The Canadian housing market has moved from a moderate to a high degree of vulnerability according to the September 2021 Housing Market Assessment (HMA).
We noted evidence of price acceleration at the national level. As we saw an increasing pace of rising prices during the pandemic and persistent overvaluation, it increased market vulnerability at the national level.
Price measures used in the assessment showed increases from 14% to 33% between the second quarter in 2021 to the second quarter in 2020. This steady increase from previous quarters indicates price acceleration imbalances.
The acceleration in prices have contributed to the persistence of moderate (yellow) overvaluation. Housing prices differ significantly from their level consistent with housing market fundamentals. Over the first half of 2021, improved fundamentals couldn't explain the recent home price growth. These fundamentals are supported by:
- historically low interest rates
- global economic recovery
- rollout of mass vaccination programs
Canada saw home sales reach a historic high in the first quarter of 2021. Demand strongly outpaced the supply of available homes. Market overheating was still detected at the national level despite the moderation of home sales in the second quarter.
"Exceptionally strong demand and home price appreciation through the course of the pandemic may have contributed to increased expectations of continued price growth for homebuyers in several local housing markets across Ontario and Eastern Canada," said Bob Dugan, CMHC’s chief economist. "This, in turn, may have caused more buyers to enter the market than was warranted."
Comparisons between the March 2021 and September 2021 reports
This table compares evidence of imbalances and market vulnerability between March 2021 and September 2021 at the time of the release of the report.
The results in the table for September are based on data up to the end of the second quarter of 2021, and market intelligence up to August 2021. The HMA looks for potential imbalances by assessing 4 key factors: Overheating, Price acceleration, Overvaluation and Excess inventories.
|Evidence of Imbalances||Market Vulnerability|
|Overheating||Price Acceleration||Overvaluation*||Excess Inventories|
|Mar. 2021||Sep. 2021||Mar. 2021||Sep. 2021||Mar. 2021||Sep. 2021||Mar. 2021||Sep. 2021||Mar. 2021||Sep. 2021|
Low Moderate High
*The September 2021 ratings are based on preliminary estimates of overvaluation and the March 2021 ratings on revised estimates.
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What we saw across Canada
Intensified and persistent imbalances in several local housing markets across Ontario and Eastern Canada can also be attributed to Canada’s high degree of vulnerability. Western Canada showed low and moderate levels of housing market vulnerability.
Victoria indicates moderate market vulnerability
- The degree of market vulnerability remained moderate in the second quarter of 2021. Evidence of overheating and price acceleration are now detected.
- Record low listings have kept the Victoria market at a sellers’ market condition, albeit detached home sales showing signs of slowing down.
- With limited inventory, competition remains fierce among buyers.
- Substantial gains of the job market in Victoria contributed to income growth and home value appreciation. Low mortgage rates remained the strongest driver for home ownership.
Vancouver shows low market vulnerability
- Vancouver’s rating was reduced from a moderate to a low degree of vulnerability. This suggests less risk of and smaller consequences from a housing market downturn.
- Price growth has settled down in Vancouver as the pace of sales in the market has slowed.
- Young adult employment has improved considerably in the past two quarters as more businesses have opened.
- Homeowners have listed their homes in larger numbers than usual and eased the competition among buyers.
Edmonton indicates a moderate degree of market vulnerability
- We maintained our assessment of a moderate degree of market vulnerability in Edmonton.
- Moderate evidence of overvaluation is still detected as observed house price growth outpaced the contribution from housing market fundamentals — including demography and incomes.
- The pace of new home sales remains strong but moderate evidence of excess inventories persists.
- We didn’t detect evidence of overheating or price acceleration, but market conditions show strong demand from buyers.
Calgary’s moderate market vulnerability persists
- Evidence of overvaluation remains below the critical threshold as fundamental house prices decreased marginally. This was largely due to a shrinking population estimate in the 25 to 35 age cohort.
- Evidence of excess inventories declined to a moderate level with falling unsold inventories. Strong demand led to higher absorption (sold and occupied) of completed inventory.
- Market trends are pointing to a strong sellers’ market, although we didn’t detect evidence of overheating.
- House price growth was relatively steady hence evidence of price acceleration wasn’t detected.
Saskatoon maintained a low degree of market vulnerability
- There continues to be no evidence of overheating and price acceleration in the Saskatoon market.
- Evidence of excess inventories was not detected in the second quarter of 2021.
Regina indicated a low degree of market vulnerability
- There continues to be no evidence of overheating and price acceleration in Regina.
- Low evidence of overvaluation is detected in the second quarter of 2021.
- Moderate evidence of excess inventories is maintained in the second quarter as a result of ongoing imbalances in the rental market.
Winnipeg has a low degree of market vulnerability
- Overvaluation and excess inventories continue to show low evidence of imbalances.
- The continued tightening of resale market conditions has led to evidence of overheating.
- Considerable price growth in 2021 has led to moderate evidence of price acceleration.
Hamilton keeps its high degree of market vulnerability
- Overheating, price acceleration and overvaluation have remained the same. Demand for homes in the area continued to outpace supply, resulting in strong upward pressure on prices.
- Evidence of excess inventories remained low but the high number of condominium apartments under construction may add to inventories once completed.
Toronto and GTA continues to be assessed at a high degree of market vulnerability
- This is despite existing home sales starting to ease and the pandemic-induced buying frenzy dissipating during the second quarter of 2021.
- Existing home sales remained elevated relative to the number of new listings coming to market. Housing market conditions have remained favorable to sellers for an extended period, which led us to detect evidence of overheating in Toronto.
- The demand-supply imbalance in the Toronto market for existing homes contributed to the persistence of price acceleration. Specifically, the decline in new listings in the more expensive ground-oriented segment kept market conditions tight and price growth elevated.
Ottawa maintains high market vulnerability
- Imbalances in all housing market indicators have maintained our assessment at high degree of vulnerability for Ottawa’s housing market.
- Employment recovery particularly in the public administration sector has supported the economy and the housing market.
- Sales began to trend down since April. Sellers’ market conditions still prevail as inventory remains at historic lows, pressuring price growth.
- The high rental market inventory is only a temporary phenomenon, once student and immigration flows resume supply shortages may arise once more.
Montréal’s degree of vulnerability is moving from moderate to high
- The market was already showing signs of overheating and price acceleration. The overall vulnerability assessment change is due to an increase from moderate to high evidence of and overvaluation.
- There are signs of overheating despite a declining pace of sales and more properties for sale.
- Prices continue to rise at an increasing rate given the persistent imbalances between supply and demand.
- House prices are well above the level warranted by fundamentals (for example, personal disposable income or the population aged 25 to 34). These factors would justify much weaker price growth than real house prices, which have risen sharply. With fundamental factors not justifying the current price level, moderate signs of overvaluation are now being detected.
Québec’s degree of vulnerability of the housing market remains low
- Signs of price acceleration have not been detected and signs of overvaluation and excess inventory are low.
- Demand for properties remained relatively higher than supply in the Quebec City market. Signs of overheating remain.
Moncton has a high degree of vulnerability
- Evidence of price acceleration and high evidence of overvaluation lead to a high degree of market vulnerability in Moncton.
- House prices have continued to grow in 2021 (23% year-to-date) reflecting the underlying disconnect between the supply and demand for housing.
Halifax’s market vulnerability stays high
- The degree of market vulnerability stays high in Halifax as moderate evidence of price acceleration and overvaluation are still detected.
- The housing market remains overheated. This is primarily due to elevated sales levels remaining high in the first two quarters of 2021. Continued population growth from interprovincial migration and relatively low interest rates have supported this strong sales activity.
- Moderate evidence of overvaluation is still detected in the market because observed house prices exceed the estimated fundamental housing price. Elevated observed prices have been fueled by high sales activity coming against limited housing supply.
The Housing Market Assessment provides information on the state of the housing market.
Housing prices are a benchmark in select imbalance categories and incomes form part of the model to determine what prices should theoretically be. None of the imbalances consider household capacity and ability to pay.
The Housing Market Assessment identifies significant imbalances that could increase the risk and consequences of a housing market downturn.
The assessment doesn’t gather all of the data required to determine housing affordability. Determining affordability requires data household capacity and the ability to pay. The Housing Market Assessment only reports on economic and housing market conditions in Canada.
The results help policy makers and stakeholders to make better-informed housing-related decisions to transition towards more balanced conditions.
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