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COVID-19 Continues to Increase Housing Market Vulnerabilities

March 25, 2021

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The March 2021 Housing Market Assessment has been released.

Housing market showing evidence of overheating at the national level

The impacts of the pandemic continued to influence housing market conditions in Canada in the fourth quarter of 2020. Sales remained elevated relative to new listings in several regions and there is now evidence of overheating at the national level.

Evidence of overheating in Canada

Sources: CREA and calculation by CMHC Last data point: 2020 Q4

This graph visually represents the estimates, used to assess overvaluation in Canada, over time. It also depicts the critical threshold for these indicators. The average overvaluation estimate remained below the critical threshold in the fourth quarter of 2020, while the maximum overvaluation estimate remained above it for two consecutive quarters.

Sustained price growth contributed to the emergence of price acceleration and overvaluation imbalances in additional markets, particularly in Eastern Canada. Among the 3 largest metropolitan areas, the degree of overall vulnerability of the housing market in Toronto moved to high. Montréal and Vancouver remain at moderate.

The short-term impacts of the pandemic led to an increase in the proportion of unoccupied rental apartments in many regions. The excess inventories in certain segments of the rental market can be a source of risk to short-term local market stability. However, the overall supply of housing remains low.

Excess inventories, previously named “overbuilding”, refers to an elevated number of newly built unsold homes or a high rental apartment vacancy rate. Such excess inventories can create financial difficulties for builders and rental companies if they struggle to repay debt used to build or buy these units.

Excess inventories are a risk even in unaffordable markets. In such markets, excess inventories should be cleared in the medium term but can present short-term risks. Centres with unaffordable housing would continue to benefit from long-term increases in housing supply. This would restrain growth in house prices and rents even if there are short-term periods of excess inventories.

Victoria

  • The overall assessment rating, and each of the individual indicators remained the same in Q4 2020 from the previous quarter. Ratings for overheating, price acceleration and excess inventories remained low while overvaluation remained moderate.
  • As the job market recovered in Victoria in Q4 2020, economic fundamentals along with a low mortgage rate environment continued to be the key factors supporting price growth. As a result, the overvaluation indicator lowered as the gap between market price and estimated price narrowed.
  • The record low supply of detached homes led to rapid price growth in this segment as demand continued to outpace supply. Close monitoring for overheating is warranted if a similar demand pattern continues.
  • Inventory remained below the excess inventories threshold. A growing share of condominium/apartment inventory continues to project downward pressure on rent, before the rental demand returns in the post-pandemic era.

Vancouver

  • CMHC’s Housing Market Assessment (HMA) maintained its rating of a moderate degree of vulnerability for the Vancouver Census Metropolitan Area (CMA) housing market. The overall rating reflects our judgement that the individual indicators in the HMA framework do not account for all vulnerabilities in the housing market.
  • CMHC’s analytical framework maintained its ratings for overheating, price acceleration, and overvaluation, as the framework did not detect specific vulnerabilities in those areas.
  • Lower rental demand in the pandemic environment led to a higher rental vacancy rate, particularly among new units seeking high rents. For cautionary reasons, we signal moderate evidence of excess inventories to reflect the financial headwinds faced by some rental operators.
  • In the ownership market, inventories of new homes declined, as supply did not outpace demand.

Edmonton

  • The overall vulnerability rating for the Edmonton market was changed from low to moderate. Both overvaluation and excess inventories exhibited moderate evidence of imbalances, which ordinarily would have resulted in a high degree of overall vulnerability, according to the HMA framework. Edmonton’s overall rating was changed to a moderate degree of vulnerability in this release, as the evidence of overvaluation was marginally detected.
  • Evidence of overvaluation changed from low to moderate due to the persistence rule.
  • Excess inventories was maintained as moderate as vacancy rate increased above the critical threshold.
  • Overheating and price acceleration continue to exhibit low evidence of vulnerabilities.

Calgary

  • Overall assessment now points to a moderate degree of vulnerability in the Calgary CMA.
  • Evidence of overvaluation remains low as home prices stay flat compared to strengthening economic fundamentals.
  • Excess inventories show evidence of a high degree of vulnerability, compared to a moderate degree in the previous quarter, as rental vacancies increase pass the critical threshold, and unsold units remain elevated.
  • Evidence of overheating and price acceleration remain low in the Calgary CMA, but market conditions show increasing trend from a buyer’s market earlier in the year to conditions that are more balanced.

Saskatoon

  • Overall, there continues to be a low degree of vulnerability in the Saskatoon housing market.
  • We have maintained the low ratings on overheating and price acceleration.
  • There continued to be low evidence of overvaluation, as evidenced by the narrowing of the gap between real observed and fundamental prices from the preceding quarter.
  • Evidence of excess inventories remained low in the fourth quarter, with both new housing inventory and the vacancy rate remaining below their respective critical thresholds.

Regina

  • There continues to be low evidence of overheating and price acceleration in the Regina CMA.
  • Low evidence of overvaluation continued to be detected, unchanged from the previous quarter following data revisions.
  • Moderate evidence of excess inventories was maintained as a result of elevated vulnerabilities in the rental market.
  • Overall, the Regina CMA exhibits a low degree of overall vulnerability as of the fourth quarter of 2020.

Winnipeg

  • Overall, there continued to be a low degree of vulnerability detected in the Winnipeg CMA housing market.
  • While there was low evidence of overheating, the resale market has tightened, putting upward pressure on the sales-to-new listings ratio.
  • Despite an increase in October 2020, the apartment vacancy rate remained below the threshold for excess inventories.
  • Factors such as price acceleration and overvaluation continue to show low evidence of vulnerabilities.

Hamilton

  • Hamilton’s housing market continued to display a high degree of overall vulnerability, as house prices accelerated and became increasingly detached from economic and demographic fundamentals.
  • We continued to detect evidence of overheating as the sales-to-new listings ratio remained above its critical threshold. Both the single-detached and townhome markets favoured sellers, while the condominium apartment segment was more balanced.
  • As a result, strong price appreciation occurred for single-detached homes across Hamilton CMA, with all major sub-regions experiencing double-digit price growth. Similar tight market conditions for row homes also led to double-digit annual price growth for that dwelling type in both the City of Hamilton and City of Burlington
  • With the exception of real personal disposable income, economic and demographic fundamentals improved since our last assessment. Lower mortgage rates increased the borrowing capacity of buyers and the population of Hamilton continued to grow. However, house prices increased far more than could be supported by strengthening fundamentals.

Toronto

  • We detected a high degree of overall vulnerability in the Toronto CMA housing market in the fourth quarter of 2020.
  • Low evidence of overheating remained. However, sales grew faster than new listings and placed upward pressure on the sales-to-new listings ratio, which approached its critical threshold. Evidence of price acceleration was detected, as there was a sustained increase in the growth rate of house prices in recent quarters. Price growth was strongest for ground-oriented dwellings and in suburban areas of the Toronto CMA.
  • Moderate evidence of excess inventories was detected, as the purpose-built rental apartment vacancy rate in October 2020 rose above its threshold.
  • There remains low evidence of overvaluation, as the gap between observed and fundamental house prices narrowed from the previous quarter.

Ottawa

  • The Ottawa housing market moved to a high degree of overall vulnerability in the fourth quarter of 2020.
  • Demand continued to exceed supply in the resale market, therefore, overheating conditions and price acceleration persisted.
  • Improving economic and demographic fundamentals were not able to fully explain the robust growth in observed house prices in the last couple of quarters. As such, moderate evidence of overvaluation was detected.
  • An increase in rental apartment completions coupled with a rise in rental vacancies led to moderate evidence of excess inventories.

Montréal

  • The degree of vulnerability of Montréal’s housing market remains moderate.
  • Tightening resale market conditions have increased upward pressure on prices. Evidence of overheating increased and signs of price acceleration continued to be detected.
  • While evidence of overvaluation remained weak, the indicator has moved closer to the threshold for problematic conditions.
  • Evidence of excess inventories remained low, despite a vacancy rate increase in October 2020.

Québec

  • The housing market’s overall level of vulnerability remains low.
  • For a third consecutive quarter, evidence of market overheating was detected. This historic rebound in sales, which began with the end of lockdown measures in the third quarter, continued until the end of the year.
  • Evidence of price acceleration went from low to moderate, as the pace of house price growth continued to ramp up sharply.
  • Price growth acceleration in the Québec region has not led to any evidence of overvaluation at this time.
  • Evidence of excess inventories remained weak.

Moncton

  • Moncton remained at an overall high degree of vulnerability due to continued evidence of price acceleration and high overvaluation.
  • There was a record growth in sales and a comparatively modest increase in new listings which kept the overheating measure well above threshold.
  • Price acceleration persisted.
  • There was still evidence of high overvaluation as housing market fundamentals could not fully account for the prices observed in the market.

Halifax

  • Halifax CMA moved to an overall high degree of vulnerability due to a combination of overheating, price acceleration and overvaluation conditions.
  • The HMA framework still detected increased evidence of overvaluation in the Halifax CMA. Positive impacts from housing market fundamentals are contributing to higher prices but not enough to support the observed increase in house prices.
  • The Halifax CMA is now assessed with evidence of price acceleration. Compositional effects from relatively higher sales of bigger and pricier homes are contributing to the more pronounced price growth observed in the average MLS® price.
  • There is now evidence of overheating. Sales growth outpaced the increase in new listings.

St. John’s

  • The St. John’s area housing market continues to show low evidence of vulnerability. The ongoing easing of COVID-19 restrictions in the fourth quarter of 2020 enabled pent-up demand to continue to outpace available housing inventory.
  • The rebound that started mid-2020 continued into year-end, with a significant increase in MLS® sales, albeit relative to record lows in 2019.
  • There is low evidence of excess inventory because of the persistence of the downward trend in housing starts and declining inventory of completed and unabsorbed units.

The Housing Market Assessment is not a forecasting tool

Our Housing Market Assessment provides an analysis of whether the housing market places Canada’s financial stability at risk. It’s not a forecasting tool or a measure of housing affordability. The report evaluates housing market conditions that may indicate imbalances in selected Census Metropolitan Areas.

On the other hand, CMHC's Housing Market Outlook provides a forward-looking analysis of Canada’s housing markets. This report is published annually and helps to anticipate emerging housing market trends in the largest Census Metropolitan Areas. The next report will be release April 2021.

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Date Published: March 25, 2021

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