Canadian real estate markets are getting riskier, says the country’s national housing agency. The Canada Mortgage and Housing Corporate (CMHC) released its quarterly risk assessment for March. The agency now believes two-thirds of the country’s largest markets show elevated risks. Five of those markets are now showing a high degree of vulnerability.
Canadian Real Estate Shows A Moderate Degree of Vulnerability
Canadian real estate is showing a moderate degree of vulnerability, at the national level. Sales activity is overheating, and overvaluation are both showing moderate levels of risk. Both indicators were at this level during the previous quarter . The overall market indicator is also held at the same level as well. Not much changed for national indicators, but individual markets are deteriorating in quality.
The CMHC is observing elevated risk in two-thirds of major real estate markets. Ten out of fifteen major markets now show at least a moderate degree of vulnerability. Five of those markets now show a high degree of vulnerability, up from two last quarter. Three of the five highly vulnerable markets also happen to be in Southern Ontario.
Toronto Real Estate Is Now Highly Vulnerable
Toronto real estate’s vulnerability was upgraded to high, due to two indicators. Price acceleration and excess inventories both moved from a low degree of vulnerability. A strange combination, since prices don’t usually rise with inventories. Both of those were enough to launch the overall risk level to a high degree of vulnerability.
Price acceleration is straight-forward, but the meaning of excess inventory is less obvious. This means there’s more vacant units than typical for the market. Part of this is due to purpose-built vacancies rising to 3.4% during their fall assessment. Another contributor is regulatory changes for short-term rentals, helping to push inventory higher.
Vancouver Real Estate Shows a Moderate Degree of Vulnerability
Greater Vancouver real estate is doing a little better than Toronto these days. Excess inventory is the only area with an elevated risk, coming in at moderate. The agency said price growth is strong, but not enough to be upgraded to moderate as of yet. Overall assessment for the market came in at moderate risk.
Montreal Real Estate Shows a Moderate Degree of Vulnerability
Montreal real estate shows a moderate degree of vulnerability, says the agency. Overheating and price acceleration are at moderate levels of risk. Both remain unchanged from the previous quarter. The overall risk assessment remains moderate, also unchanged from the previous quarter.
Most Canadian real estate markets are showing an elevated degree of risk. Low interest rates and a higher level of unemployment for lower wage jobs aren’t a local issue. RBC recently warned Canadian real estate markets are at the point where they may have a destabilizing effect on the economy soon. In contrast, the CMHC’s moderate risk assessment seems generous, compared to recent analysis.
The concentration of markets showing a high degree of vulnerability may be problematic. Three of the five markets deemed high risk are Toronto, Ottawa, and Hamilton — all in Ontario. The other two are Halifax and Moncton, both in Atlantic Canada. Vulnerable markets in the same economic region, tend to compound risks even further.
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