For the eighth consecutive quarter Canada’s overall housing market remains highly vulnerable, primarily due to evidence of overvaluation and price acceleration in Toronto, Vancouver, Victoria, and Hamilton, according to Canada Mortgage and Housing Corporation (CMHC).
On a quarterly basis, CMHC issues its Housing Market Assessment (HMA) to provide Canadians with both expert and impartial insight and analysis, based on the best data available in Canada. This report acts as an “early warning system” for the country’s housing markets — an important tool supporting financial and housing market stability.
Results are based on data as of the end of March 2018 and market intelligence as of the end of June 2018. This national report provides the housing market assessment at the national level and summary assessment results for 15 Census Metropolitan Areas (CMAs). For each of these CMAs, CMHC also issues a local report with more information and analysis.
Key market highlights:
The HMA framework detected moderate evidence of overheating, although price growth has been slowing considerably over the last two quarters, and has turned negative in some areas. Declining prices for detached properties in some areas, particularly Vancouver’s Westside and West Vancouver, are due to high inventories that have accumulated due to sustained falling sales volumes.
Evidence of overbuilding remained high in Calgary, but the peak inventory count for apartment units, the largest share of inventory, occurred in December 2017, and has since declined. The absorption rate of condos at completion averaged 83% YTD as of May 2018 compared to 67% in the same period last year, helping to reduce inventory and mitigating the same buildup of inventory experienced in 2017.
Evidence that the growth of house prices was accelerating remained low in Q1 2018. Among housing categories, the MLS® HPI benchmark prices for single-family, townhouse and apartment units all declined in Q1 2018 from Q4 2017, and were down on a year-over-year basis. Compared with the same quarter the previous year, the price decline during the first quarter of 2018 was significantly larger among townhouses where supply was far exceeding demand.
Downward pressure on home prices persisted in Q1 2018, contributing to low evidence of price acceleration in Regina. The MLS® HPI benchmark prices for single-detached and townhouse units were $291,300 and $230,900 respectively in the first quarter of 2018, down 2.6% and 2.2% respectively quarter-over-quarter, while apartment unit price was $178,200, up 1.3% quarter-over-quarter. However, prices in all three categories of dwelling types were down on a year-over-year basis.
Evidence of overvaluation has changed from low to moderate, as the combination of rising house prices and declining incomes have created some imbalances. Real personal disposable income levels have decreased year-over-year for the third consecutive quarter, while mortgage rates have started to increase from historically low levels.
Despite price growth slowing down across the Greater Toronto Area, lower house prices would have to persist longer in order for us to discount any evidence of price acceleration. Therefore, the rating from the previous quarter is maintained due to the persistence rule.
While overvaluation decreased on average, moderate evidence of it remained as house prices were still considerably higher than levels supported by some housing demand fundamentals. Population growth remains a key fundamental driver of housing demand in Hamilton.
The seasonally adjusted sales-to-new listings ratio was close to 69% in Montreal, in the first quarter of 2018, which is barely below the problematic threshold of 70%. This ratio increased for a seventh straight quarter, as Centris® sales rose more rapidly than new listings. As such, the ratio was closer to the threshold for overheating, and this maintained significant pressure on prices.
With 12% growth in year-over-year sales as of the end of May, the sales-to-new listings ratio continues to increase, climbing to 62%. As this remains well below the threshold of 85%, the Halifax market still exhibits low evidence of overheating. The average number of days on market has been on a downward trend throughout 2018 with homes selling more quickly in all Halifax submarkets.
Overall, there is a low degree of vulnerability for the Moncton CMA, as the indicators of overbuilding, price acceleration and overvaluation remained below the thresholds that correspond to problematic conditions. However, monthly house sales in Moncton CMA, buoyed by increased immigration and improved labour market conditions, are setting records while listings remain at historical multi-year lows, and still falling. Resale price growth can be expected if demand continues to outpace supply.
Assessments for Canada and all 15 CMAs can be found in the graph located in the release backgrounder.
CMHC defines vulnerability as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration – or combinations thereof – depart significantly from historical averages.
As Canada’s authority on housing, CMHC contributes to the stability of the housing market and financial system, provides support for Canadians in housing need, and offers objective housing research and information to Canadian governments, consumers and the housing industry.