Vancouver’s real estate market is still showing “strong evidence of problematic conditions” despite the “overheating” risk factor being downgraded, according to a quarterly Housing Market Analysis (HMA) by the Canada Mortgage and Housing Corporation (CMHC) released January 26.
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).
Vancouver’s risk of overheating was reduced in status from “moderate evidence” in the October 2016 report, to “weak evidence” in the new analysis, with the report noting the pull-back in demand for local real estate since 2016’s third quarter.
Despite this, Vancouver is still seen as at high overall risk – a status driven almost entirely by average home prices, with the “overvaluation” factor remaining at “strong evidence of problematic conditions.” The “price acceleration” factor also remained at the agency’s “moderate” risk level.
The report said, “Even though demand for resale homes has cooled, the supply of resale homes has remained below the five-year average level, contributing to a slight rebound in average prices in data available after the end of the [fourth] quarter [of 2016] looked at here. Single-detached home prices, in particular, continue to be at levels higher than those consistent with financial, economic and demographic fundamentals… Considering all factors, the overall assessment for Vancouver indicates strong evidence of problematic conditions.”
Despite last year being a record year for housing starts, there was still "weak evidence" of overbuilding in Vancouver.
Victoria’s overall market status has jumped in the CMHC’s estimation from showing “weak evidence” of problematic conditions to “strong evidence” – bypassing the usual middle step of “moderate evidence.”
The CMHC report noted, “CMHC’s HMA detected moderate evidence of overheating, price acceleration, and overvaluation in Victoria. The supply of existing houses for sale is limited, with active listings at their lowest point since 2003… Since demand fundamentals were not enough to support the rate of price growth that occurred, the HMA framework detected overvaluation.”
Across Canada as a whole, market conditions remained at elevated risk levels, with all four factors echoing the findings of the previous quarter’s survey. Of particular concern, just as in Vancouver, is “strong evidence” of overvaluation of real estate in major centres across the country.
Bob Dugan, CMHC’s chief economist, said, “We continue to detect strong evidence of problematic conditions in Canada. Price acceleration in Vancouver, Victoria, Toronto and Hamilton indicates that home price growth may be driven by speculation, as it is outpacing what economic fundamentals like migration, employment and income can support.”