate in Vancouver is now showing “strong evidence of problematic conditions,” according to the latest quarterly Housing Market Assessment published by Canada’s federal housing agency July 27.
This is another upgrade in Canada Mortgage and Housing Corporation’s (CMHC) reported market risk levels, with last quarter’s analysis citing “moderate evidence of problematic conditions” and the previous report claiming there was “weak evidence” of problems in the market.
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 latest report said that the reason for its upgrade was due to the continued strong evidence of overvaluation in the level of Metro Vancouver house prices, as well as an increase in evidence from “weak” to “moderate” in the areas of overheating of demand and price acceleration.
The CMHC said, “This is only the second quarter since 1990 in which the framework indicated strong evidence of overvaluation in Vancouver, despite robust and sustained house price gains since 2012 and price levels that have consistently been among the highest in the country.
“However, housing demand fundamentals have been particularly robust in the region, including a growing population and a diversified economy that has led the province in job creation. In addition, low mortgage interest rates have kept monthly mortgage payments relatively manageable in inflation-adjusted terms, particularly for repeat buyers with a larger equity stake. In spite of these supportive fundamentals, exceptionally strong price growth during the last two quarters has elevated prices above the threshold for overvaluation.”
On the topic of price acceleration, the report said, “The brisk pace of resale activity has pushed the rate of price growth on a steepening upward trend in 2016.
“While the pace of single-detached home price growth has yet to slow in higher-priced areas [such as the West Side of Vancouver, West Vancouver, Port Moody and White Rock], the detached sales-to-new listings ratio has been gradually declining during the first five months of the year. More listings have been added in response to steep house price growth in these same areas, while sales growth is slowing. A continuation of these trends going forward could signal a dampening of the pace of detached home price growth in these higher priced locales.”
The CMHC added that there was still weak evidence of overbuilding in the Vancouver market.
“Inventories of completed and unsold new homes declined in the first quarter and this trend has continued into the second quarter of 2016," said the report. "Strong demand for new homes coupled with spillover demand from a listings-constrained resale market have pushed [down] the stock of completed and unsold homes.”