The CMHC Housing Market Assessment (HMA) is an analytical framework that provides a comprehensive view of vulnerabilities to housing market instability in Canada. It assesses 4 main factors: overheating, price acceleration (or “price growth acceleration”), overvaluation and overbuilding.
Highlights from the national HMA — fourth quarter of 2018
- The HMA continues to indicate a high degree of overall vulnerability at the national level. However, with house prices moderating, conditions of overvaluation are easing for Canada as a whole.
- The HMA still detects overvaluation in Vancouver, Victoria, Toronto and Hamilton. Still, house prices are moving closer to levels supported by housing market fundamentals. All these centres continue to exhibit a high degree of overall vulnerability.
- Evidence of overbuilding remains high in Edmonton, Calgary, Saskatoon and Regina. As a result, these centres continue to receive a moderate degree of vulnerability in the overall assessment.
- Ottawa, Québec City, Moncton, Halifax and St. John’s maintained a low degree of overall vulnerability. In these centres, house prices continue to follow the path of fundamentals.
- The Montréal resale market is close to overheating, creating significant upward pressure on prices. This is a result of a sharp tightening between supply and demand.
- Winnipeg’s results are most notable. There, evidence of overbuilding and the degree of overall vulnerability changed from low to moderate. These changes reflect increases in the inventory of newly completed but unsold units.
Lower house prices: several factors at play
As mentioned in the first highlight, house prices are declining, leading the HMA to detect easing overvaluation nationally. Indeed, from the second quarter of 2017 to the same quarter in 2018, the inflation-adjusted MLS® average price dropped by 8.7%. What are the factors that have led to these lower prices?
Stricter mortgage rules, rising interest rates and slower growth in personal disposable income likely lowered housing demand. This, in turn, would have caused prices to fall. A decrease in sales of more expensive single-detached homes has also been causing the MLS® average price to decline.
Lastly, the number of young adults has increased. The members of this segment of the population are largely first-time homebuyers. As such, we can say that house prices are more in line with the fundamental factors.
Still, two more quarters of improved alignment between house prices and fundamentals are required before the HMA rates overvaluation as low at the national level. For this reason, the moderate rating of overvaluation is maintained for now.