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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I’m tired of reading about a market that has shown exhorbitance for the last decade, but yet keeps thriving.
We can’t even expect any reasonable intervention from policy makers – they obviously have their own agenda.
I feel like pulling my hair out when I read comments like this.
The problem isn’t a lack of government intervention, the problem is TOO MUCH government intervention.
What the government should do (and I agree they won’t) is REMOVE current interventions and let the free market adjust prices naturally.
Yes I agree on the pumping the market piece interventions needing to stop. I would support government intervention in the form of improved money laundering laws and a limit on non-PR/Citizen buyers.
Well said. The only concern here is that the monetary policy has the greatest impact on housing prices, and yet the monetary policy is not manipulated because of housing prices. The government simply can not keep its hands out of it, but definitely needs to be more responsible
If monetary policy is centered around managing inflation, than why isn’t housing taken into account in the inflation algorithm being monitored? I think this was discussed in a past post.
Free market, govt. will never let that happen. Economy is way too much dependent on real estate, well actually all of it now. Govt. never had plan on how to build industries/jobs, so shortcut was urge loose lending with tax payer guarantee (insurance). Infrastructure bank, trans mountain pipeline, corporates (bombardier, blackberry, nortel,..) all failed. This can’t be just bad luck, it’s govt. incompetency.
Canadian PM got insulted by Chinese govt. publicly. This is the image of Canada in the world, who would want to invest in such a country.
This is literally the opposite of a free market government. They’re using the state to actually inflate and backstop market inefficiencies.
Everyone talks about overvalue housing prices non ofvthem talk about mortgage fraud, 70% people who buying a house they are not qualify but bank mortgage specialist will charge 1-2 % comimsion and make up all fraud documents even no employment and they will make you qualify bank all ways blame government but they don’t take about their employees who is doing fraud in side the bank, bank should VERIFY every one CRA record specially Brampton and Markham, Brampton already have Home Trust issues but Warren Buffett Bail out no if something goes wrong who will Bail out? I think everyone should blame bank not government
Please listen to the facts that support this level of pricing as a crash has been called for now for over a decade:
Canadian real estate is special and will not end like other markets. The US population was stupid, we are infinitely smarter because we have free health care and Tim Horton’s is way better than Dunkin Donuts.
Toronto, wait Hamilton, is a world class city that is cheap in comparison to international hubs like Hong Kong, London and Singapore. On a price per square foot it is cheap and this is just the going rate.
Lot’s of wealthy people in the GTA and Vancouver, I personally know 2 families that make $250k a year combined, a $2M semi is so affordable on that income. Never mind they are on a variable rate mortgage and have no other savings, they are millionaires based on their house price.
Immigration will save us all, as people coming in from developing countries love hockey and Jack Asstors and will want to buy $1M condos.
It’s a lack of supply as every home owner in the big markets should have at least 2 condos ready for the explosion of Air BNB coming back, because real estate only goes up.
Did I miss any other relevant talking points?
I’ll just add 1 more. A lot of big multinational corporations are waiting to get into Canada once lockdown is over. So there will be a significant addition of high paying jobs which will make current house prices look cheap. Buy before high salaries cause prices to go up.
lol. Big multinationals pay less than emerging SMBs because of the stability. At Google and Facebook, you’re likely to make less today than a well funded startup.
You can always tell who bought a house for a nickel, and thinks their “high” pay with a $1 million bungalow makes them rich.
Don’t forget the BOC will continue with perpetual QE and other monetary policy initiatives to fuel low rates and abundant liquidity.
Oh yeah, the government will only implement token measures to make it look like they are acting responsibly with Canadian Housing Market, like minor adjustments to the mortgage stress test. They won’t actually make the structural regulatory changes required to right the ship and put us on a firm footing moving forward.