Strong evidence of overall problematic conditions despite some housing markets showing signs of improvement

Multimedia content available

OTTAWA, April 26, 2017 — Conditions in Canada’s housing markets are showing some signs of improvement but the official overall rating from the Canada Mortgage and Housing Corporation (CMHC) will be held at “strong evidence of problematic conditions”.

On a quarterly basis, CMHC issues 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.

 
Transcript

Foreground: Bob Dugan, CMHC Chief Economist

Background: Library setting, library shelving

Bob Dugan: “While the overall assessment for Canada has not changed from the previous quarter, the level of overvaluation has been downgraded to moderate. Regionally, eastern markets show weak evidence of overvaluation while this factor is stronger in western centres and markets in southern Ontario where economic fundamentals have not kept pace with recent price growth.”

 

Report highlights:

  • Overall rating to be held at “strong evidence of problematic conditions”.
  • Evidence of overvaluation at the national level has been downgraded from strong to moderate. It is now present in six centers instead of eight.
  • Evidence of overvaluation has increased from moderate to strong in Victoria, as fundamentals are not keeping up with higher prices. There is also moderate evidence of price acceleration and overheating, leading to strong overall evidence of problematic conditions.
  • Conditions have improved in Regina, Montréal and Québec relative to home prices.
  • Overbuilding has gone down from eight centers to six.
  • In Moncton and St John’s, the supply of homes is adjusting to the demand.
  • Toronto and Hamilton continue to face price acceleration, overvaluation and overheating. Price growth has intensified and demand is outpacing supply in the rental, resale and new home markets.
  • Vancouver’s housing market continues to show strong evidence of problematic conditions due to moderate evidence of price acceleration and strong evidence of overvaluation.
  • Markets in the Prairies continue to show moderate to strong evidence of overbuilding.

CMHC defines “problematic conditions” as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration - or combinations thereof - depart significantly from historical averages. For examples, please consult the Overview section of the national report.

The complete HMA, including national, regional and CMA insight and analysis, is available on our website.

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.

Follow us on Twitter, YouTube, LinkedIn and Facebook.

“While the overall assessment for Canada has not changed from the previous quarter, the level of overvaluation has been downgraded to moderate. Regionally, eastern markets show weak evidence of overvaluation while this factor is stronger in western centres and markets in southern Ontario where economic fundamentals have not kept pace with recent price growth.”

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

“CMHC's latest Housing Market Assessment continues to show strong evidence of problematic housing market conditions in Victoria. The last quarter of 2016 was dominated by strong sales and low supply which pushed house prices beyond levels that are supported by fundamentals such as income and population growth. For these reasons, we detected increased evidence of overvaluation in the Victoria market.”

— Eric Bond, Senior Market Analyst (Victoria), Canada Mortgage and Housing Corporation

“Rapid growth in house prices above rates warranted by economic and demographic fundamentals such as income and population growth has meant the continued detection of problematic conditions in the Toronto CMA housing market.”

— Dana Senagama, Principal Market Analyst (Toronto), Canada Mortgage and Housing Corporation

Information on this release:

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

CMHC media content available for this news release:

  • Bob Dugan Video Clip — English (9.23 MB)
  • Bob Dugan Headshot  (4.01 MB)
  • Eric Bond Video Clip — English (9.22 MB)
  • Eric Bond Headshot  (0.583 MB)
  • Dana Senagama Video Clip — English (5.28 MB)
  • Dana Senagama Headshot  (12.4 MB)

Download this Media Package (ZIP — 40.4 MB)

Backgrounder

CMHC’s HMA analytical framework is designed to evaluate the extent to which there is evidence of problematic conditions in Canadian housing markets. The framework assesses housing market conditions and considers the incidence, intensity and persistence of four main factors:

  1. Overheating of demand in the housing market, wherein sales significantly outpace new listings.
  2. Acceleration in house prices, which could be partially reflective of speculative activity.
  3. Overvaluation in the level of house prices, which indicates that house price levels are not fully supported by fundamental drivers such as income, mortgage rates and population.
  4. Overbuilding of the housing market, when the rental market vacancy rate and/or the inventory of newly built housing units that are unsold is elevated.

Each of these factors is measured using one or more indicators of housing demand, supply and/or price conditions. Table 1 outlines the results from the previous release in January 2017 and the current April 2017 release.

Table 1: Comparisons between the January 2017 and April 2017 reports
  Overheating Price Acceleration Overvaluation Overbuilding Overall Assessment
  Jan. 2017 Apr. 2017 Jan. 2017 Apr. 2017 Jan. 2017 Apr. 2017 Jan. 2017 Apr. 2017 Jan. 2017 Apr. 2017
Canada Weak Weak Moderate Moderate Strong Moderate Weak Weak Strong Strong
Victoria Moderate Moderate Moderate Moderate Moderate Strong Weak Weak Strong Strong
Vancouver Weak Weak Moderate Moderate Strong Strong Weak Weak Strong Strong
Edmonton Weak Weak Weak Weak Weak Weak Moderate Moderate Moderate Moderate
Calgary Weak Weak Weak Weak Weak Weak Moderate Moderate Moderate Moderate
Saskatoon Weak Weak Weak Weak Moderate Moderate Strong Strong Strong Strong
Regina Weak Weak Weak Weak Moderate Weak Strong Strong Strong Moderate
Winnipeg Weak Weak Weak Weak Weak Weak Moderate Moderate Moderate Moderate
Hamilton Moderate Moderate Moderate Moderate Strong Strong Weak Weak Strong Strong
Toronto Moderate 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 Weak Weak Weak Moderate Weak
Québec Weak Weak Weak Weak Strong Moderate Weak Weak Moderate Moderate
Moncton Weak Weak Weak Weak Weak Weak Moderate Weak Weak Weak
Halifax Weak Weak Weak Weak Weak Weak Weak Weak Weak Weak
St. John’s Weak Weak Weak Weak Weak Weak Moderate Weak 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.

 

Canada

Share...


Print(opens in a new window)