Canada

Canada’s National Housing Agency Thinks Canadian Real Estate Is Overvalued

Canadian real estate markets are cooling everywhere west of Ottawa. That had little impact on the latest report from the Canada Mortgage and Housing Corporation (CMHC). The Government backed agency believes the national real estate market is highly vulnerable. They did note improvements in the largest markets, but it’s going to be a while before they’re fixed.

The Who, Said What?

The CMHC is the government owned agency that does housing research. They also oversee government guaranteed mortgage liquidity, so they do their homework. You know how your real estate agent says “a home is worth whatever someone is willing to pay?” Well, they disagree.

The CMHC looks for fundamental factors, and compares prices against the local context. Interest rates, wages, and price acceleration are in. Factors like your cousin Mikey thinks a lot of foreigners are buying “all of the land” are not. They then publish a terror alert color graded warning system for real estate. Here’s what they had to say about the country’s largest markets.

Toronto Real Estate

The agency noted cooling price growth, but still think Toronto is highly vulnerable. Slowing price growth “needs to persist” longer, to discount overheating and price acceleration. The agency still assigned it an overvalued rating, relative to market fundamentals. We know, your agent told you that Toronto was recovered and sales were going to boom in the fall. Back to school home shopping or something? They have doubts about wages and population density booming by then. Such Debby Downers.

Vancouver Real Estate

Canada’s most expensive market is seeing price growth slow, but it’s still “highly vulnerable.” Analysts observed price growth slowing over the past couple of quarters. They even observed prices turning negative in a few regions, and rising inventory. Despite that, they still believe the market is moderately overheated and highly overvalued. Remember, sales are slowing but Van still had the biggest price increase in the country.

Montreal Real Estate

Canada’s most overhyped market is surprisingly boring. Analysts noted the sales to new listings is approaching a threshold, but hasn’t passed. When and if it does pass that mark, it may become problematic. Until then, it’s just a normal real estate market doing normal things.

CMHC Canadian Real Estate Market Summary

Comparisons between the April 2018 and July 2018 reports, for Canada’s 15 largest markets.

Canada’s National Housing Agency Thinks Canadian Real Estate Is Overvalued- chart

Source: CMHC. Better Dwelling.

The CMHC said Canadian real estate is showing a high degree of vulnerability. On a regional level, Chief Economist Bob Dugan said he’s “seeing a fair amount of differences.” B.C. and Ontario markets are highly vulnerable. Meanwhile, Atlantic markets are just humming along.

Like this post? Like us on Facebook for the next one in your feed.

22 Comments

COMMENT POLICY:
We encourage you to have a civil discussion. Note that reads "civil," which means don't act like jerks to each other. Still unclear? No name-calling, racism, or hate speech. Seriously, you're adults – act like it.

Any comments that violates these simple rules, will be removed promptly – along with your full comment history. Oh yeah, you'll also lose further commenting privileges. So if your comments disappear, it's not because the illuminati is screening you because they hate the truth, it's because you violated our simple rules.

  • Bluetheimpala 10 months ago

    What! I just bought 3 assignments from Cousin Mikey…son of a ! To note, as per a BD article month ago, a lot of condos are coming on line in late 2018-mid-2019 and, from a more recent article, we’re poised to be in an overbuilding phase shortly. Tick tock. BD4L.

    • Justin Thyme 10 months ago

      Every one of those condos is pre-sold. And the ones coming on line this year were sold at 214-15 prices, not the over-inflated prices of today. Lots of room to maneuver. So you only made $200,000 instead of $500,000?

      • Bluetheimpala 10 months ago

        Even worse…market value will come down. If they have debt ties to it they are underwater depending on the ratio of cash to debt. Similar to housing, those who made money will protect their gains and take a loss on the later properties driving down the market. The others who bought late will be caught and rents correct they will be deeper in debt. Nothing change, nothing stays the same. BD4L.

      • Grizzly Gus 10 months ago

        Good point JT! But then the ones coming online in 2019 were all reserved in 2015-16, the ones coming online in 2020 were all reserved in 2016-2017. Then in 2021 we had the 17-18 pre sales. Prices were going crazy as of 2016 in the condo sector and each year thereafter out did it self in terms of total presales = Record supply on its way

        I say reserved and not sold because only 20% down, the rest requires financing upon occupancy……….AND the bulk of these “reservations” were made before the rate hikes and introduction of B-20. If you can pull out 200k of appreciation thats great, just how does it work if all those investors try that at the same time?

  • CJ Ray 10 months ago

    Not to mention, once the misguided start moving into these sky boxes, or start renting them out, they’ll soon realize the true costs of ownership.

  • Im Therious 10 months ago

    All this doom and gloom…

    Any body want to predict what a soft landing looks like?

    Does the economy just go slow for a decade(2), waiting for wages to catch up? Or waiting for The Next Big Thing?

    Do people in their 20s/30s just rent for a decade?

    Do people in their 60s just hold tight, since they don’t need to sell for a while?

    • TJ 10 months ago

      Can you provide evidence of a soft landing after an exhaustion move? I don’t believe it exists.

      20 years of stagnation is a special kind of hell, that would take the whole country down with it. Crash, adjust, and move on is always the best course of action for an economy.

      Inefficient capital allocation doesn’t just become efficient over time. 😂

    • Grizzly Gus 10 months ago

      I think our soft landing will be similar to the soft landing they had in the US last decade. Massive bailouts to stop the economy from going into depression. Maybe some free dental care too.

    • Justin Thyme 10 months ago

      A soft landing would be psychologically devastating. People do not like stagnation, They want ACTION. You go to a sports game to win or loose, not to have a tie score game after game.

    • Justin Thyme 10 months ago

      What does a soft landing look like?

      You put $1,000 in a bank today, and you have $1,000 in ten years.

      You earn $20 an hour now,and in 20 years you are earning … $20 anhour.

      Your house is worth $500,000 today, and in 20 years, it is worth, well, $500,000.

      A cup of coffee costs $1.50 today,and in 20 years – you get the picture, it is still $1.50.

      But a soft landing also means that interest rates are near zero. Any increase above zero means, well, a soft landing just ain’t going to happen.

      • Bluetheimpala 10 months ago

        Can’t argue with you there JT. Rates are only going up. BD4L.

    • bob 10 months ago

      Im Therious,

      Anybody can predict, but you will not get an answer of certainty. You’ll just get various opinions of what they think its probable.

      In case you are not paying attention, my fathers generation could literally drop out of school and get a really good job in thier time, In his case, no schooling and became an engineer, owned two cars, a boat, paid 20k cash to get an empty lot and got a loan literally in the range of something like 5k and built his own house. He lived most of his working years with a fully paid house. Most of the neighbors did too.

      In my generation, nobody builds thier house, or pays it in cash, and likely still owes at least 50% of the value of the home. We make half as much money if you factor inflation and the cost of goods compared to the previous generation.

      In todays generation of people in thier 20’s and 30’s make even less money, and are looking to pay about 800k for a detached home in Toronto now. Since the stress test kicked in, They don’t qualify for a home and now pay overasking for a condo. Do they rent for a decade. Perhaps if prices do not come back down to normal levels. or they most certainly will.

      And looking ahead to the next generation 15 years further, doesnt sound like the jobs market will be booming since automation/AI will continue to take over.

      As for people in thier 60’s, got ask them what they are doing, I did to one guy and hes leaving selling in Toronto and moving back to portugal.

      Im just trying to connect the dots and come to my own conclusion of whats a probability, And I don’t know what a soft landling will look like based off everything I mentioned screams something much worse.

      • Justin Thyme 10 months ago

        I call your bluff, Bob. My colleague’s grandfather (now deceased) bought a wartime house, property and all, for $500 in the late 40’s. Not $500 k, but five hundred dollars, period.

        Paying 5 grand to build a house would have built a palace.

        Unless your father bought in the 70’s, where $20 grand would have bought a brand new 1400 sq. ft. brick and vinyl split level, nice 50 foot suburban lot, paved road, full sidewalks, included.

        Maybe the 80’s, where very large 2 acre fully serviced lots could be had for $20 grand? But by then, the professional designation of engineer required a university education. In the 40’s, stationary engineers (power plant operators) could get by with perhaps 1 to 2 years of technical training, no high school necessary (many war vets went through the program on the government’s tab). But now, they are restricted to the technician/technologist designation.

        Just a reminder, to connect the dots to see what the picture is, you start at 1 and then go to 2 and then 3, and so on. Usually you end back where you started from. But most moderately intelligent people can see the picture even without connecting the dots.

    • Bluetheimpala 10 months ago

      I would argue that having the debt cycles aligning in all G7 and developing economies at the same time is ‘the big thing’. Potentially. The mistakes we made are based on chasing yields and the idea that money=winning. Poke around the different types of debt, personal and corporate. Manufacturing outlooks and order books (yes domestic transport is booming but think about why and impact to inflation). Stock buy backs to prop up share price to then make an acquisition. Different canaries all over the place and once they are all chirping in unison it will sound like thunder. The Fed/BoC don’t give a shit about our exuberance. They’ve heard the thunder and seen the lightening; they are just getting ready along with the banks to batten down the hatches. BD4L.

      • Justin Thyme 10 months ago

        Something you might be interested in regarding the stock market and stock buy-backs.

        It’s called dark pools.

        Non-public stock exchanges in America that are not regulated, and do not have to disclose their transactions nor the prices or quantities of stock sold. The transaction is totally confidential. a private transaction between buyer and seller. Canada does not allow such trades.

        Upwards of 50% of stock sales in America are now done through dark pools, not the public exchanges, by institutional traders. The majority of the stock buy-backs by many large corporations are almost exclusively done in these dark pools. The thing is, the only people that can buy the stock through these pools are not the small investor, but the major players, and by invitation only. it is a way for large corporations to return their excess exuberant money from tax changes and profit taking to selected stock owners exclusively, not the general public.

    • Cash 10 months ago

      “Canadian household debt levels are far too high to allow for a soft landing.”-  Hilliard Macbeth @hmacbe from this book: https://t.co/ehjUPkCtMG.

  • Justin Thyme 10 months ago

    If you are interested in a really, really good but really, really long read on the government’s response to a housing crisis, see

    ‘Wartime Housing Limited, 1941 – 1947: Canadian Housing Policy at the Crossroads ‘

    from https://www.erudit.org/fr/revues/uhr/1986-v15-n1-uhr0856/1018892ar.pdf

    Only the first part of the introduction is in French, the article itself is entirely in English.

    It describes how a government with some backbone and some gumption can handle a housing crisis worse (proportionately speaking) than we have today.

  • Im Therious 10 months ago

    Thanks for all the thoughts.

    I’m not sure I’ve ever lived through a “soft landing” after economies slow down for a breather or outright crash. Hence my question.

    Batten down the hatches, people!

  • OrionTheHunt3r 10 months ago

    “Canada’s National Housing Agency Thinks Canadian Real Estate Is Overvalued“

    Definition: “We still have assets that we need to get off our books. In other words, we’re seeking dumb plebs to dump our bags on to”

    • OrionTheHunt3r 10 months ago

      Oops, wrong headline. Should’ve been “The BoC Still Thinks Canadian Real Estate Is More Affordable Today Than In 2008”.

      🤦🏻‍♂️

  • LazyG 10 months ago

    I’m in my late 30’s married without a child on the way and have been renting for the last 5 years. My wife and I do not intend to buy a house for the foreseeable future. With automation and AI replacing more production, I do not see the value of my labour (IT consulting/development) increasing to justify the high cost of home ownership in the next 25 years.

    I’m enjoying renting at a relatively low cost and investing 40-45% of my income VGRO and physical gold.

Comments are closed.