OTTAWA, Feb. 7, 2019 /CNW/ – While overvaluation has eased in Toronto and Victoria, Canada’s overall housing market remains vulnerable for the tenth quarter in a row, according to the most recent Housing Market Assessment (HMA)released by Canada Mortgage and Housing Corporation (CMHC).
On a quarterly basis, CMHC issues the HMA to provide Canadians with expert and impartial insight and analysis, based on the best data available in Canada. This report provides a comprehensive view of housing market vulnerabilities and identifies imbalances. It does not identify long-term fundamental affordability challenges.
Results are based on data as of the end of September 2018; the annual rental apartment vacancy rates are from October 2018 and market intelligence as of the end of December 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.
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.
“We are seeing overvaluation pressures unwinding in Toronto and Victoria, despite the fact that Canada’s overall vulnerability remains high. Nationally, overheating and overbuilding remain low. It should also be noted that price acceleration may be downgraded in upcoming reports which would lead to Canada’s overall vulnerability moving from high to moderate, provided other HMA factors do not change.”
Canada Mortgage and Housing Corporation
“In the Greater Toronto Area (GTA), overvaluation has changed from high to moderate due to the gaps between actual house prices and price levels estimated by fundamentals narrowing. Year-over-year growth in the average house price and real personal disposable income was modest in the third quarter of 2018 and was outpaced by economic and demographic factors, such as full-time employment and the young-adult population, which grew by 3.68 %.”
Manager, Market Analysis, Market Insights (Central) Canada Mortgage and Housing Corporation
“In Metro Victoria evidence of overvaluation decreased from high to moderate in the third quarter of 2018. The population of young adults, which is a key driver of household formation, increased in the third quarter adding support for house price growth. However, the support from population growth was mitigated by a slight decline in disposable income and an increase in mortgage rates.”
Senior Analyst, Economics, Market Insights (West)
Canada Mortgage and Housing Corporation
To obtain an accurate picture of the overall state of the housing market, it is important to consider multiple data points and lines of evidence. The Housing Market Assessment (HMA) analytical framework provides a comprehensive and integrated view that relies on a combination of indicators to detect imbalances in housing markets for several metropolitan areas across Canada, and for Canada as a whole.
Specifically, the HMA considers four main factors that may provide an early indication of vulnerability in the housing market: overheating, price acceleration, overvaluation and overbuilding. For each factor, the framework tests for the intensity (magnitude) and the persistence of signals. Generally, a situation in which we detect few signals with low intensity or lack of persistence is associated with a low degree of vulnerability. Conversely, as the number, intensity, and/or persistence of the signals increases, so does the evidence of imbalances in the housing market.
Overheating and price acceleration are each assessed with a single indicator. Colour scales for these factors vary between green and yellow only. Overvaluation and overbuilding are assessed with 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.
1. Overheating: Sales greatly outpace new listings in the market for existing homes.
2. Sustained acceleration in house prices: Fast-rising prices often indicate that expectations of future house-price appreciation may be excessive.
3. Overvaluation: House prices are higher than levels supported by personal disposable income, population, interest rates, and other fundamentals.
4. Overbuilding: Inventory of newly built and unsold housing units and/or rental apartment vacancy rate are significantly above normal levels.
Overall assessment: Assess the degree of market vulnerability considering the combination of multiple factors.
The HMA takes into account demographic, economic and financial determinants of the housing market such as population, personal disposable income, and interest rates to detect vulnerability. The framework also takes into account recent developments in both resale and residential construction markets.
The HMA was developed on the basis of its ability to detect vulnerable housing market conditions in historical data, such as the house price bubble Toronto experienced in the late 1980s and early 1990s. The ability of the HMA to detect vulnerabilities relies on the assumption that historical relationships between prices and fundamental drivers of housing markets have not changed.