CMHC Raises Risk Level in Canada's Housing Market to 'Strong'
The Canada Mortgage and Housing Corporation (CMHC) has issued a red warning for the country’s housing market, raising its overall risk rating to strong from moderate as house prices climbed faster than income and population growth.
The agency warned last week it would issue a red alert as price acceleration and overvaluation continue to create problematic conditions for Canada’s housing market.
For the first time, CMHC simultaneously released its two major reports, the housing market assessment (HMA) and housing market outlook (HMO). The HMA report serves as an “early warning system” signalling areas of concern developing in Canada’s housing markets, while the HMO report “highlights important regional differences in housing activity” and forecasts a range of possible outcomes.
The latest quarterly HMA report says housing prices increased by 11% in the second quarter of 2016 from a year ago, slightly less than the14% growth between the first quarter of 2015 and the first quarter of 2016. If Toronto and Vancouver were excluded from the price metric used, the annual growth in house prices would have been only 6% in the second quarter, rather than 11%.
Some other highlights from the reports show:
- Overvaluation continues to be detected in nine areas across Canada and overbuilding in seven.
- Hotspots Toronto and Vancouver continue to show strong evidence of problematic conditions. In addition to imbalances between house prices and fundamental drivers such as incomes and population growth, Toronto now shows signs of overheating. Vancouver continues to show overheating, price acceleration, and overvaluation. As well, the introduction of a tax on foreign homebuyers in Vancouver in August may dampen sales, impacting British Columbia’s entire provincial outlook.
- The rapid growth of house prices was both concentrated and intensified in B.C. and Ontario, bleeding outward from Vancouver and Toronto into their metropolitan areas. However, housing activity in both provinces is expected to slow in 2017-18 due to rising debt loads and housing market imbalances.
- Calgary, Saskatoon, and Regina continue to show strong evidence of problematic conditions as oil-dependent provinces continue to struggle with low energy prices.
- Price acceleration is detected in Victoria and Hamilton, Ont. Hamilton’s overall risk assessment has raised from moderate to strong due to a combination of price acceleration, overheating, and overvaluation.
- Winnipeg, Montreal, and Quebec show moderate evidence of problematic conditions. In the Maritimes, the overall level of evidence for problematic conditions remains weak.
- It’s a little too soon to say how the government’s sweeping changes to mortgage rules introduced on Oct. 3 will effect housing markets, but CMHC analysis says 5%-10% of all prospective home buyers could be affected during the first year of implementation.
CMHC defines evidence of problematic conditions as imbalances in the housing market. Imbalances occur when overbuilding, overvaluation, overheating and price acceleration, or combinations thereof depart significantly from historical averages.
Also read:
- What Does the CMHC Red Warning Mean for Homebuyers?
- Ottawa Introduces New Mortgage Insurance Tax Rules, Income Tax Measures
- New Mortgage Rules Hurt First-Time Homebuyers
- Toronto, Vancouver Housing Price Increases Unsustainable: Bank of Canada
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