Canadian market 'highly vulnerable' for the 6th consecutive quarter – CMHC

Risk is mainly concentrated upon the largest markets, however

Canadian market 'highly vulnerable' for the 6th consecutive quarter – CMHC
Continued signs of overheating in some cities have left Canada’s housing market highly vulnerable for the 6th straight quarter, the federal housing agency said Tuesday (January 30).

The Canada Mortgage and Housing Corporation said that the country could fall prey to market instability. The cities of Toronto, Hamilton, Victoria, and Vancouver are its greatest source of concern.

“This assessment is a result of the detection of moderate evidence of price acceleration and moderate evidence of overvaluation,” CMHC chief economist Bob Dugan said, as quoted by The Canadian Press.

Dugan noted that Manitoba, Quebec, and the Atlantic provinces are faring better than their Ontarian and British Columbian counterparts, and that Calgary, Edmonton, Saskatoon, and Regina are seeing rashes of overbuilding, but house prices there are in line with the population and its income.

He stressed that across the country there are only “weak” signs of overbuilding and overheating — a problem that has plagued the Greater Toronto Area in recent years.

Read more: Canadian market to face test of might

The agency’s observations came the same day the Toronto Real Estate Board reported an 18% drop in annual sales last year as the market started to cool from previous overheated conditions

The market is being dampened by the Ontario government’s moves to stabilize housing conditions after 2017 saw a busy first quarter, another interest rate hike from the Bank of Canada in January, a rise in 5-year fixed mortgage rates, and a new mortgage stress test brought in January 1.

“Federal and provincial policy decisions will act as a drag on demand for ownership housing,” TREB predicted. “In response to the stress test, many intending buyers will change the type and/or location of home they are looking to purchase or potentially tap other down payment sources, rather than simply deciding not to purchase a home.”

Meanwhile, TD Canada Trust economists Michael Dolega and Rishi Sondhi said in a note to investors that Atlantic markets are looking positive “with the exception of Newfoundland and Labrador, owing to a continued influx of international migrants.”

In Alberta, Manitoba and Saskatchewan, they are expecting that higher mortgage rates will lengthen the time needed for sales to recover and dampen activity, but Quebec will “enjoy a relatively healthy performance” nonetheless.

However, the TD duo added, the recent mortgage regulations “coupled with higher rates will meaningfully weaken housing demand in the high priced Toronto and Vancouver markets, leading to softer activity in Ontario and B.C.”

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