Canada’s overall housing market remains highly vulnerable, however, conditions of overvaluation are easing as a whole, according to the most recent Housing Market Assessment (HMA) released today by Canada Mortgage and Housing Corporation (CMHC). While overvaluation is still detected in Vancouver, Victoria, Toronto and Hamilton, house prices are moving closer to levels supported by housing market fundamentals such as income, mortgage rates and population. That said, these markets continue to exhibit a high degree of overall vulnerability.

On a quarterly basis, CMHC issues the 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.

Results are based on data as of the end of June 2018 and market intelligence as of the end of September 2018. This national report provides the housing market assessment at the national level and summary assessment results for 15 Census Metropolitan Areas (CMAs). For each of these CMAs, CMHC also issues a local report with more information and analysis.

Key market highlights:

  • At the national level the moderate rating of overvaluation is maintained as a longer period of improved alignment between house prices and fundamentals is required for overvaluation to be deemed low.
  • Evidence of overbuilding remains high in Edmonton, Calgary, Saskatoon and Regina, so they continue to receive a moderate degree of vulnerability in the overall assessment.
  • A low degree of overall vulnerability is sustained for Ottawa, Québec City, Moncton, Halifax and St. John’s where house prices continue to follow the path of fundamentals.
  • Montréal’s resale market is close to overheating, creating significant upward pressure on prices as a result of a sharp tightening between supply and demand. 
  • In Winnipeg, evidence of overbuilding as well as the degree of overall vulnerability changed from low to moderate, reflecting increases in the inventory of newly completed but unsold units.

Assessments for Canada and all 15 CMAs can be found in the graph located in the release backgrounder.

CMHC defines vulnerability as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration - or combinations thereof - depart significantly from historical averages.

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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Quotes:

Bob Dugan “For the ninth consecutive quarter there continues to be a high degree of overall vulnerability at the national level, however, we are seeing conditions of overvaluation easing for Canada as a whole. Tighter mortgage rules, rising interest rates and weaker growth in inflation-adjusted personal disposable income—likely led to reduced demand for housing, resulting in the decline of house prices.”
— Bob Dugan, Chief Economist

Information on this release:

Angelina Ritacco
CMHC Media Relations
416-218-3320
aritacco@cmhc-schl.gc.ca

Backgrounder:

CMHC’s HMA analytical framework is designed to evaluate the extent to which there are vulnerabilities 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. The table below outlines the results from the previous release in July 2018 and the current October 2018 release.

Comparisons between the July 2018 and October 2018 reports
  Overheating Price Acceleration Overvaluation Overbuilding Overall Assessment
  July 2018 Oct. 2018 July 2018 Oct. 2018 July. 2018 Oct. 2018 July 2018 Oct. 2018 JUly 2018 Oct. 2018
Canada Low Low Moderate Moderate Moderate Moderate Low Low High High
Victoria Moderate Moderate Moderate Moderate High High Low Low High High
Vancouver Moderate Moderate Moderate Moderate High High Low Low High High
Edmonton Low Low Low Low Low Low High High Moderate Moderate
Calgary Low Low Low Low Low Low High High Moderate Moderate
Saskatoon Low Low Low Low Low Low High High Moderate Moderate
Regina Low Low Low Low Low Low High High Moderate Moderate
Winnipeg Low Low Low Low Moderate Moderate Low Moderate Low Moderate
Hamilton Moderate Moderate Moderate Moderate Moderate Moderate Low Low High High
Toronto Moderate Moderate Moderate Moderate High High Low Low High High
Ottawa Low Low Low Low Low Low Low Low Low Low
Montréal Low Low Low Low Low Low Low Low Low Low
Québec Low Low Low Low Low Low Low Low Low Low
Moncton Low Low Low Low Low Low Low Low Low Low
Halifax Low Low Low Low Low Low Low Low Low Low
St. John’s Low Low Low Low Low Low Moderate Moderate Low Low
Degree of vulnerability
  Low   Moderate   High

Note 1: Colour codes indicate the degree of market vulnerability. Price acceleration and overheating are measured by single indicators. Colour scales for these factors vary between green and yellow. Overvaluation and overbuilding are measured by multiple indicators. Their colour scales, as well as the colour scale for the overall assessment, change among green, yellow and red to reflect different degrees of imbalances.

Note 2: The HMA detects the presence or incidence of market imbalances when indictors are above thresholds. It also measures the intensity of signals by how much indicators are above thresholds, and the persistence of signals by how long signals stand above thresholds. Generally, low intensity and persistence are associated with a lower vulnerability. As the number of persistent signals increases, the evidence of imbalances increases.

Date Published:: October 25, 2018