Canada’s housing market ‘vulnerable’, rentals up in Calgary

Marco Green
February 10, 2019

CMHC chief economist Bob Dugan said while there has been a moderation in housing market activity in many Canadian cities since the stress test was imposed, it's hard to say how much of that is attributable to the new rules.

"The general economic recovery we've seen since the last recession has been relatively slow; unemployment rates remain elevated and a lack of personal growth in disposable income has hurt the ability to move into homeownership and prompted more people to look into more affordable options".

"In Toronto, we've seen an easing of the pressures of overvaluation because house price growth has moderated and so the level of prices isn't increasing as quickly but fundamentals are still growing at a strong rate so there has been a narrowing of that gap between actual house prices and fundamentals", CMHC chief economist Bob Dugan said in a conference call with reporters.

"Given that there's a high level of inventory in the apartment condo market, builders have started to slow down production", said James Cuddy, a CMHC senior analyst.

Although price growth on average exceeded inflation in the third quarter report, it has flattened compared to peak growth between late 2016 and early 2017.

Still, the agency noted that the country's overall vulnerability rating could be downgraded in future quarters due to signs that overheating and overbuilding remain low in some markets. "It just means that there is a relationship between economic fundamentals and home prices that can explain the level of those prices".

"Calgary continued to deal with elevated inventory levels partly because of reduced demand caused by the slow economic recovery and higher interest rates", said the report. "In the rental market, some shifting demand towards rentals has helped to absorb both purpose-built and investor-owned condominium rental units". Evidence of overbuilding in Calgary moved from high to moderate as the annual purpose-built rental vacancy rate decreased from 6.3 per cent to 3.9 per cent in October 2018, bringing the vacancy rate to below the critical threshold.

CMHC also found that in 2018's fourth quarter, Metro Vancouver remained at "moderate risk" of overheating and and price growth acceleration.

"Overvaluation doesn't really have anything to do with affordability", he said.

"The way this is connected to the rental market is a function of these affordability challenges we're seeing in the market, and given the pressures put on an individual's affordability-and we know interest rates are higher-they are renting longer", said Cuddy.

"While imbalances in Metro Vancouver's housing market have eased in recent quarters, home price levels are high relative to local economic fundamentals, leading to CMHC's continued detection of overvaluation", says CMHC in the report. "As a result, the HMA framework continued to detect low evidence of overvaluation in Edmonton".

The Victoria ratio in the third quarter of 2018 measured 59 per cent, well below the threshold of 80 per cent.

Other reports by Click Lancashire

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