Slow growth in the young adult population coupled with a decrease in disposable income and a pickup in home price growth has prompted Canada Mortgage and Housing Corp. (CMHC) to maintain its assessment of “strong evidence of problematic conditions” in Canada’s housing market.
“We continue to see moderate overvaluation and price acceleration,” warns Bob Dugan, chief economist at CMHC. “In the first quarter of this year, Canada saw a positive, yet slow growth in the young adult population and a drop in disposable income in all regions except British Columbia. This gives less support to house prices, which picked up again in early 2017 after a period of decline in the back half of 2016.”
In Vancouver, “Townhomes and apartments, which typically sell for less than single-detached homes, were in high demand for first-time buyers and families. This led to multiple-offer situations, increasing prices and moderate evidence of overheating,” says Eric Bond, CMHC’s principal market analyst for the Vancouver region. “The market continues to see moderate price acceleration and overvaluation due to low supply, despite record level construction.”
“Townhomes and apartments, which typically sell for less than single-detached homes, were in high demand for first-time buyers and families. This led to multiple-offer situations, increasing prices and moderate evidence of overheating.”
On a quarterly basis, CMHC issues its Housing Market Assessment (HMA) to provide Canadians with both expert and impartial insight and analysis, based on the best data available in Canada. This report acts as an early warning system for the country’s housing markets— an important tool supporting financial and housing market stability.
CMHC defines “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.
CMHC’s HMA analytical framework is designed to evaluate the extent to which there is evidence of problematic conditions in Canadian housing markets. The framework assesses housing market conditions and considers the incidence, intensity and persistence of four main factors:
• Overheating of demand in the housing market, wherein sales significantly outpace new listings.
• Acceleration in house prices, which could be partially reflective of speculative activity.
• Overvaluation in the level of house prices, which indicates that house price levels are not fully supported by fundamental drivers such as income, mortgage rates and population.
• Overbuilding of the housing market, when the rental market vacancy rate and/or the inventory of newly built housing units that are unsold is elevated.