CMHC: Toronto Real Estate “Highly” Vulnerable, Vancouver Stabilizing

A Canadian real estate bubble? Nah… as more and more three letter organizations declare Canada’s real estate prices unsustainable, Canada’s national housing agency thinks things are getting better. The Canada Mortgage and Housing Corporation (CMHC) latest report mentions improved fundamentals. The organization even went so far as to downgrade the risk in Greater Vancouver.

About The Ratings

The ratings are displayed in a color-coded scale, not unlike the US terror threat advisory scale. Green means there’s a low risk of vulnerability, that is the CMHC doesn’t see an issue. Yellow means a “moderate” risk of vulnerability, meaning it’s just breached a risky reading. Red means a “high” degree of vulnerability, and there’s a major imbalance or it’s persisted for a while. It’s pretty self explanatory when looking at individual readings.

Not quite as direct is the overall assessment rating. A market assessment with a high degree of vulnerability means multiple factors have elevated risk. Yellow means recent vulnerability, and/or persistent breach of risk levels. Low means everything is fine as far as housing activity goes.

Canadian Real Estate Vulnerabilities Remain “Moderate”

Canadian real estate vulnerability is moderate, but varies by location. After 10 consecutive quarters at high, it was downgraded to moderate in May. Regional differences are dragging the indicator higher (or lower, depending where you are). From Toronto and heading West, all major markets are at least moderately vulnerable. East of Toronto, major markets are coming in with a low degree of vulnerability.

CMHC - Toronto Real Estate Highly Vulnerable, Vancouver Stabilizing - report

Source: CMHC. 

Toronto Real Estate Is Still Highly Vulnerable

Toronto real estate is highly vulnerable, but due to multiple lower-level vulnerabilities. The market is moderately at risk of overheating, price acceleration, and overvaluation. Analysts believe overvaluation is easing, since prices made a minimal movement.

Vancouver Real Estate Vulnerability Downgraded To Moderate

Vancouver real estate vulnerabilities are subsiding, with the risk downgraded in August. Lower home prices, and a decline in price acceleration were cited as the reason for the drop. The report also expresses few concerns with overbuilding. CMHC analysts aren’t concerned since most of the builds have already found buyers.

Montreal Real Estate Vulnerabilities Are Low

Montreal real estate vulnerabilities remain low for the second year. The CMHC believes house prices are moving in-line with economic and demographic factors. Resales are beginning to show some signs of overheating. Analysts use the term “overheating” when sales begin to outpace the number of new listings on the MLS.

The overall impression the organization is giving is the market is improving. Even though they’ve labeled more than half of Canada’s major markets at moderate to high risk. They seem to believe fundamentals are catching up to support prices. Most people would think this is great news. That is, unless you’re American and remember hearing fundamentals caught up in 2007. You’re probably still a little skeptical in that case.

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  • Mica 5 years ago

    This is the same organization that said Vancouver didn’t have a foreign buyer problem, so believe anything they say at your own risk.

    • Yvette L 5 years ago

      They’re also an organization that’s exposed in the event that things aren’t correct. A correction means they’ll have to create a payout.

      Canada is incredible at manufacturing moral hazard.

    • Mike 5 years ago

      Our government has been running immigrant QE in order to plug funding gaps.

      The high quality immigrants come to Canada, get a good paying job and pay taxes. Since our credit rules are too lax, we leverage them up with mortgages and other high interest credit products.

      The low quality “immigrants” are the ones who show up with large amounts of mysterious and un disclosed money.

      They buy up all the real estate driving up average prices to the moon, don’t work here, have fake businesses and don’t pay taxes.

      I guess these are the type of buyers Canadians are pissed off about. In the short term it was great, but in the long term it’s bad for the general health of the economy and for people who actually live and work here.

      Hopefully we will still have more downside in the Vancouver housing market.

      I’ll happily rent and keep saving until then. (Rent is about 1/3 of a mortgage for equivalent place)

  • James Wilson 5 years ago

    Interest rates are going down, prices are going to take off again soon. Wages are growing above 4% as well. We’re going to consume the fundamental gap in no time.

    • Yvette L 5 years ago

      The comments on the articles compared to the forum are so hilariously different. I guess that’s the difference between having the bulk of your assets in your life savings, versus having a diversified portfolio with multiple currencies in it.

      The loonie is basically setting up for a sell. UBS and CIBC are advising clients to sell or go short.

      • Grim Reaper 5 years ago

        A lower C$ makes Canadian real estate cheaper for foreign buyers which will drive up prices putting domestic buyers out of the market.

        • Ian 5 years ago

          Do Canadians understand that foreign buyers (if they aren’t money laundering) are trying to make money, right? They aren’t going to buy something that rises, but makes them a loss in real terms.

          Mainland Chinese investors got burnt on Toronto by purchasing in 2016, and not making anything in USD after 3 years. That ship’s sailed, which is why foreign investors aren’t helping with the declining absorption rate pre-sales.

          • John Jay 5 years ago

            Ian, while I agree that recent buyers are in an unrealized loss position, you have to understand that rich Chinese citizens park their money in our RE market as well as places like Australia because they know it’s a safe investment. It’s not 100% about capital gains as opposed to capital preservation.

            China has a communist government. If they ever face their debt reckoning, there could be mass devaluation of the Yuan and the associated wealth held by the wealthy. They park cash in our RE markets to protect the wealth from the communist government.

            But I agree that there is more risk in condos and probably less foreign interest as a result.

          • Beh G. 5 years ago

            Well John, if the idea is wealth preservation, they would simply buy US treasuries… they don’t come with maintenance, utility bills or property taxes and you won’t pay a 1.5% LTT when they buy and 5% commission when they sell!

            And as if they would need any more incentives beyond that with bond yields inverting and all the trade tensions, USD is a safe bet against any commodity dependent currency like the loonie.

            The only drawback is that you typically can’t buy bonds with a suitcase full of cash as some have done in both T.O. and Vancouver for a long time. But with the Mounties and CRA now going after them full-force, I think that ship has also sailed.

    • Trevor Hare 5 years ago

      Wage growth always (historically) peaks heading into a recession as labour costs bite into profits and cause economic contraction. Debt is at an all time high. I doubt we’ll escape a major deflationary recession in Canada. it’s very early 90s Canada, Japanese asset bubble looking at the charts, might be looking at a decade of falling home prices like the Japanese had.

    • Mike 5 years ago

      I don’t think it will. You need people with large amounts of money to come into the market and banks to add leverage via a mortgage to goose the housing prices.

      If you are relying on first time home buyers who work and live in Vancouver to fill the gap, you need banks to give huge leverage instead. (10x + their annual before tax income).

      Since banks were already doing that before, I can’t imagine it will go higher than 10x. (People won’t have any income left over for other expenses)

      I definitely think things are close to a saturation point. Eventually condo prices need to come down as more supply comes into the market. Vancouver also needs to expand the foreign buyer tax to all types of property in BC too.

    • John Jay 5 years ago

      @James Wilson, why are interest rages going down? Rates are going down due to uncertainty in the economy. So I’m not sure that it’s bullish for housing. And, a few minor cuts won’t change the overall affordability issues in Toronto. B20 isn’t going anywhere as of now. So I’m not sure prices are going to take off. That’s not to say they’re going to collapse either.

      • Aldi 5 years ago

        John Jay
        I agree with your assessment of a stable market going forward but I think prices for single detached houses may outperform those of condos in the next couple of years only because the latter has done so well in the last 2 years, driven by the demand for lower price units under the B20 rules.

    • Nadia 5 years ago

      If wages are growing then why will interest rate go down?

  • Mike 5 years ago

    Should I buy in Toronto? detached homes in my area are down 20-30% since 2017 peak, but it still is crazy to think a nice home is $2M here…

    • Al Daimee 5 years ago

      Mike, based on your comment. It sounds like you’re in the York Region. The area seems to be stabilizing in price and quality homes are still going to sell, albeit at a more moderate (single digit %) pace of growth in line with the longer term historic trend. York Region experienced some of the highest growth in that summer 2016 to April 2017 period, largely due to the high percentage of Asian cash rich buyers. This area was hardest hit by the foreign buyer tax, hence the drop off in sales and prices. It HAD to correct, since it was way out of whack. I know $2MM sounds like a lot, but you do get a lot of house for that price compared to areas closer to central Toronto.

      When you look at other areas that sustained prices in 2017, then resumed growth into 2018 and beyond (Leslieville, for example), it is important to understand that you can’t just rely on the overall GTA or even 416 vs 905 stats. Get the neighbourhood specific data that is relevant to your situation to make an informed decision.

      Our office was discussing the July TREB data and looking at the last 5 years, we have seen a return back on trend for July, which tells us the correction has largely run its course. Lower interest rates on the horizon are likely going to drive prices up again as it becomes more attractive to buy rather than rent.

      Yes, I am a Realtor and yes, I am happy to give you my honest, no BS opinion. I know a lot of regulars on here have their hate on for real estate agents for their own reasons. All I can say is that we aren’t all built the same way and I am not ashamed to put my name out there, since I know I’m one of the good ones. 🙂

      • SUMSKILLZ 5 years ago

        I’d disagree, York region is still chock full of head butts to the chest, Zidane style.

      • nadia 5 years ago

        Dream up

    • Bluetheimpala 5 years ago

      The issue in my mind isn’t the $2M nice house but the $1.5 teardown that ‘only’ needs $1M so let’s buy, get it re-assessed and then get a HELOC. Oh and you’re a liar; prices are not down 30% but you know that….BD4L.

    • Beh G. 5 years ago

      It would be absolutely crazy to buy a detached home in Toronto right now Mike.

      If you look at the chart for average sale price of detached homes in the 416, they are likely to hit a new post-crash low in August, if not, a new low in December is almost guaranteed.

      We are now at early to mid 2015 price levels after inflation adjustments so it makes no sense to buy into a falling market IMHO.

      • John Jay 5 years ago

        2015 prices in Toronto?! I think it really depends on what neighbourhood you’re talking about. I haven’t seen 2015 pricing in leslieville, danforth east, etc. These areas are only going up in price but you’re right that they’re not gaining by that much.

        I agree that I wouldn’t be rushing into buying homes in Toronto unless you have a lot of capital and you wouldn’t be taking on much debt. I don’t see a catalyst for another boom. We’re already pickled in debt and B20 restricts stupid people from borrowing too much. Condos are peaking and could soon reach the same price as homes lol.

        I’d much rather rent a home for maybe 3500-4000/month and save and invest the difference. But who knows, Canadians pray at the alter of the RE market.

        Plus, if you look at the latest jobs numbers, RE was the only good section of our economy. That’s probably why Trudeau is releasing that home buying assistance plan. He knows that Canada is SCREWED if our housing market has a major correction (not the 5-10% we’ve seen in Toronto). The burbs got rocked as they should have given the silly pricing that was happening.

  • Ethan Wu 5 years ago

    Big question to consider if you’re buying this narrative. If fundamentals are catching up to prices, why are they be rolling out buying assistance?

    It sounds like they’re just trying to drum up business ahead of the roll out.

    • Bluetheimpala 5 years ago

      Exactly. Why would banks reduce lending rates outside of BoC taper if the market is healthy and liquidity isn’t becoming and issue? Seems like the world is having a bout of schizophrenia. Bonds and eurodollar futures are quite telling, same with Au stocks and the metal itself. Hmmmm….BD4L.

      • Aldi 5 years ago

        The reason banks are not lowering mortgage rates in lock step with interest rates because the current stress test prevents current mortage holders from shopping for lower rates elsewhere because they would be subject to the new rules

      • Big Joe 5 years ago

        There be no “tick nor tock”. Dooms Day is near. For the FIRE sector anyways :/

  • s2u 5 years ago

    Vancouver spec builders just STARTING to losing hundreds of thousands of dollars = stabilizing.


  • DB 5 years ago

    Japan has a population ff 125 million. If it can happen to them it can sure happen to Toronto.

  • Snarky 5 years ago
    Hmm yes many a baby boomer say they want to die in their home. My thinking is it will be a slowburn maybe some traction in 2022. Why? What fundamentals support this? Just a hunch. I think these delipadated homes bought at full price or over asking and renovated to the tilt by those who couldn’t afford it to begin with are going to start to weigh down on daily living and people won’t be able to escape their debt loads fast enough.

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