Housing market vulnerability rating lowered in several Western cities

OTTAWA, Feb. 20, 2020 /CNW/ - Ratings for Edmonton, Calgary, Saskatoon and Winnipeg were downgraded from moderate to low in overall degree of vulnerability in the Canada Mortgage and Housing Corporation (CMHC) Housing Market Assessment (HMA) released today. Victoria is the lone market maintaining an overall high degree of vulnerability rating.

Bob Dugan, Chief Economist, CMHC (CNW Group/Canada Mortgage and Housing Corporation)

CMHC HMA - Comparisons between the November 2019 and February 2020 reports (CNW Group/Canada Mortgage and Housing Corporation)

Canada's overall vulnerability remains moderate in the current assessment, holding steady for a fourth consecutive quarter. The evidence of overvaluation remains moderate, with higher house prices in the third quarter of 2019 partly sustained by population growth and the decline in mortgage rates.

"We continue to see moderate evidence of overvaluation at the national level" said Bob Dugan, CMHC's chief economist. "The growth in inflation-adjusted prices in the third quarter of 2019 was slightly larger than the increase supported by the sustained population growth in Canada and the decline in the nominal mortgage rates."

Results are based on data as of the end of September 2019 (annual rental apartment vacancy rates are from October 2019) and market intelligence up to the end of December 2019. 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 reports for each of the CMAs. The attached backgrounder also provides additional information.

Highlights:

• Victoria keeps a high overall degree of vulnerability as price acceleration and overvaluation imbalances are still signaled. However, home prices continue to stabilize and imbalances are easing.
• In Vancouver, evidence of overvaluation remains moderate, as does the overall vulnerability rating.
• In Edmonton and Calgary, evidence of overbuilding was still present as new home inventories remained high. The intensity and persistence of the overbuilding signals no longer sustain an overall moderate degree of vulnerability, which decreased to low in these two centres.
• In Saskatoon the degree of vulnerability was lowered from moderate to low in the overall assessment as evidence of overbuilding eased from moderate to low.
• Winnipeg's overall assessment moves to low vulnerability due to the easing evidence of overvaluation. Population growth and low mortgage rates increased the price levels supported by housing market fundamentals, while observed home prices continued to decline. Evidence of overvaluation has eased from moderate to low.
• In Regina, overall vulnerability remains moderate as evidence of overbuilding remains high.
• In Toronto and Hamilton overall housing market vulnerability remains moderate. Overheating and price acceleration are still signaled in both regions. However, evidence of overvaluation remains low as stronger price growth remains aligned with economic and demographic fundamentals, such as personal disposable income, population growth and interest rates.
• Ottawa, Montréal, Québec City, Moncton, Halifax and St. John's maintained low overall vulnerability ratings. Evidence of overheating persist in the resale markets of Montréal and Moncton.

CMHC issues the HMA on a quarterly basis to provide Canadians with expert and impartial insight and analysis, based on the best data available in Canada. The report provides a comprehensive view of housing market vulnerabilities and identifies imbalances. The HMA is not intended to identify long-term challenges related to housing affordability.

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Backgrounder: Housing Market Assessment (HMA) Report, First Quarter 2020

The HMA takes into account demographic, economic and financial determinants of the housing market such as population, personal disposable income, and interest rates to detect vulnerability. CMHC defines vulnerability as imbalances in the housing market. Imbalances occur when overheating, price acceleration, overvaluation or overbuilding - or combinations thereof - depart significantly from historical averages. The framework also takes into account recent developments in both resale and residential construction markets.

CMHC recently enhanced the overvaluation analytical framework. For example, a new model was introduced into the framework. This is in addition to the four econometric models (which include demand, supply, borrowing capacity and hybrid models) used to estimate the level of house prices consistent with fundamentals. This additional model constitutes an extension of the existing demand model, where disposable income, population and mortgage rates determine the level of house prices.

The HMA is intended to help detect vulnerable housing market conditions in historical data, such as the house price bubble Toronto experienced in the late 1980s and early 1990s.The ability of the HMA to detect vulnerabilities relies on the assumption that historical relationships between prices and fundamental drivers of housing markets have not changed.

SOURCE Canada Mortgage and Housing Corporation

Angelina Ritacco, CMHC Media Relations, [email protected], 416-218-3320

Related Links

www.cmhc-schl.gc.ca