House prices in Vancouver may be high, but that doesn’t mean they’re overvalued – in fact the city is at low risk of overvaluation, according to a Canada Mortgage and Housing Corporation (CMHC) report issue August 13.
The corporation's August Housing Now report, which is an update of April's edition, said that Vancouver, Victoria and Canada as a whole all remain at low risk of the kind of overvaluation that could cause a significant price correction.
The CMHC identifies four factors as being high-risk indicators:
- overheating of demand in the housing market (i.e. demand significantly out pacing supply);
- acceleration in the growth rate of house prices;
- overvaluation in the level of house prices; and,
- overbuilding of the housing market (i.e. supply significantly outpacing demand, which can reflect excess new construction and/or a decline in demand for existing homes).
The report found both Vancouver and Victoria to be at a low risk, which was stable and unchanged from previous report, in all four areas.
It said, “Despite high Vancouver home prices, demand for housing across the price spectrum is supported by a growing population and growth in personal disposable income as well as a limited land supply. First-time home buyers focus on lower-priced options in suburban locales, whereas at the higher end of the spectrum, demand is supported by high-net-worth residents or repeat buyers with significant equity in their homes.”
The CMHC again found Regina and Winnipeg to be at high risk, and joining them for the first time in this edition of the report was Toronto. Montreal and Quebec were identified as at moderate risk, with the rest of the surveyed regions and cities described as low risk, including Calgary and Edmonton.
The report added, “High house prices by themselves are not necessarily an indication of overvaluation. It is possible to have no overvaluation in a high priced centre, while overvaluation may exist in a lower priced centre. For example, average prices in Vancouver exceed the national average, although no overvaluation is detected. In comparison, average prices in Québec are below the national average and overvaluation is detected.”