Canada’s housing market remains vulnerable: CMHC report

CMHC says housing market still highly vulnerable despite slight price drop

CMHC says housing market still highly vulnerable despite slight price drop

Additionally, the CMHC report found that there is moderate overall vulnerability in Edmonton, Calgary, Saskatoon, Regina and Winnipeg, where there is moderate to high overbuilding.

"In Toronto, we've seen an easing of the pressures of overvaluation because house price growth has moderated and so the level of prices isn't increasing as quickly but fundamentals are still growing at a strong rate so there has been a narrowing of that gap between actual house prices and fundamentals", CMHC chief economist Bob Dugan said in a conference call with reporters.

"Given that there's a high level of inventory in the apartment condo market, builders have started to slow down production", said James Cuddy, a CMHC senior analyst.

Toronto and Victoria, both of which have seen high levels of overvaluation in recent quarters, had their overvaluation risk factors downgraded to moderate in the new report.

CMHC says this is the 10th quarter in a row that it has given the overall Canadian housing market a "vulnerable" assessment.

And while price growth has slowed, it is still rising.

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"Overvaluation is still detected in all these centres but it is easing as house prices are moving closer to levels supported by housing market fundamentals, such as population, personal disposable income, and interest rates".

"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 per cent". "In Toronto, you can have prices in line with fundamentals but that doesn't meant that affordability isn't a challenge. But there are other things going on as well with respect to fundamentals which are contributing to some of the slower demand", he said. "In the rental market, some shifting demand towards rentals has helped to absorb both purpose-built and investor-owned condominium rental units".

Cuddy is primarily talking about the rental market, where the vacancy rate decreased from 6.3% in 2017 to 3.9% previous year. "The second indicator of overbuilding - newly completed and unabsorbed units per capita - continued to remain above the critical threshold, therefore yielding moderate evidence of overbuilding".

"Nationally, overheating and overbuilding remain low". On a year-over-year basis, sales decreased slightly in the third quarter, keeping the SNLR low and reinforcing buyers' market conditions.

Despite a sharp downturn in recent months, the Vancouver housing market remained largely overvalued between the last quarter of 2018 and the first of quarter of 2019, while in Toronto it moved from high to moderate overvaluation.

The Victoria ratio in the third quarter of 2018 measured 59 per cent, well below the threshold of 80 per cent. The relatively stronger demand for objective built rentals and rental condominium units has helped move Edmonton's rental market towards more balanced conditions.

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