CMHC: Canadian Real Estate Is At A “High” Degree of Vulnerability Right Now

CMHC - Canadian Real Estate Is At A “High Degree of Vulnerability” Right Now

Canadian real estate markets are at a high degree of vulnerability, according to a Crown agency. The Canada Mortgage and Housing Corporation (CMHC), the government agency in charge of assisting with mortgage liquidity, finished its first quarter assessment. The assessment notes a “high” degree of vulnerability for the country’s major markets. The reasons cited varied by region, ranging from overvaluation to overbuilding.

Canadian Real Estate Is “Highly Vulnerable”

Canadian real estate prices remain “highly vulnerable” according to the government backed agency. They first detected price acceleration in the first quarter of 2016, and it has been accelerating ever since. Price acceleration is a movement in price that is stronger than fundamentals warrant. The agency determines this with a 3 year rolling window, meaning prices have been climbing nationally for quite some time.

The agency did acknowledge regional disparities, especially in Ontario and BC. They noted both provinces had centres that were “highly overvalued,” and possessed a “high degree of vulnerability.” If only we could guess which markets these are.

CMHC - Canadian Real Estate Is At A High Degree of Vulnerability Right Now - Chart
Better Dwelling. Source: CMHC.

Toronto Real Estate Remains “Highly Vulnerable”

The agency noted that Toronto real estate remained vulnerable in three out of four areas tracked. The city was categorized as “moderately vulnerable” for overheating, and price acceleration. It remained highly vulnerable for overvaluation and as an overall market. The only category with low vulnerability was overbuilding, but that doesn’t measure what people thinks it does. The CMHC only looks for absorption of new units, not whether those new units are intended to be assignment flips.

Vancouver Real Estate Remains “Highly Vulnerable”

Vancouver real estate, Canada’s most expensive market, remained vulnerable in 3 out of 4 areas. Moderate vulnerability was detected in overheating and price acceleration categories. It was considered highly vulnerable in the overvaluation category. The only category it passed with low vulnerability was overbuilding.

Calgary Real Estate Is Vulnerable Due To Overbuilding

Calgary real estate is starting to show signs of stability, but is still moderately vulnerable. There were little signs of overheating, price acceleration, or overvaluation. Overbuilding however, is presenting a high degree of vulnerability. Apartment rental vacancies, and home inventories were at “elevated levels.”

Montreal Real Estate Is Not Vulnerable… Right Now

Montreal real estate displayed as little vulnerability as possible. In all four categories, it scored a low degree of vulnerability. The organization did note, overheating is beginning to appear in the resale market. Despite this, there is weak evidence of price acceleration. The agency believes most of the market’s price movement is based on fundamentals at this time.

The high degree of vulnerability across Canada indicates policy measures are at work. Speculation is doing damage to Greater Toronto and Greater Vancouver, but those aren’t the only markets being called out. Extended periods of cheap credit are impacting markets well beyond the few claiming it’s supply and demand.

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Photo: Jason Paris.



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  • Reformed Banker 6 years ago

    Cheap credit doesn’t just inflate people’s mortgage balances, it’s also cheap for developers to build. A lot of units going up have units held by developers or insiders. It’s cheap to build now, so they’re going up. When rates go up, there will be less building. All of a sudden we’ll see inventory released that was never occupied.

  • OIOI 6 years ago

    Like the CMHC knows what they’re talking about. They’ve been calling for a crash for years. They need a crash to come, so they can sell more subprime loans.

    Prices in Canada are going up because people are willing to pay a premium to own in cities with great opportunities and quality healthcare.

    • Knotmi Realnm 6 years ago

      You mean free healthcare you Foreign Freeloader (“FF”).

    • Dusty Hill 6 years ago

      Great opinion. How old are you? 14?

      • Alistair McLaughlin 6 years ago

        The letters in his screen name got transposed. He meant to type IOIO, as in “I Owe I Owe”. Just another over-leveraged perma-bull who thinks housing can never go down.

    • xelan 6 years ago

      I totally disagree with you . CMHC always provide the most optimistic forecasts because they represent RE industry and the fact that they started to admit problems with housing markets and downgraded their forecast numbers for 2018 is a very troubling sign.

      • Sammy 6 years ago

        This. The article didn’t even mince words, they blatantly point out the “government agency in charge of assisting with mortgage liquidity.” Not like they would say, which is they assist with affordability of real estate.

    • Foxxy 6 years ago

      I’ll give you quality, free, healthcare. But honestly New York has greater opportunities, stellar infrastructure (the have way more than Toronto’s four TTC lines), fantastic health care (if you can afford it), free public works such as museums AND housing that is more affordable than Toronto. Why in the world would people keep throwing money after an overpriced market in an ok city. Vancouver might be a world class city, but Toronto sure isn’t.

    • Grizzly Gus 6 years ago

      Prices in Canada went up (still are in certain segments) because people were willing and able to borrow un-repayable amounts of money to bid up and pay premiums on homes that they thought were a great opportunity.

      • Andre 6 years ago

        Grizzly Gus,

        I also think that a very strong reason behind the bubble is that most people only analyze investment decisions using a very short term view. Most people only look at their monthly expenses when deciding to finance new assets ( cars, boats, houses). They are driven by emotions and not reason.

        Other aspect is that over the past 20 years globalization has become a reality and capital investment in residential RE is now trading at higher levels and behaving more like a “liquid” market instrument.

        Reading the comment section of this blog and other RE related ones, it is clear to me that 90% of the people commenting are not in the class of the short term decision makers; it is really frustrating to observe how this shot term behavior has driven the markets to an insanity level of prices and also affect most on the capacity to save for retirement and at the same time provide shelter for their families. It will also clearly impact Canadian economy eventually as it is not sustainable to maintain growth levels as observed as they are totally disconnect to any fundamentals…

    • Alistair McLaughlin 6 years ago

      CMHC has never called for a crash or anything of the sort, and still isn’t calling for one.

      Your second sentence is platitudinous nonsense that belongs on a brochure for Canadian Real Estate Wealth Expo 2019. “Quality healthcare.” Compared to where? Pretty much every European country has way better healthcare outcomes and way more healthcare choice than Canada does, and they manage to do that for the same or less % of their GDP.

  • xelan 6 years ago

    I wish those charts appear in all the news so everyone knows that right now they are buying HIGHLY OVERVALUED properties both in Vancouver and Toronto markets and don’t have an excuse later to say that nobody warned them.
    This is the data from the agency which is always protecting RE industry.

  • Mark Baum 6 years ago

    With it being so vulnerable CMHC are revising their qualification process for insurance right?

    • Sammy 6 years ago

      The CMHC revised their lending criteria, and lowered the number of loans they insured just over a year ago. I would say that was them positioning before setting off the warning bells.

    • xelan 6 years ago

      It’s actually a question if CMHC or the banks are most vulnerable because lately the number of insured mortgages dropped down significantly. People find their ways to “show” 20% downpayment and get an unsecured mortgage at one of the big banks or credit unions.
      In addition to that banks have HELOC and other debt related products exposure.

    • Alistair McLaughlin 6 years ago

      They’ve done that a few times over the past few years. One by one they closed all the barn doors, after most of the horses had left the building.

  • xelan 6 years ago

    I have 2 of my friends renewing mortgages right now.
    Guess where both of those are going? HSBC. If you haven’t watched Dirty Money series on Netflix I highly recommend it. There is one episode about that bank which shows very nasty ways of doing business there.

    Right now HSBC is offering 3.19% for a 5 years fixed on their web site and no major bank can beat it. Few credit unions can match it though but guess what – HSBC also give the same rate for investment properties (no other banks do that) and $750-1000 cash bonus on top of that.

    None of my friends are actually signed the papers yet so all that info is just preliminary but most likely they will so I after it’s done I can confirm everything.

    In no way I’m trying to promote HSBC. In fact this bank was banned from US Mortgages business altogether due to very poor servicing and foreclosure practices.
    But for Canada those guys are perfectly fine:)

    • Investor 6 years ago

      HSBC is probably building up its market share and it will come at a price to them. That’s the only way you can rationalize their move.

  • Xelan 6 years ago

    Just talked to my mortgage broker.
    She doesn’t deal with HSBC, however she told me that Meridian hasn’t applied OSFI B-20 rules yet.
    So even now you don’t need to pass stress test to get a mortgage. All that regulation doesn’t change a thing.

    • Investor 6 years ago

      Credit Unions are not bound by the OSFI B-20 rules. But it’s in their best interest to apply due diligence when issuing mortgage loans.

      • Xelan 6 years ago

        I know, it’s just people here(including myself) were waiting for pre-approvals to expire to see the effect of B-20. It turns out there won’t be any effect at all because those people who can’t pass stress test will just go to Meridian.
        Most of the Credit Unions follow B-20 voluntarily and as far as I know Meridian is the only one which still doesn’t.

        • Alistair McLaughlin 6 years ago

          Credit unions are small. They do not have unlimited amounts of money to lend out. They cannot possibly absorb all the B20 rejects from the Big Six. That is a fact.

          • xelan 6 years ago

            Heh, if you think banks must own money they are lending out, you are hugely mistaken. They just create those loans out of thin air, that’s why we have only about 3% of cash in the economy compared to all the digital money created by the banks (M4).
            That’s the beauty of fractional reserve system we are using today.
            Here is one of the videos showing how it works:

            So to sum it up, there were only 5-10% borrowers estimated to be priced out of the market as a result of B-20 and Meridian only required to hold a small portion of the money on their account in order to create new loans for all those people so I don’t see any trouble here at all.

    • Alistair McLaughlin 6 years ago

      Well, it does change a lot, because Merdian and a handful of other credit unions and alt-lenders cannot possibly replace the lending volume of the Big Six. As the Big Six rejections have increased drastically after B20, you now have more borrowers competing for the same pool of money among non-B20 lenders. Increasing demand while supply remains the same means higher rates. Or, the credit unions will just be more selective about who they lend to, even if they don’t officially apply the stress test.

      • xelan 6 years ago

        I’m not an expert here but from what I see all credit unions boosted they saving account and GICs rates. No major banks can compare them and deposits are insured for up to 250k compared to only 100k at big banks.
        They are hoarding deposits now which will allow them to lend extensively. As I mentioned to you previously they don’t need to have 100k to lend 100k, they only need to have a small fraction of that in actual deposits and they will just create the remaining amount required for lending out of thin air so I don’t think the issues you mentioned are relevant.

        • Investor 6 years ago

          I don’t quite understand what you mean by: “they don’t have to have the money they lend out, they can create it out of thin air”. If your builder needs wants you to close your real estate transaction that you paid $1M for, you mean the banks only need to reimburse your builder with say $400,000 and just create the rest out of thin air? Will your builder get paid $400,000 in cash and “$600,000 thin air money”? What does that look like? I don’t think there’s any such thing.

          The way it works is; the money they loan out doesn’t have to be their money. They gather deposits from lots of people (GIC, RRSP, Savings deposits e.t.c.) and package that out as loans to be able to pay the meager returns for those investment vehicles. In the context of mortgage lending, there’s no such thing as creating money from thin air. That’s hilarious.

          • xelan 6 years ago

            Did you watch the video I posted before? It will explain everything quite well.

            Just to make it simple, when you go to the bank and take mortgage $1M, bank just opens your account, type $1M there and voila new $1M is created in the economy. It then transfers that $1M to your builder and keep a record that you own them that money.

            At the end of the day when you pay them $1M back your mortgage account is closed and that amount is removed from the economy, except for the interest which banks keep for themselves.

            It sounds ridiculous but that’s how our economy works. Read more about that if you are interested. There are a lot of nice YouTube videos for beginners regarding this topic.

            P.S. if it would work like you are thinking during 2008 crisis the only people financially affected would be GIC, RRSP, Deposits holder, but it didn’t happen, instead all the US banks almost crashed and that exactly the reason – they created money out of nothing, lent that to people and hope people will pay it back with interest to compensate the risk. It works well most of the time until it doesn’t.

          • xelan 6 years ago

            “97% of the money in the economy today is created by banks, whilst just 3% is created by the government. ”
            It’s up to you to believe it or not but it’s easily verifiable with different sources even including Forbes.

  • Investor 6 years ago

    The original argument was that the mortgage loan is virtual money. No, it’s not virtual when it has to exchange hands. The circulation of money in the system is virtual, agreed. However, you’re misusing the concept of money creation/circulation by insinuating that the loans given out are virtual. Currency circulation is cyclical, because it comes around and goes around.

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