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Most Canadian Housing Markets Overvalued, Price Growth to Slow Through 2018: CMHC Reports

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OTTAWA, October 26, 2016 — Canada Mortgage and Housing Corporation (CMHC) is finding strong evidence of problematic conditions for Canada overall. Home prices have risen ahead of economic fundamentals such as personal disposable income and population growth, resulting in overvaluation in many Canadian housing markets. However, the combination of overvaluation and overbuilding should help slow the growth in resales and house prices and lead to a moderation in the pace of housing starts.

This analysis is the result of combined insight from two major CMHC reports published concurrently for the first time, today: the Housing Market Assessment (HMA) and Housing Market Outlook (HMO).

According to the HMA, Canada now shows strong evidence of problematic conditions overall due to overvaluation and price acceleration. CMHC's last HMA report in July flagged the likelihood of seeing this evidence, by the fall. In addition, overvaluation continues to be detected in nine census metropolitan areas (CMAs) across the country and overbuilding in seven. The HMA serves as an early warning system, alerting Canadians to areas of concern developing in our housing markets, so that they may take action in a way that promotes market stability.

Meanwhile, the HMO highlights important regional differences in housing activity which will gradually dissipate over the forecast horizon. At the national level, housing starts and MLS® sales are expected to decline slightly in 2017 before stabilizing in 2018 to levels more consistent with economic fundamentals and demographic changes. The HMO is a forecasting tool which provides a range of possible outcomes to better help Canadians in their decision-making process.

 
Transcript

Foreground: Bob Dugan, CMHC Chief Economist

Background: Library setting, library shelving

Bob Dugan: “We now see strong evidence of problematic conditions overall nationally. This is fuelled by overvaluation — meaning house prices remain higher than the level of personal disposable income, population growth and other fundamentals would support. This overvaluation coupled with evidence of overbuilding in some centres means that growth in house prices will slow and housing starts are expected to moderate in 2017 and 2018.”

 

Report Highlights

  • There is strong evidence of problematic conditions for Canada overall. Overvaluation and overbuilding remain prevalent concerns in several of Canada’s major housing markets. That said, housing starts and MLS® sales are expected to decline in 2017 and stabilize in 2018.
  • Housing demand in Vancouver is partially supported by robust employment growth, a growing population and low mortgage interest rates. These factors are expected to remain solid through 2018. That said, some moderation in housing starts and resales is forecast for 2017 and 2018, as the market continues to adjust to recent policy changes as well as an overvaluation of home prices. Price growth is also expected to slow, which should help to alleviate some of the imbalances currently detected by our HMA.
  • The Toronto housing market is showing strong evidence of problematic conditions, in part due to imbalances between house prices and fundamental drivers like incomes and population growth. These imbalances are expected to moderate through a slow-down in home price growth in 2017 and 2018 as factors such as rising mortgage rates and modest job growth later in the forecast period lead to resales moving off their record highs.
  • In the Prairie region this year, low commodity prices continue to impact investment, employment and housing demand. The result is slower new home construction as builders focus on selling their existing stock of new homes, especially multi-family units. Housing starts are forecasted to stabilize in 2017 as inventory reduction continues to hold back growth. By 2018, reduced inventories, stronger economic and employment growth will help boost new home construction.

The complete HMA and HMO reports covering national, regional and census metropolitan areas (CMA) markets will be available for download through the CMHC website, shortly after noon (ET). Our analysts are also available to provide further insight into the national market as well as the 15 markets covered by the HMA and the 50 markets covered by the HMO.

In order to access future Market Analysis Centre publications from CMHC, please subscribe to Housing Observer Online.

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.

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“We now see strong evidence of problematic conditions overall nationally. This is fuelled by overvaluation - meaning house prices remain higher than the level of personal disposable income, population growth and other fundamentals would support. This overvaluation coupled with evidence of overbuilding in some centres means that growth in house prices will slow and housing starts are expected to moderate in 2017 and 2018.”

— Bob Dugan, Chief Economist, Canada Mortgage and Housing Corporation

Information on This Release:

Jonathan Rotondo
Media Relations
613-748-2734
jrotondo@cmhc-schl.gc.ca

Karine Leblanc
Media Relations
613-740-5413
kjleblan@cmhc-schl.gc.ca

Table 1: Comparisons between the July 2016 and October 2016 reports
  Overheating Price Acceleration Overvaluation Overbuilding Overall Assessment
  July 2016 Oct. 2016 July 2016 Oct. 2016 July 2016 Oct. 2016 July 2016 Oct. 2016 July 2016 Oct. 2016
Canada Weak Weak Weak Moderate Strong Strong Weak Weak Moderate Strong
Victoria Moderate Moderate Weak Moderate Weak Weak Weak Weak Weak Weak
Vancouver Moderate Moderate Moderate Moderate Strong Strong Weak Weak Strong Strong
Edmonton Weak Weak Weak Weak Moderate Moderate Weak Weak Moderate Moderate
Calgary Weak Weak Weak Weak Moderate Moderate Moderate Moderate Strong Strong
Saskatoon Weak Weak Weak Weak Strong Moderate Strong Strong Strong Strong
Regina Weak Weak Weak Weak Moderate Moderate Strong Strong Strong Strong
Winnipeg Weak Weak Weak Weak Weak Weak Moderate Moderate Moderate Moderate
Hamilton Moderate Moderate Weak Moderate Strong Strong Weak Weak Moderate Strong
Toronto Weak Moderate Moderate Moderate Strong Strong Weak Weak Strong Strong
Ottawa Weak Weak Weak Weak Weak Weak Moderate Moderate Weak Weak
Montréal Weak Weak Weak Weak Moderate Moderate Weak Weak Moderate Moderate
Québec Weak Weak Weak Weak Strong Strong Weak Weak Moderate Moderate
Moncton Weak Weak Weak Weak Weak Weak Moderate Moderate Weak Weak
Halifax Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
St. John’s Weak Weak Weak Weak Weak Weak Moderate Moderate Weak Weak
Evidence of problematic conditions
Weak Moderate Strong

Note 1: Colour codes indicate the level of evidence of problematic conditions: The HMA reflects a comprehensive framework that not only tests for the presence or incidence of signals of potentially problematic conditions, but also considers the intensity of signals (that is, how far the indicator is from its historical average) and the persistence of signals over time. Generally, low intensity and persistence are associated with a lower potential of upcoming problematic conditions. As the number of persistent signals increases, the evidence of a problematic condition developing increases.

Note 2: Results at the CMA level are not segmented by housing type or neighbourhood. They represent an assessment of the entire CMA. However, specific CMA reports provide further detailed analysis of these markets.

Note 3: The colour scale extends to red only for those factors that have multiple indicators signaling significant incidence, intensity and persistence of potentially problematic conditions. As a result, only overvaluation and overbuilding can receive a red rating, since they are assessed using more than one indicator.

Note 4: To ensure the framework is as current as possible, on a regular basis, we undertake a model selection process whereby our house price models for overvaluation are tested for statistical significance at the national and CMA level. The result of this process may change the number of indicators of a problematic condition from the previous assessment.

CMHC Media Content Available for this News Release:

  • Video Clip — English (10,321 KB)
  • Bob Dugan Headshot (4,109 KB)

Download this Media Package (ZIP - 14.0 MB)

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