Home price acceleration, alongside continued overvaluation, as home prices further detach from fundamental factors, such as labour income, has created a high degree of vulnerability in Canada’s housing market. This according to the latest Housing Market Assessment released by Canada Mortgage and Housing Corporation (CMHC). High vulnerability at the national level is largely a reflection of problematic conditions in several local housing markets across Ontario and Eastern Canada. A high degree of vulnerability means the housing market is more vulnerable to a potential downturn, with greater consequences if the downturn were to happen.
Historically low interest rates, government supports, and the rollout of mass vaccination programs provided higher purchasing power, disposable income levels, and employment amongst Canadians in the first half of 2021, however, recent home price growth was not fully explained by these improving housing market fundamentals.
“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.”
The number of home sales in Canada reached a historic high in the first quarter of 2021, with demand far outpacing the supply of available homes. Sales moderated in the second quarter of 2021, albeit to a still historically elevated level, with market overheating still detected at the national level.
There is low evidence of excess inventories in the national housing market. This means there is not an unusually high level of vacant, newly built, and unsold housing units. As well, the rental apartment vacancy rate is not significantly above normal levels.
- The degree of vulnerability in Montreal is moving from moderate to high, as home prices have risen sharply and are well above the level warranted by fundamentals, such as labour income. There are signs of overheating despite a declining pace of sales and more properties for sale during the second quarter of 2021.
- The Greater Toronto Area (GTA) remained at a high degree of market vulnerability. Despite existing home sales starting to ease and the pandemic-induced buying activity dissipating during the second quarter of 2021, the demand-supply imbalance in the Toronto market for existing homes contributed to the persistence of price acceleration.
- Vancouver’s rating was reduced from a moderate to low degree of market vulnerability. Price growth has settled down in Vancouver as the pace of sales in the market has slowed. Homeowners have listed their homes in larger numbers than usual, easing the competition among buyers.
- Hamilton and Ottawa both remain at a high degree of market vulnerability. Overheating, price acceleration and overvaluation are all currently prevalent in the Hamilton housing market. In Ottawa, home sales have trended down since April 2021, but sellers’ market conditions still prevail as listings remains at historic lows, pressuring price growth.
- Halifax and Moncton both remain at a high degree of market vulnerability. The Halifax housing market remains overheated, with the high sales activity against limited housing supply putting upwards pressure on home prices. In Moncton, prices have continued to grow in 2021 (23% year-to-date) reflecting the underlying disconnect between the supply and demand for housing.
- Victoria, Calgary, and Edmonton are all showing a moderate degree of vulnerability in their local housing markets. Record low listings have kept Victoria as a sellers’ market. In Calgary, market trends are pointing to a strong sellers’ market, although overheating is not detected. In Edmonton, the pace of new home sales remains strong but moderate evidence of excess inventories persists.
- Saskatoon, Regina, Winnipeg, and Quebec, are all showing a low degree of vulnerability in their local housing markets.
Housing Market Assessment (HMA)
|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.
For information on this release:
CMHC Media Relations
The current Housing Market Assessment is based on data up to the end of the second quarter of 2021, and market intelligence up to August 2021. Results for Canada and 14 CMAs are provided in the report.
The HMA identifies significant imbalances in the housing market that could potentially increase the risk and consequences of a housing market downturn. This could include a price correction. Such scenarios can have significant negative impacts on households, the housing industry, and the economy more broadly.
The results contained in the HMA help key stakeholders and policy makers make appropriate decisions to generate a smooth transition towards more balanced market conditions.
The HMA framework looks at the overall state of the housing market. It looks for potential imbalances by assessing four key factors:
- Overheating: when demand significantly outpaces supply
- Price acceleration: when house prices rise at an increased pace over a sustained period
- Overvaluation: when house prices differ significantly from their level consistent with housing market fundamentals (such as labour income, population and interest rates)
- Excess inventories: when there is an unusually high level of vacant housing units
On their own, each factor is assigned a degree of imbalance following a three-point scale:
Together, the factors make up the state of a housing market’s vulnerability. Simply, the more imbalances there are, the more vulnerable the housing market is.
The HMA does not assess affordability, as affordability relates to the cost of housing that meets the needs of a household at a reasonable share of their income. This aspect of housing is not covered in the HMA.
Even in a balanced housing market with a low level of market vulnerability, households in lower income brackets may still have difficulty finding shelter that is affordable and meets their needs.