First it was Vancouver… then Toronto. Add Halifax to the list. Then Niagara, Hamilton… Woodstock? Don’t worry, I have no idea where that is either. Canadian real estate is now so frothy even the government can’t ignore it. The Canada Mortgage and Housing Corporation (CMHC) published its Q3 2021 Housing Market Assessment (HMA). In it they declared Canadian real estate to be “highly vulnerable” at the national level. Risk has spilled out of a couple of frothy markets and is now a macro concern. This is the first time the agency has labeled the whole country as highly vulnerable since the pandemic.
Canadian Real Estate Is “Highly” Vulnerable
Canadian real estate is highly vulnerable, said the country’s national housing agency. This is the first time they’ve marked real estate as highly vulnerable at the national level since 2019. They made the call after observing persistent overvaluation and price acceleration imbalances. A market declared highly vulnerable is prone to a downturn, with greater consequences. After all, the more dependent an economy is on housing, the worse it’s hit in the event prices stop growing rapidly.
Yes, people are right about gains driven by fundamentals, such as low interest rates. This is a major contributor, but not the only contributor to surging home prices. The agency found economic and demographic changes fail to explain the whole movement. “Exceptionally strong demand and home price appreciation over the course of the pandemic may have contributed to irrational expectations of continued price growth and, in turn, more buyers entering the market than was warranted,” wrote the agency.
CMHC Housing Market Assessment
Every Highly Vulnerable Market Is Located In Eastern Canada
Canada’s most vulnerable markets are exclusively located in Eastern Canada. Still vulnerable from the last report are Hamilton, Toronto, Ottawa, Moncton, and Halifax. Joining them this quarter is Montreal, which got upgraded from moderate vulnerability. All of these markets have seen overheating in the past two reports. In Ottawa and Toronto, they’re even seeing signs of overbuilding.
Moderate Vulnerabilities Have Appeared In Western Canada
Western Canada isn’t exactly the definition of stable real estate markets though. Moderate vulnerabilities persist in Victoria, Edmonton, and Calgary. All of these markets were moderately vulnerable in the previous assessment as well. This is due largely to excess inventories.
Only A Third of Real Estate Markets Show Low Vulnerability
Few markets showed a low degree of vulnerability, including the most expensive one. Saskatoon, Regina, Winnipeg, and Quebec City remain green, with low levels of vulnerability. Joining these ranks is Vancouver, which was downgraded from moderately risky. It might surprise some, but the ranks don’t factor in affordability in any way. It’s strictly an assessment of how trade is conducted, and how the market is moving.
The organization declaring Canadian real estate highly vulnerable is a bit of a mixed message. The newly appointed CEO recently said they were wrong about tightening lending standards. Now they’re loosening mortgage lending standards as they warn the industry and government about increasing risks.
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